Weekly Report 118 by PRODENSA

INSITUATIONGENERALMEXICO Weekly Review #118 I August 17, 2022

2 ANDCOPARMEXINDUSTRYMANUFACTURINGWARNSTHATGROWINGINSECURITYVIOLENCEINMEXICOWILLAFFECTINVESTMENTS

Mexico is facing “difficult times” politically, economica lly, and socially, but above all in terms of security, which is injecting uncertainty into capital, said the country’s business sector, which demanded that the government of Andres Manuel Lopez Obrador “return peace”.

Jose Medina Mora, president of the Confederacion Pa tronal de la Republica Mexicana (Coparmex), questio ned the arguments of President Lopez Obrador when he pointed out that the acts of violence are “an exagge ration”, so he asked to be aware of the growing insecuri ty that proliferates in the country and to recognize that the strategy of “hugs not bullets” does not work. He warned: “there is no economic development without political stability. And there will be no investment wi thout legal certainty. There is no future with inclusive development if there is no democratic life”.

In a press conference, the business leader expressed his concern because, over the last few days, the life of so ciety has deteriorated, as it is being a victim of ineffi cient public policies, legal uncertainty, economic crisis, and violence in several states of the Republic, and seve ral facts that affect the daily life of Mexicans.

“In Coparmex we are concerned about the deterioration of the country’s democratic life, as a private sector we are affected by political instability, the lack of the rule of law, and non-compliance with the law,” he said.

Medina Mora recalled the acts of violence witnessed last week in Jalisco, which spread to Guanajuato, Irapuato,

El Economista a gas station was set on fire and armed forces person nel were detained, we believe these are reprehensible acts of violence that we do not want to happen in the country and we ask the authorities to coordinate be tween federal, state and municipal authorities, and re turn Mexico in peace that we all want”, demanded the business leader. The Coparmex president said, “we must be aware that we are living in an environment of growing insecurity throughout the country”. The survey conducted by Co parmex reveals that one out of every two companies has been a victim of a crime in the last 12 months, main ly theft of goods, extortion, and kidnapping, he recalled.

Given the growing insecurity that is happening every day, the business and society’s call is for the authorities, “by constitutional mandate, to return peace and the will of the citizens to cooperate”, he added. Medina Mora recalled the acts of violence witnessed last week in Jalisco, which extended to Guanajuato, Irapua to, Celaya, and Leon, and asked the authorities to ask the citizens who experienced these acts of violence if this is an exaggeration. In Mexico, the culture of illegality is gaining strength and we cannot allow it. The Constitution and the laws must be respected by all Mexicans. Jose Medina Mora said that “it is not the time for an electoral reform, because we do not need it. What we do need is to define what kind of democracy we want”. Celaya, and Leon, and asked the authorities to ask the citizens who experienced these acts of violence if this is an “Toexaggeration.thecitizensof Ciudad Juarez if they saw that some businesses were vandalized and people who were in convenience stores and restaurants if it is an exaggera tion. And the chaos generated in Baja California, whe re commercial vehicles were set on fire and interrupted free circulation, and the vandalism in Michoacan where

SOURCE:INDUSTRYMANUFACTURING

INDUSTRY SEEKS TO PLACE MORE THAN ONE BILLION DOLLARS IN MEXICAN SUPPLIERS DURING THE NEXT ENCLELAC

4 THEINDUSTRYMANUFACTURINGHOMEAPPLIANCE

The stock exchange of the next Business Meeting (EN CLELAC) is the largest in the history of the event, with an increase of more than 30% with respect to last year.

- Executives of the Home Appliances Cluster consider that nearshoring plays a vital role in the arrival of new investments and the development of Mexican SMEs in the Factorssector.such as nearshoring or regionalization of pro duction chains, as well as highly specialized manufactu ring and the need to develop new generation products, keep large home appliance companies interested in in vesting in suppliers located in Mexico. This was highlighted by the directors of the Nuevo Leon Home Appliance Cluster (CLELAC), during the presen tation of the 9th Business Meeting of the sector (EN CLELAC), which will take place from September 7 to 9.

