Weekly Report 135

GENERAL SITUATION IN MEXICO

RELEVANT NEWS

NEARSHORING ‘GETS POSITIVE’: INVESTMENT OF $30 BILLION DOLLARS ESTIMATED FOR 2022

It is estimated that 400 companies are on the waiting list to occupy sites in Monterrey, Ciudad Juarez, Saltillo, and Reynosa.

Nearshoring in Mexico will leave a turnover estimated at 30 billion dollars and exhausted the availability of industrial buildings on the border and the most important corridors of the country, where there is already a waiting list of about 400 companies, according to the Mexican Association of Private Industrial Parks (AMPIP) and Interesse.

Sergio Argüelles, president of AMPIP, told El Financiero that today Mexico has unparalleled competitive capabilities due to a 5 percent growth in the manufacturing sector and 17 percent in exports so far this year, mainly due to the industrial nearshoring phenomenon, which will be an advantage for at least the next ten years.

“Since the first half of the year, the industrial sector in Mexico presented an occupancy rate of 97 percent, largely due to nearshoring, and as of August of this year we estimate that companies, mainly Asian, have invested 30 billion dollars in relocating factories from Asia to Mexico, which has depleted industrial spaces in the north of the country,” he commented.

He added that Mexico has attracted between 75 and 100 American, Canadian, Chinese, Korean, and Japanese companies, who have moved or expanded their operating plants in the country, most of them in the auto parts, manufacturing, metal mechanics, furniture, and textile industry segments.

As a result, by the third quarter of the year, Mexico’s industrial real estate sector registered a net absorption of more than 3.2 million square meters of industrial buildings, representing an annual increase of 28 percent. Monterrey, Ciudad Juarez, Saltillo, Reynosa, and Chihuahua stand out as the places with the highest activity.

Jesus Levy, managing partner of Aseguramiento de Activos Arrendados at Interesse, added that at least 400 companies are currently waiting for space in the country’s industrial parks.

He added that Asian steel and technology firms have invested US$200 million this year and more investment is expected.

“In addition, China continues to implement Zero Covid policies that involve extensive confinements, so there are estimates that around 79 percent of U.S. manufacturing companies in China have already started or have plans to relocate part of their operations to North America, which is called nearshoring,” said Abraham Fernandez, director for the industrial sector at Newmark.

KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S Morning

Press Conference

December 7-13, 2022

POLITICAL AGENDA

• Plan B Political Electoral Reform: The President indicated that, as was to be expected, the conservative block rejected the constitutional reform because it does not want citizens to elect the councilors and the INE’s budget and the number of legislators to be reduced. Instead, a reform to the Electoral Law and other regulations was sent so that, without violating the constitution, INE’s expenses would be reduced, achieving a savings of 3,500 million pesos. With the reform to the Constitution, up to 15 billion pesos would have been saved. He requested that the issue be maintained for the next presidential election. For his part, Adan Augusto Lopez, Minister of the Interior, informed that the secondary reform contains a substantial reduction in INE’s administrative apparatus, eliminates duplicity of functions, reduces district offices, provides greater facilities for voting abroad through the Internet and explicitly prohibits the use of electronic purses to coerce the vote.

• Electoral Reform: President Andres Manuel Lopez Obrador stated that there were changes to the electoral reform made by legislators, however, they will be corrected. The Minister of the Interi-

or, Adan Augusto Lopez assured that the changes will be corrected to be as proposed in the initial initiative and that it is expected that the entire legislative process can be concluded next week in both Chambers. Regarding the possibility that the opposition may seek to go before the Supreme Court of Justice of the Nation since this reform is considered unconstitutional, the President mentioned that the opposition has every right to go before the Judicial Power if the political-electoral reform is approved; however, he explained that it is not possible for this to be unconstitutional since secondary laws are being reformed.

• Tour of Nayarit, Sinaloa, and Durango: The President informed that during the weekend he will visit the states of Nayarit, Sinaloa, and Durango to see the progress of the hydraulic works, dams, and aqueducts that are being built. Among these are the promotion of irrigation districts in these states, as the purpose is to deliver one hundred thousand hectares of irrigation by the end of the administration and to follow up on the integral water distribution plan in the north of Mexico.

• Presidential approval: The President showed a weekly survey where the approval of the presidents in the world can be found. He highlighted

KEY

POINTS

OF PRESIDENT

ANDRES MANUEL LOPEZ OBRADOR’S

that he is only 4 points below President Modi of India. He thanked the people for their approval and said that he will never betray them. He regrets that his adversaries feel bad for his high levels of approval.

