Weekly Report 136 - Annual

GENERAL SITUATION IN MEXICO HIGHLIGHTS OF 2022

AIFA INAUGURATION

The Felipe Angeles International Airport (AIFA), located 50 km north of Mexico City, is the new aerodrome that was set to solve a saturation problem that has been dragging the huge city down for two decades.

It is also one of the four flagship infrastructure projects of President Andres Manuel Lopez Obrador (AMLO), together with a refinery, a tourist train and an inter-oceanic corridor. The airport sparked controversy since its conception, as the project replaced the airport under construction by former President Enrique Peña Nieto, known as NAIM.

After a consultation, it was determined that the cons-

truction, which was 30% complete, would be halted. On March 21, President AMLO led the inauguration of the New Felipe Angeles International Airport to the shout of ‘yes, it was possible’, the president entered the AIFA facilities, accompanied by his wife Beatriz Gutierrez Mueller; the Head of Government of Mexico City, Claudia Sheinbaum Pardo; the governor of the State of Mexico Alfredo del Mazo Maza and officials and members of his cabinet. In its first stage, the AIFA will serve 20 million passengers a year, a figure that will double for the second stage and reach 90 million passengers in a third. Pastor emphasized that the airport will generate 5,000 direct jobs and 160,000 indirect jobs.

PRESIDENTIAL TOUR: CENTRAL AMERICA AND DC

President Andres Manuel Lopez Obrador (AMLO) toured Central America and the Caribbean. It was his third trip out of the country. He had previously left for the United States on two occasions to meet with former President Donald Trump and President Joe Biden. In March 2022, AMLO had anticipated that he would tour El Salvador, Honduras, Guatemala, Belize and Cuba; however, he had not clarified the dates of his trip.

The President’s tour was be part of the country’s strategy to address the origins of the migratory phenomenon and prevent Central Americans and Cubans from being forced to leave their countries. President Lopez Obrador offered his cooperation in social development issues and proposed the implementation of the Mexican government’s Sembrando vida and Jovenes construyendo el futuro (Sowing Life and Youth Buil-

ding the Future) programs. He also detailed an agreement with Cuba to bring Cuban doctors to Mexico.

President Lopez Obrador also visited Washington DC in July, where he was greeted by Mexican people residing in the US. He also visited memorials with Martin Luther King Jr.’s family and met with Vice-president Kamala Harris.

MANDATE RECALL

On Sunday, April 10, a mandate recall was held for the first time in the country. The recall was one of President Lopez Obrador’s campaign proposals. In his narrative, he proposed that the electorate should define whether they wanted him to finish the six years of his government or abandon it halfway through due to poor performance. The mandate recall would be considered valid if at least 40% of the people registered in the nominal list of voters participate. The Mandate Recall did not reach the 40% binding participation, but in comparison to former turnouts in full scaled, formal elections, the Mandate Recall summoned 16 million Mexicans who voted for President Lopez Obrador to finish his time in office to its term in 2024. This number is not modest and the President himself listed a comparison list of other turnouts for elected presidents in Mexican history, meaning he had more votes in the Mandate Recall than his rival candidates did in the 2018 election.

SOURCE: PRODENSA INTELLIGENCE

SOURCES: EL TIEMPO LATINO AND EL FINANCIERO

DEFENSE OF INE AND COUNTER-MARCH

On November 13, 2022, opposition activists and politicians marched in defense of the current statutes of the National Electoral Institute. According to data, from Frente Civico por la Democracia, one of the organizers of the event, the attendance to the march 500 thousand people, with sources varying up to 1 million people. Government sources estimated 60 thousand attendees, which were considered low and far from reality. On November 27, President Obrador called for a counter-march, where an estimated 1 million 200 people attended, marching together with the president, who gave his fourth government report in the Zocalo. Security for the president was nil, with only his closest cabinet members, such as Claudia Sheinbaum and Marcelo Ebrard, using their arms to push away the crowd wanting to touch the president.