So far, the cluster anticipates that during the ENCLE LAC business agreements between suppliers and cus tomers of the home appliance industry can be finalized for 1,165 million dollars, which represents an increase of more than 30% over last year and a 100% growth in re lation to 2019. “Mexico is the fifth country worldwide in-home applian ce production, with a value of 14.8 billion dollars. It is an industry that is sustained not only by the arrival of large companies to the country but by everything that Mexico contributes as an economy: high specialization in manufacturing, strategic location, export capacity, te chnology, and great business resilience,” said Cordova.

The executive pointed out that the production of do mestic appliances is in high demand due to the need Forbes Mexico

SOURCE:

“Let’s remember that 40% of the OEMs of the main in dustrial sectors are thinking of regionalizing some part of their supply chain and 15% are thinking of regionali zing it completely, according to the expectations of the government of Nuevo Leon,” said Britton.

Britton estimated that Nuevo Leon’s appliance industry generates 40% of the total value of the sector in the country, a figure that could increase due to new invest ments, some of which have yet to be announced. “The home appliance sector will be one of the biggest beneficiaries of nearshoring due to factors such as a ma ture industry that has been established for years, that complies with national and regional content, as well as the great capacity of national manufacturing and the synergy of growth that CLELAC allows,” Britton said.

Finally,nandez.Yoelle Rojas, director of CLELAC emphasized that the association seeks to integrate new players into the home appliance sector, supporting them with com petitiveness mechanisms that impact human capital, quality, social responsibility, innovation, and new busi Learnnesses.more https://clelac.org.mx/enclelac/at: CLELAC

SOURCE:

Executives from the main companies in the sector, such as Whirlpool, Hisense, Bosch, and Prodensa, among others, will participate in the event. “The investment outlook is very favorable: from last Oc tober to date we have confirmed 82 investment projects, of which 44 are new companies and 38 expansions. This generates around 23 thousand new jobs”, detailed Fer

INDUSTRYMANUFACTURING for increasingly efficient appliances in terms of energy and resource savings, as well as the upturn in the smart appliances industry, a sector that currently has a value of 33 billion dollars globally, but which is expected to grow at a sustained rate of 17% per year for the rest of the ENCLELACdecade. is expected to promote around 850 busi ness appointments during the three-day event, with the participation of 30 purchasing companies and 300 su Baldwinppliers.

Britton, vice-president of the Appliances Clus ter and global CEO of Plastiexports, anticipated that the central theme of ENCLELAC 2022 will be nearshoring and the weight it has on the development of the indus try in the country.

Meanwhile, Carlos Gonzalez, leader of CLELAC’s Su ppliers Committee and CEO of Hultek, pointed out that in Nuevo Leon 345 economic units have been identified as part of the home appliance industry, either as OEMs or suppliers, while the more than 30 thousand direct jobs generated by the sector will increase by at least 20% over the next three years.

• Upcoming government reforms: The President mentioned that the reforms to the National Guard and the Electoral Reform will be sent and that the reform to the summer schedule has already been sent. Regarding the electoral reform, he noted that it is of utmost relevance to guarantee impartiality in the electoral bodies. With the reform, he reiter ated, the people will elect the Magistrates of the Tribunal and the Councilors of the new electoral body, the budget of the political parties and the electoral institute will be reduced, and the number of legislators will be reduced. Finally, he comment ed that there is a possibility that in the future a reform to regulate water concessions and permits will be presented. He reiterated that the priority must be domestic use since it is a Human Right.

• Zero impunity: Mr. Ricardo Mejia Berdeja, Under secretary of Public Security, indicated that a cou ple of members of an organization of public ser vants accused of corruption in real estate matters in the Benito Juarez Mayor’s Office in Mexico City were arrested. Likewise, he pointed out that ele ments of the Secretariat of the Navy (SEMAR) so far in 2022 have seized 16,216.35 kilograms of co caine, which means 4,128 million pesos of affectation for these criminal groups. Finally, regarding the criminal assets in Jalisco and Guanajuato this week, Undersecretary Mejia Berdeja commented that a total of 16 alleged criminals have been ar rested. AGRICULTURE • Food self-sufficiency: The President reiterated that his government continues in the struggle to achieve food self-sufficiency and pointed out that, to date, the country is self-sufficient in white corn and beans. He pointed out that Mexico has a food surplus in which 25% of Mexican exports are beer, while the second most exported product is tequila and the third is avocado. He also commented that he does not want to implement proposals that can not be completed during his six-year term, such as the technification of the countryside.