INTERNATIONAL

• Bilateral Relationship with the United States: The President thanked the letter sent by the President of the United States, Joe Biden, in commemoration of the 200th anniversary of the bilateral relationship between Mexico and the United States, highlighting the importance of economic relations between the two countries. He also stated that during Biden’s visit in January 2023, he will propose a plan to substitute imports and produce in America everything that is consumed. Likewise, a possible alliance for the welfare of the peoples of Latin America and the Caribbean and another alliance for the respect of the sovereignty of the peoples will be discussed.

• Political situation in Peru: In view of the political context in Peru and the accusations made by the opposition for the intervention of the Executive in the internal conflict, the President emphasized that the relationship with the government of Peru is on pause and Ambassador Pablo Monroy Conesa will not be withdrawn from his duties. Likewise, he notified that on December 12, a document was published jointly with Colombia, Argentina, and Bolivia, in which, in accordance with international agreements, those responsible for the political management of Peru are urged to respect the vote and the human rights of its citizens. It also urges respect for the human rights of Jose Pedro Castillo Terrones, who is considered the current president.

In response to the question on the recognition of President Dina Boluarte, the executive said that in Mexico there is no diplomatic tradition of recognizing the presidents of other States.

• USMCA Controversies: When asked about the controversy won by Mexico and Canada on the automotive content rules, the President mentioned that agreements are being reached, he assured that he will ask the Minister of Economy, Raquel Buenrostro, to report on the progress of the conversations, as well as the result of the consultations that have been presented by the three countries and the possibilities of reaching agreements specifically on the electric and transgenic corn issues. Regarding the latter, he stated that Mexico will not accept further negotiations on the importation of yellow corn for human consumption, only for foliage. He added that Mexico is self-sufficient

KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S

in white corn. He added that Mexico is proposing that the U.S. health agency and COFEPRIS carry out an investigation into possible health risks of human consumption of GM corn. He assured that on December 16 there will be a meeting specifically on this issue in the United States and he hopes that this proposal will be accepted.

ECONOMY

• Banco del Bienestar: In response to a citizen’s complaint about the lack of access to Banco del Bienestar services, the Executive indicated that the bank does not distribute remittances, but rather its main function is to disperse funds from the Welfare Programs. The branches of Financiera del Bienestar have the power to distribute remittances since it is necessary to have different mechanisms for the management of resources. Likewise, he indicated that people who receive support through

the programs and do not yet have an account with Banco del Bienestar, will not lose access to these resources in the course of their movement of the banking institution.

• Inflation: President Lopez Obrador reported that, at the end of November, annual inflation stood at 7.80%, lower than the 8.41% reported in October, according to INEGI data.

INFRASTRUCTURE

• Aviation: Regarding the meeting of the Minister of Infrastructure, Communications and Transportation, Jorge Nuño, with experts from the U.S. Federal Aviation Administration (OFA) to begin work to recover the country’s category one aviation safety status, lost in May 2021, the President commented that this was a positive meeting and progress is expected in the matter during 2023. Likewise, he commented that there are great advances in aviation, such as the record number of flights in Cancun, which has stimulated tourism activity.

• Priority projects: President Lopez Obrador pointed out that the airports (Felipe Angeles, Chetumal, Tulum, Campeche, and Palenque), Mayan train, and a new airline will be in charge of the Ministry of National Defense (SEDENA) because they were built with public budget and it is a strong institution that will prevail. He compared institutions such as FONATUR that manage Cancun’s airport and are not as strong as SEDENA. Likewise, this will prevent the privatization of such constructed works. On the other hand, he informed that the rehabilitation of the Chetumal airport has been concluded and the construction of the Tulum airport is 20% complete, so it will be inaugurated in December 2023.

KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ

OBRADOR’S

HEALTH

• Mandatory use of masks: Regarding the implementation of the mandatory use of mouth covers in enclosed spaces in Nuevo Leon, Dr. Hugo Lopez Gatell, Undersecretary of Prevention and Health Promotion, pointed out that public health measures cannot be imposed since scientific evidence indicates that they are not effective; people must be convinced of the importance of their use. He explained that the high percentage of vaccination in Mexico has allowed Covid-19 cases not to grow and become more complicated but warned of the importance of continuing to take care and prevention measures for viral diseases.