STATE ELECTIONS

The state elections in Mexico 2022 took place the 5th of June. Six states were contested and resulted in Morena as the big winner of the election with four out of six governorships obtained. In Aguascalientes, the PAN-PRI-PRD candidate, Maria Teresa Jimenez Esquivel, obtained 249,464 votes, which represents 53.76% of the total. In Hidalgo, Julio Ramon Menchaca Salazar, candidate of the PT-Morena-Nueva Alianza, obtained 653,181 votes, representing 61.56 percent of the total vote. Salomon Jara Cruz, candidate of the Morena, PT and PVEM coalition, obtained 680,752 votes, representing 60.26 percent of the total vote. In Quintana Roo, Maria Elena Hermelinda Lezama Espinosa, candidate of the Morena, PT and PVEM coalition, obtained 280,357 votes, representing 56.40 percent of the total vote. In Tamaulipas, Americo Villarreal Anaya, candidate of the Morena-PT-PVEM alliance, obtained 710 thousand 952 votes, representing 49.99 percent of the total vote. In Durango, Esteban Villegas, candidate of the PRI-PAN-PRD alliance, obtained 53.7 percent of the total vote. In total, Morena now holds 22 out of 31 states.

SOURCES: EL UNIVERSAL, INE.

SOURCES: ANIMAL POLITICO, EL ECONOMISTA AND DIARIO MX

BILATERAL RELATION

The United States and Mexico celebrated 200 years of diplomatic relations, as the bilateral relation is strained, with perennial bilateral issues such as trade, migration and security, and new challenges presented by the confrontational attitude of President Lopez Obrador. One of their priorities in the region in recognition of and to solidify the broad economic relationship with a shared vision. The key issues in the bilateral agenda where to establish concrete actions that will dramatically improve pandemic response and resilience, foster ecological and equitable recovery and address the root causes of irregular migration. As one of their efforts made to solidify their relationship during their conversations at the High-Level Economic Dialogue (HLED), both countries recognize the importance of having a shared strategic vision of Mexico and the Uni-

EL PAIS, GOBIERNO DE MEXICO, STATE GOV, THE SAN DIEGO UNION TRIBUTE, GOBIERNO DE MEXICO

ted States and are compromised to build back from the impact of the global pandemic, promote inclusive trade and investment, prepare their workforces for the future, and strengthen regional supply chains.

Mainly, both countries focused this year on tackling the structural causes of migration. The commitment to a joint plan to respond to the migratory phenomenon, based on the pillars of development cooperation, represents a paradigm shift with respect to the Donald Trump era, where diplomatic threats and the police approach prevailed. The Biden Administration opened a new stage in the negotiations, more focused on poverty, violence and corruption, assumed to be the main causes of migration and institutional weakness in the region.

SOURCES:

USMCA TRADE CONCERNS

On July 20, 2022 the United States and Canada requested dispute settlement consultations with Mexico under the United States-Mexico-Canada Agreement (USMCA) due to a series of changes in Mexico’s energy policies and their consistency with Mexico’s commitments under the USMCA. The secretary of economy of Mexico, Raquel Buenrosto informed that the Mexican Government has already submitted to its counterparts in the United States and Canada two proposals for a solution to the energy dispute within the consultations in the USMCA. Buenrostro hoped that at the next North American Leaders Summit, to be held in January 2023, “good news” will be announced to give certainty to investors.

Moreover, a new issue has arisen as President Andres Manuel Lopez Obrador’s announced he will ban GMO grain, which has put the agricultural sectors of the United Sates on the defensive, fearing drastic increases in production costs. The White House has threatened to take Mexico to trade consultations under the USMCA on this matter. According to Raquel Buenrostro, there is a “series of misinformation and wrong interpretation of the decree”, so work is being done to modify the text. She also mentioned that there will be one more year before the total importation of transgenic corn for human consumption is prohibited. The aim is to “prioritize health”, so the Federal Commission for Protection against Health Risks (Cofepris) will work with the U.S. Food and Drug Administration (FDA) to analyze the issue and jointly investigate biotechnological products and damage to health.