• Former President Enrique Peña Nieto: The head of the Executive stated that the Attorney Gener al’s Office is conducting investigations against for mer President Peña Nieto, assuring that the agen cy will report on the progress.

SECURITY • Miners rescue report: The National Coordinator of Civil Protection, Laura Velazquez Alzua, not ed that 307 hours have passed since the accident at the mine in Sabinas, Coahuila. She commented

KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S

Morning Press Conference August 10 – 15, 2022

POLITICAL AGENDA

INFRASTRUCTURE

KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S

• Army and Navy in public security: The President commented that in addition to the incorporation of the National Guard to SEDENA, it is important that both the Navy and the Defense continue con tributing to public security tasks. He noted that it is important to extend the period established in the transitory provision of the Decree that created the National Guard so that the Armed Forces contin ue to collaborate in these tasks. He acknowledged the difficulty of carrying out the constitutional re form in this matter, as a result, he commented that they will resort to making reforms to the secondary laws to comply with this objective.

• Violence in Ciudad Juarez: The Undersecretary of Public Security, Ricardo Mejia Berdeja, indicated that they are working in coordination with author ities of the entity and the municipality to attend the situation that took place on August 10 in Ciu dad Juarez. He informed that inside penitentiary center No. 3, a confrontation took place. 3 prison, a confrontation between criminal gangs resulted in the death of 9 people. Finally, the undersecre tary informed that municipal police, in coordina tion with the Army and the National Guard, have arrested 6 people related to these events.

7 that the incident involved a flood of approximate ly 300 meters, therefore, the main objective is to reduce the highest possible water level so as not to put the integrity of the rescuers at risk. He in formed that thanks to the actions of pumping wa ter to reduce the water levels, it has been possible to enter the three wells. He also commented that a shelter has been conditioned for the relatives of the trapped miners, in which a medical unit and food services have been installed, at this site the relatives are receiving a constant report on the progress in the rescue of the miners.

ENVIRONMENT

• Terminal 2 of the “Benito Juarez” Airport: When asked about the prevailing situation, Lopez Obra dor indicated that the decision was made to rein

• Water: The President informed that the aqueduct in La Laguna is being addressed to solve the prob lem of contaminated water and that a 100-kilome ter aqueduct will also be built at the Cuchillo dam to guarantee water supply in the Monterrey met ropolitan area. He reiterated that corrupt conces sions should not continue to be handed out. At the same time, the President acknowledged Constel lation Brands’ willingness to accept the propos al to install its plant in Veracruz, where there is a greater water supply.

• Vehicle Tenure: Commenting on this tax, which has been eliminated in 17 states, and the possibility of repealing it in the country, the Chief Executive Of ficer commented that it is a local tax and that the states must make this decision in accordance with their finances. In this sense, he indicated that, if the presidents of Veracruz and Mexico City have the appropriate economic conditions, this pay ment could possibly be eliminated.

• Changes in the Ministry of Public Education: President Lopez Obrador announced that Leticia Ramirez, currently Director of Citizen Attention in the federal government, will be the new Secretary of Public Education. He also commented that to morrow Delfina Gomez will give a report and as of today the handover-reception process will begin.

HEALTH • Pulso Salud: President Andres Manuel Lopez Ob rador mentioned that as COVID- 19 infections have dropped, it has been agreed to return to the pre-pandemic model in which the public health program for all is prioritized. He added that it will be in this space in the morning in which Zoe Ro bledo, Director of IMSS, will give a preview of how the IMSS Bienestar program is evolving and how the model will operate starting next year in some entities.

• IMSS Bienestar: Regarding the IMSS Bienestar pro gram, the president pointed out that the objective is to offer a quality, universal and free public health service to all the people; which represents a great challenge. He referred that his government is act ing so that people have the right to health with the federalization of the system in the states. He added that the two structural problems in health are the supply of medicines and the lack of medi cal specialists. He thanked Cuba for sending doc tors to Mexico.