• Health Pulse: Dr. Hugo Lopez Gatell, Undersecretary of Prevention and Health Promotion, reported that there has been an increase in the number of respiratory disease infections, including Covid-19. It is expected that this virus will adopt seasonal increases in winter, as well as other respiratory diseases. He informed about the vaccination percentages against Covid-19 in the country: 84% of the vaccinated population, 91% of adults, 64% of people from 12 to 17 years old, and 60% of people from 5 to 11 years old. Mr. Zoe Robledo, Director General of IMSS, presented a report on the progress of the IMSS Bienestar program in various states, in which the state of Nayarit stands out, with 13 hospitals and a total investment of 936 million pesos.

NEWS BY STATE

BAJA CALIFORNIA

In the year 2022, the industrial export sector was one of the sectors that experienced the highest growth, so it is important to take advantage of this trend. The objective is to be able to take advantage of the increase in the consumption of materials, goods and services that drive these growths that we are seeing, the focus is the development of the supply for the export industry, mentioned Roman Caso Espinosa, counselor of the National Chamber of Industry of Transformation (Canacintra).

SONORA

President Lopez Obrador mentioned his support for the Sonora Renewable Energies Plan promoted by Governor Alfonso Durazo Montaño, so that it becomes a reality in the state and will be expanded nationally by integrating three wind farms in Oaxaca and 16 dams that generate electricity with hydroelectric turbines. Also other of the news that Governor Durazo gave, highlights that Lopez Obrador ratified his support for the creation of the International Binational Center for the Development of Semiconductors.

QUERETARO

Queretaro is one of the strongest states in the country and a pillar of the Bajio region. Through nearshoring, restoring, and onshoring, it has been strengthened with 19 automotive investments, registered from January to September 2022, and 135 investments from 18 countries between January and September of this year. Regarding the type of investment, 49.6% of the investments are new developments, while 46.7% correspond to expansions or modernization of existing plants. Another 3.7% of the investments are acquisitions or transfers of existing plants. Of the 135 investments, 110 belong to the auto parts sector and 9 to OEMs, 5 to products and services, 4 to industrial parks, 4 to R&D centers, and 3 to raw materials. Germany, Japan, and the United States are the three countries with the largest share of investments in Mexico. Of the 19 automotive sector investments in Queretaro between January and September, those made during the first quarter of 2022 by Eaton, which acquired Royal Power Solutions for 600 million dollars, stand out. There was also a 146 million dollar expansion by Bosch for electronic power steering (EPS) systems. Martinrea followed suit by expanding its aluminum casting plant for engine blocks and transmission housings for US$155 million. In the second quarter, LG Innotek, a Korean company, recorded an US$80 million expansion in San Juan del Rio to manufacture

anti-lock braking systems. Another important investment was that of Eurotranciatura (Euro Group), an Italian company that will expand its plant to manufacture forged and stamped products for US$59.25 million, generating 500 jobs in 11,000 m2. Queretaro will register more investments by the end of 2022, and presented as an example the cases of Grupo TSN with an investment of US$25.7 million, generating 500 jobs for the manufacture of thermoformed products, light commercial vehicle transformations, and micro-mobility; and Michelin with an investment of US$7.7 million for its expansion.

Meanwhile, in October and November, the investments made by Martinrea stood out, which will have an additional expansion in the state with an investment of 37 million dollars, generating 108 new jobs specialized in suspension bridges, engine blocks, and transmission housings. BRP also announced the expansion of its operations in Queretaro with an investment of more than US$127 million.

JALISCO

Job creation in Jalisco continues with a positive trend before the end of the year, thanks to the joint work of the private sector and the state government, since from January to November, a total of 110,511 formal jobs have been accumulated, which places the state in second place nationally for job creation during the 11 months elapsed of 2022. The head of the Secretariat of Economic Development (SEDECO), Roberto Arechederra Pacheco, recognized the commitment of the Jalisco businessmen and women who month after month have created more jobs and reiterated that SEDECO remains close to the business sector to generate the necessary conditions that have allowed the positive dynamics for formal employment. “During this period, nationally, close to 1,100 million formal jobs have been generated, of which Jalisco contributes 10%, 10 out of every 100 jobs in the country,” added the Secretary of Economic Development. According to the latest records of the Mexican Institute of Social Security (IMSS), during the month of November, Jalisco’s businessmen and women were able to create 9,569 formal jobs, which places us in fourth place nationally in the eleventh month of the year.