SOURCE: USTR, EL PAIS, USTR

UKRAINE-RUSSIA WAR

December 14th marked day 294 of the Russian invasion of the Ukraine over the Donbass region. The attack came as a surprise after escalation occurred regarding NATO talks with Ukraine. Russian forces invaded the region of Donetsk and Luhansk and have since rejected all peace talks. The war has exacerbated the economic stress caused by COVID-19, disrupting supply chains and threatening the European Union energetically. The reliance of the EU to Russian gas has made imposing embargoes difficult for NATO leaders. Moreover, a key point in the conflict was a missile that struck two people in Polish territory. More than 70 countries have signed aid to help Ukraine survive the winter. Kiev, Ukraine ́s capital, was under Russian control for a couple of months before it was retaken by the Ukraine. Ukraine ́s president, Volodymyr Zelenskyy, was named person of the year by the Times.

SOURCES: AL JAZEERA, BBC.

ZERO-COVID POLICY IN CHINA

China has lately experienced its largest and most politically charged protests since the pro- democracy movement in 1989 ended in a massacre by government forces on Tiananmen Square. The recent social eruption should not be surprising; frustrations over the Chinese government’s rigid “zero-COVID” policy have been brewing for a long time. Yet the ruling Communist Party of China (CCP) apparently did not see the protests coming, despite operating an all-pervasive and deeply intrusive surveillance apparatus. Now, the central government has announced that it will accelerate the shift away from zero-COVID with a broad easing of restrictions. After publishing a set of 20 guidelines for officials to follow last month, it has now cut the list down to 10. The Zero-Covid Policy created uncertainty about the Chinese economy, which had been solid and reliable for years.

SOURCES: AL JAZEERA, NY TIMES, SOUTH CHINA MORNING POST

US MIDTERM ELECTIONS

US Midterm Elections were held on Tuesday November 8th. All 435 congressional seats in the U.S House were up for election. 35 of 100 Senate seats were up for election, and 36 of 50 governorships were up for election. These seats are in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, Nevada, New Hampshire, New Mexico, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Vermont, Wisconsin, and Wyoming.

The main topics on the line for this election were inflation, abortion, education, crime, and immigration as well as border security and gun policy. The turnout was large, young Gen Z voters were a large demographic along with Latinos, whose stakes on immigration policies and other issues were high. Early votes and votes by mail along included, the turnout has already been counted at more than 46 million, surpassing the 2018 elections. In terms of performance, the Republican party had a less sweeping victory than expected, many given on weak candidates that were Trump- endorsed. The results were: 48 seats for the Democrats in the Senate and 49 Republican seats, the latter needing 51 to control the Senate. 194 Democrat seats in the U.S House, 218 for Republicans. Finally, in a close-to-home subject, Greg Abbott, a hardline anti-immigration and pro-border security Republican, responsible for the increased security checks in the border earlier this year, beat Beto O ́Rourke, Democrat, getting reelected as Governor of Texas for a third term.

EASE OF THE COVID-19 PANDEMIC

After two years of chaotic uncertainty, the COVID-19 pandemic, originated in Wuhan, China, was declared stabilized. The COVID-19 pandemic disrupted daily life by closing down businesses and disrupting supply chains, sometimes to a full stop. In the aftermath of COVID-19, a phenomenon of reshoring and nearshoring, is marking the largest market trend of the decade. Industrial manufacturers and sellers are now choosing to locate geographically near their largest markets. This effect has benefit countries like Mexico and Taiwan, while stripping others whose geographic position is not close to large markets such as the US and Europe. Until late September 2022, face masks were obligatory in public places and closed areas. The government did not issue an obligatory mandate on it, but businesses abided by the rule and most citizens were diligent in the use of their face masks. This change was the most significant of the pandemic easing into a seasonal sickness.

LABOR

Dignified Vacations:

After being approved in the Chamber of Deputies, on December 14, 2022 the Senate approved the Dignified Holidays in Mexico, a reform to the Federal Labor Law which will allow workers to have a minimum of 12 days of rest, compared to the current six. The 12 days of rest will be granted with the option of the employee to be distributed in the manner and time required. In addition, the rest days will increase by two days for each year worked until reaching 20 days. After the fifth year in the company, two more days will be given for each five-year period of service. The reform was sent to the Federal Executive for its publication in the Official Gazette of the Federation (DOF) and will come into force o January 2023.