• Specialist Doctors: Zoe Robledo mentioned that they are on the second day of recruitment of doc tors at the moment they have had an advance of 598 doctors out of 10,495 that are needed.

8 force the Terminal this year, with the Mexico City Government in charge of the work. He also an nounced that it was decided to limit the number of flights because the Terminal is saturated, indi cating that the permitted number of flights will be announced soon. He commented that, for the re inforcement works, the Federation will contribute around 600 million pesos.

KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S

EDUCATION

• Pulso Salud: When asked if there are any additional actions to the front labeling of food, together with the strategy against obesity and degenerative dis eases, the President pointed out that part of the new health system includes preventive activities. In IMSS Bienestar there is a psychologist or a spe cialist to treat young people to address various approaches. For example, how to avoid unwant ed pregnancies, reject violence, not fall into drugs, and not consume junk food. Therefore, nutritional orientation campaigns will continue because the best thing is prevention. Sports will also be pro moted.

• COVID-19: Dr. Hugo Lopez Gatell mentioned that Mexico has 5 weeks of reduction of COVID-19 in fections. Today all the entities are in their green traffic light equivalents.

ECONOMY • Investment projects in the south: When asked about the investments of foreign companies in the development of the south zone, the president mentioned that the southeast is receiving invest ment as never before, because before there was a notorious imbalance in the region. Despite the pandemic and the crisis, progress is being made, there is no devaluation, but there is inflation; the last one is totally external and caused by the pan demic and the war in Russia and Ukraine.

KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S

INTERNATIONAL

• Extradition of Rafael Caro Quintero: When ques tioned about the requests for the extradition of Rafael Caro Quintero, the President stated that this is a matter that is being handled by the heads of SEGOB and SRE, who will report on the matter.

• Purchase of medicines: On corruption in the pur chase of medicines Zoe Robledo, director general of IMSS, stated that to have a complete process in the prescription of a pharmacy, several sections of the process need to be controlled. In the process of supplying medicines, it is necessary to monitor the acquisition of the tenders, the distribution of these, and the handling inside the health centers. He pointed out that the companies must comply with supplying the pharmacies with the medicines agreed upon and added that they also review the cases in which there was a supply of the medicine, but it was not delivered to the person with his or her prescription.

BAJA CALIFORNIA The Health Secretary of Baja California reports 1,256 active cases in the past 14 days and 229 new active cases in the past 24 hours. Next week the 6th indus trial meeting of the Directory of the Ma quiladora Industry of Baja California will be held in Rosarito, Baja California with more than 100 exhibitors and more than 250 business appointments.

SONORA Official reports confirm 642 new cases in the past 7 days. The State Civil Protec tion Coordination warns of heavy rains in Sonora this week. It is recommended to be attentive to official communications. The governor of Sonora reports that the capacity of the dams in the state ex ceeds 35%, according to data from the National Water Commission, being ex traordinary news given the drought that the State is going through.

10 NEWS BY STATE

Over 1 billion dollars of home appliance production to be relocated in Nuevo Leon. There is an opportunity of 1,165 million dollars in processes that the Nuevo Leon Home Appliance Cluster (CLELAC) is looking to relocate in the state. Daniel Cordova, president of the cluster, informed that global companies are looking for local suppliers of steel, electric-electronic components, plastics, among others.

COAHUILA GG Trailers inaugurates its plant in Coa huila; it will produce 450 new jobs. This plant will initially produce 6,000 chassis per year and will serve the U.S., Cana dian and Mexican markets; however, the company expects to expand its exports in the medium term.

TAMAULIPAS This weekend was the inauguration of the expansion of Kimball Electronics, which has brought an investment of 46 million dollars to Reynosa, Tamaulip as, informed local authorities under the leadership of Mayor Carlos Victor Peña TheOrtiz.new facility, located in the Reynosa Industrial Park, where electrical assem blies are made, has an area of 250,000 square feet, thus offering the possibility of 1,500 new jobs.

11 NEWS BYNUEVOSTATELEON

Danfoss inaugurates ICF valve produc tion line. With this project, they strength ened their leadership in sales with more than 7,000 ICF valves sold in Mexico. From the Nuevo Leon plant, they supply Mexico, the rest of North America and Latin America.