SAN LUIS POTOSI

BMW’s decision regarding the investment in a new plant for the manufacture of electric cars, for which San Luis Potosi is competing, has been postponed, informed Juan Carlos Valladares Eichelmann, head of the Secretariat of Economic Development (Sedeco). The state official mentioned that although it had been announced that by the end of this year -around November- BMW corporate would make a decision regarding the destination of its new investment, this was postponed to the next quarter. He assured that there is good communication between San Luis Potosi and BMW, “there are constant meetings with them, we are doing our best, things are going very well but unfortunately not even the local BMW people know where it is going” He reiterated that the United States has been “very aggressive” in terms of incentives to the German assembler to keep this investment, and although he acknowledged that San Luis Potosi cannot compete with the neighboring country to the north in terms of incentives, he stressed that it can in other aspects, a situation that keeps the Potosi entity in the competition.

GUANAJUATO

As of November, the state of Guanajuato had 1,066,000 workers insured with the Mexican Social Security Institute (IMSS), which places it in 5th place nationally in job recovery. It is worth noting that in the month of November in the state of Guanajuato more than 5,100 new formal jobs were created in Leon, Silao, Celaya, Apaseo el Grande, and Irapuato. On an annualized basis in the period reported to the Institute, 30,858 new jobs were added. This is due to the fact that in recent years important investments have been made in the state that has led to the generation of jobs, and the private sector, together with society, has bet on strengthening human capital through professionalization and increasing the competitiveness of Micro, Small and Medium Enterprises (MSMEs).

AGUASCALIENTES

The Municipalities of Aguascalientes and San Luis Potosi held a meeting to establish a collaborative work in favor of the economic development of both cities. Francisco Javier Sanchez Lopez, Director of Economy of the Secretariat of Social Economy and Municipal Tourism (Setum) held a meeting with Jaime Chalita Zarur, Director of Economic Development, and Enrique Gonzalez Hernandez, General Coordinator of the San Luis Potosi City Council, in which they analyzed experiences to strengthen public policies and programs in this area. The meeting was held at Setum’s facilities where they also agreed to exchange projects that contribute to the generation of new jobs, as well as to the opening of successful businesses that promote greater economic flow and benefits for entrepreneurs. Francisco Javier Sanchez reaffirmed the commitment of the Municipality of Aguascalientes to collaborate to promote the integral development of this region of the country.

NEWS BY STATE

CDMX

After submitting the 2023 Economic Package to the local Congress, the Ministry of Administration and Finance informed that it suggests a total expenditure of 248,415.1 million pesos, which represents an increase of 6.2% in nominal terms with respect to that approved for 2022. The project maintains the six priority axes with which the administration of Claudia Sheinbaum Pardo started but points out that the main bet is focused on the Sustainable City item, with 98,909.21 million pesos of the expenditure part, i.e., it takes 40% of the capital budget. The document of the Ministry of Administration and Finance of the capital city, states that the resources are intended to implement a comprehensive environmental policy, including maintenance and conservation of green areas, water bodies, and soil restoration, in addition to addressing the environmental deterioration caused by urbanization, consumption and production patterns.

STATE OF MEXICO

More than 8,000 entrepreneurial women in the State of Mexico will be able to benefit from the subsidy called Jefas de Familia (Heads of Household), to avoid paying payroll tax for one year, if the State Legislature approves the Fiscal Package 2023 project, informed Jaime Valadez Aldana, Undersecretary of Revenues of the State of Mexico’s Finance Secretariat. The state government proposed to the Legislature to grant a 100% subsidy in the payroll tax to those women who have up to three employees under their charge, so they would not pay this tax for 12 months, that is to say, one year, from the moment the entrepreneur decides to apply the subsidy, said the Undersecretary of Revenue.

INVESTMENT NEWS

NORTHEAST

- TECHTRONIC INDUSTRIES DE MEXICO

The company will set up in the Global Park Laguna Industrial Park in Torreon, where it will invest $80 million dollars and generate 2,661 direct jobs in the design and manufacture of electrical equipment.

- CIROTEC

The company dedicated to the machining of metal parts for machinery and general equipment, with an investment of $500 thousand dollars and the creation of 42 direct jobs. It will be located in Torreon, Coahuila.

- MERGON

Irish company and automotive supplier announced the second stage of the expansion of its Ramos Arizpe plant, the first in Mexico, and will invest $15 million dollars and generate 150 new jobs.

CENTRAL MEXICO

- KOSTAL

On Monday, December 5, Grupo Kostal, a German company, held the groundbreaking ceremony for its fourth plant in the country, in which it will invest more than $2,100 million pesos and generate 750 new jobs. The plant will be located in Queretaro.

CDMX - CONTECON

Contecon Manzanillo, a container operator in the port of Colima, held a groundbreaking ceremony for its Phase 3 expansion, with an investment of $230 million dollars.

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