JALISCO

The Government of the State of Jalisco, through the Secretariat of Economic De velopment (SEDECO) and the Secretariat of Environment and Territorial Develop ment (SEMADET), in technical collabora tion with the Inter-American Development Bank (IDB) will work on the design of the circular economy roadmap that will allow the implementation of a sustainable and durable production model in Jalisco’s in dustry. This technical and strategic coop eration with IDB grant resources will allow the Government of Jalisco to have a guide that establishes the main initiatives, prac tices, and measures applicable by compa nies in strategic industrial sectors in the entity to migrate from a linear production model to a circular model, that is, one that seeks to reduce the consumption of ma terial resources and natural resources to eliminate waste and pollution from the de sign stage, as well as improve waste man agement to mitigate the impact of industry on the environment. In a working meeting with Paola Gordon, Senior Water and San itation Consultant, and Rodrigo Riquelme, Water and Sanitation Specialist at IDB, Ro berto Arechederra, Secretary of Economic Development of the Government of Jalis co, highlighted that implementing a circu lar production model boosts the competi tiveness of industries, generates economic and business opportunities, as well as the creation of green jobs in the region.

12 NEWS BY

POTOSI

SANSTATELUIS

As part of the actions of the new State Gov ernment to attract foreign investment to the State to promote economic develop ment for the benefit of the people of San Luis Potosi, the land that would be used by Ford will be divided for the installation of four or more companies, one Japanese company already confirmed that will gen erate two thousand direct jobs, said the Governor of San Luis Potosi, Ricardo Gal lardo Cardona, who added that there are also talks with U.S. companies, thanks to the intervention of Ambassador Kenneth Lee Salazar. While supervising the main tenance of this land, property of the State Government, he explained that currently, no company can pay the cost of the total area, which amounts to 1,800 million pe sos, that is why the strategy of the new Government is to divide it, in four or five companies that generate two thousand well-paid jobs each. “When the assemblers arrived, which generated a little less than four thousand jobs, it was a big party, to day with only one company we can reach those economic totals and not disbursing the amounts that they disbursed to bring them, that is what is important”, expressed the Chief of the State Executive.

13 NEWS BYGUANAJUATOSTATE

QUERETARO Given the water deficit that the country is experiencing, particularly in some regions of Nuevo Leon, companies from Nuevo Leon have shown interest in setting up in Queretaro, said the president of the Na tional Chamber of Commerce, Services and Tourism (Canaco Servytur) in the state, Fabian Camacho Arredondo. At least four companies, two dedicated to the health sector and two more to the technology sector have touched base with the Que retaro delegation of the chamber, which has been channeled to the corresponding agencies. “What happened in Monterrey with the issue of water scarcity, we have seen an area of opportunity there, espe cially for those companies that can go in tune with the economic development of Queretaro, of an industry that is not pol luting, (that is not) low-scale maquilado ra,” said Camacho. This interest of compa nies from Monterrey has been accentuated since May, explained the business leader, referring that this phenomenon could be related to the water supply problems in that region.

Industrial activity in the state of Guana juato fell. The construction sector was the most affected. Last April the decline was -0.6% in its monthly comparison and -0.4% compared to the same month last year, ac cording to the most recent data shared by Inegi. The percentage obtained by Guana juato calls attention because on the con trary, there are 22 states where an improve ment was already shown, with its -0.6%. It is still among the 10 states that registered a contraction in this index. In the March re port, it had had a slight increase of 1.9%, which put it in 11th place among the states with an improvement. The sectors that contributed most negatively to this result before construction are first place mining and third place manufacturing. Mining had already shown a -2.3% reduction in March, for this one the index fell to -11.4%; the construction sector maintained its contin uous fall by contracting from -9.3%, which it registered in March, to -13.2%, and manu facturing, the core industry in Guanajuato; it had a contraction of -0.3%.

14 NEWS BYAGUASCALIENTESSTATE

In the first half of this year, the value of what was produced in Aguascalientes by manufacturing companies was 150 billion 486 million pesos, 10% less than in the same months of 2021. That decrease is largely explained by the fact that in the industry linked to the manufacture of transporta tion equipment, the value of production dropped by 14%, going from 137.8 billion pesos in January-June 2021 to 118.8 billion in the same period in 2022. The importance of transportation equip ment in manufacturing in Aguascalientes is that in the first half of 2022 it generat ed 79% of the value of this sector, accord ing to data made public today by INEGI through the Monthly Manufacturing Indus try Survey (EMIM).

Following the announcement by the CDMX and the State of Mexico of the reduction in water supply in the CDMX, both entities are already preparing a plan for the supply of this vital liquid. This is the “Integral Plan for the Supply of Po table Water for the Metropolitan Zone of the Valley of Mexico”, which contem plates an investment of 25 billion pesos.

15 NEWS BYCDMXSTATE

Through a press conference, the head of the government of the CDMX, Clau dia Sheinbaum, informed that they will work together with the State of Mexico to avoid water shortages. Among other relevant aspects, the “Integral Drinking Water Supply Plan for the Metropolitan Zone of the Valley of Mexico” also in cludes the improvement of the Xico Lake project between Chalco and Tlahuac; Guadalupe and Zumpango Dam in a sus tainable manner; improvement of the North and South PAI with the recovery of wells; Metropolitan Microcircuit that makes the State of Mexico and that will allow connection with Iztapalapa in Cal dera; different water purification plants; aquifer recharge and drainage works. Education specialists and civil society organizations asked the new head of the Ministry of Public Education (SEP), Le ticia Ramirez, to present a diagnosis of school dropout rates in the country and a plan to compensate for the impact of the pandemic on education. For Fernan do Ruiz, research director of Mexicanos Primero, an organization that promotes the right to education, the appointment of Leticia Ramirez, former director of the federal government’s Citizen Attention office as head of the SEP came as a sur prise. “It seems to me that Mr. President is sending us the message that education can only be managed with officials who directly comply with the directives he sets from the National Palace,” he said in an interview with journalist Ciro Gomez Leyva. Leticia Ramirez arrives at the SEP at a critical moment, when educational coverage fell at all levels, according to the Centro de Investigacion Economica Pre supuestaria (CIEP, A.C.). According to an analysis by this association, one million 139,000 students dropped out of school. In addition, the federal budget allocated to education reached 364.6 billion pesos, the lowest amount in the last decade.

- NEOLPHARMA Inauguration of Kimball Electronics’ second plant in Reynosa. Currently, the plant has 227,000 sq. ft. of which 147,000 sq. ft. are dedicated to manufactu Withring. the expansion, 240,000 square feet were ad ded to the presence in this city.

16 ECONOMYRECOVERYECONOMICANDINVESTMENTS

IN MEXICO NORTHEAST - MOTO DRIVE Opened a new assembly plant of more than 20 thousand square meters under the roof and an ad ditional 6 thousand square meters in open areas with an investment of 3 million pesos, generating more than 400 direct jobs.

CDMX - MAN WAH Man Wah starts construction of its plant in Nuevo Leon; invests 200 million dollars. The Chinese com pany will generate 8,000 jobs in Nuevo Leon.

- HONEYWELL With this expansion, the investment made in the Research Center located in Tecnoparque amounts to more than 160 million pesos. The facilities will have 500 m2 dedicated to laboratories and a total area of more than 2,400 m2.

• No services contract with an any foreign entity • Organization does not have a Permanent Establishment in Mexico • Pre-existing IMMEX manufacturing or service operations, ready for occupancy • All international commerce and local compliance handled by Pro densa experts • Maintain 100% ownership of assets, including intellectual property • Full control over site selection, workforce, and finished goods • Access to preferential rates and best practices, earned by Pro densa over 35+ years • No strings attached - open-ended transferal of operation to an other entity INSHORING: A NORTH AMERICAN SOLUTIONNEARSHORING CONKLENROBIN ProdensaManager,USA

Nearshoring will most likely continue over the long-term, despite chal lenges to certain supply chains and the local business environment. Operational partners exist to help navigate the rule changes while facil itating the best practices of world class manufacturing organizations. Speed-to-market can be crucial for suppliers considering nearshor ing operations with their clients. So Prodensa built a proprietary op erational model, aimed to inshore manufacturing operations through the domestic U.S. market. Inshoring was designed to truly eliminate the exposure of doing business in a foreign country, while leveraging the cost-effective manufacturing solution that Mexico provides.