Elimination of Day-light saving: After 26 years of being used in the country, the Congress of the Union approved the elimination of Daylight-Saving Time, which went into effect on October 30, 2022. The resolution establishes that there will be a standard time in the national territory according to the time zones, except for the border states. The municipalities of the border area with the United States will keep the summertime in order not to affect the commercial exchange, therefore the northern border summertime will go into effect from the second Sunday of March and will end on the first Sunday of November. The explanatory memorandum mentions that the UNAM has warned that the time change produces alterations -such as drowsiness, irritability and attention difficulties- in some people.

Minimum Wage:

As of January 2023, the minimum wage will increase by 20%. On the northern border, the minimum wage will go from 260.34 pesos to 312 pesos per day, an increase of 1,584 pesos per month. In the rest of the country the increase will be 207 pesos per day, an increase of 1,052 pesos per month. The increase in recent years is relevant. The minimum wage in 2018 was 88.40 pesos. With the increase announced in recent days the real increase, i.e., already removing inflation which has been particularly high this year, is 190% for the border and 93% for the rest of the country (with the most recent data).

SOURCE: IMCO, EL PAIS AND NYT

ELECTORAL REFORM

After Congress voted against the constitutional electoral reform initiative presented by President Andres Manuel Lopez Obrador, the immediate reaction, was then the presentation of a legislative reform proposal, the “plan B” of the electoral reform, with its absolute majority in both Chambers, Morena and its allies expected it to pass without the vote of the opposition parties. Once the president presents plan B, the Morena parliamentary group presents the same initiative to which they make several modifications in both chambers and, now, only the modifications to the General Law of Social Communication and the General Law of Administrative Responsibilities have concluded the legislative process. Reforms to the laws of Electoral Institutions and Procedures, Political Parties, the Judiciary of the Federation, and the issuance of the General Law of the Means of Contestation in Electoral Matters are pending to be approved by the Senate.

Lopez Obrador has advanced his disagreement as the “plan B” of the electoral reform promoted by the Government may not see the light of day. As the author of the original project, Lopez Obrador has said that he will not accept the reform with the changes that were made as it is about to be approved by the Federal Congress. Three controversial articles are involved: political parties may keep their registration even without having achieved 3% of the votes cast in federal elections, provided they have that minimum in at least 17 states of the country; second, when parties participate in elections through coalitions, they may enter into agreements that allow the transfer of votes to the less voted partners, so that they may keep their registration; and that parties may keep the public resources they did not exercise during the fiscal year (they are currently obliged to return them to the Treasury of the Federation).

SOURCES: NEXOS , EL UNIVERSAL, EL PAIS AND PRODENSA INTELLIGENCE

NATIONAL GUARD

The Chamber of Deputies approved the initiative to extend the period of the Armed Forces in the streets for Public Security work on Wednesday, September 14. The proposal will pass to the Senate to be discussed.

The vote favored the initiative with a qualified majority, obtaining 335 votes in favor, one abstention and 152 against. The initiative launched by the PRI was supported by Morena officials, who seconded the idea of maintaining the army until 2029 after a series of modifications before reaching the Constitutional Points Commission of the Lower House.

This proposal to maintain the Army’s security duties until 2023 became very controversial, especially in the opposition sector. This is since the PAN and the PRD, part of the Va por Mexico coalition, have opposed the initiative, while the PRI supports it, marking a rupture in the strongest opposition coalition. On Tuesday night, the Senate of the Republic approved the ruling that reforms the fifth transitory article of the decree of March 26, 2019 that created the National Guard, to extend until 2028 the participation of the Armed Forces in public security tasks. The ruling, which included an addendum with last minute changes demanded by the opposition, was endorsed with 87 votes in favor and 40 against, thus achieving the qualified majority required.

ENERGY

President Andres Manuel Lopez Obrador’s (AMLO) agenda and objective since his presidential campaign has been the reversal of recent energy reforms to allow private participation in Mexico’s energy and electricity market. After several attempts to change the law and regulations in favor of Comision Federal de Electricidad (CFE) such as the Electric Industry Bill (Ley de la Industria Electrica, LIE) which passed in Congress, but it is suspended by a judge who deemed it unconstitutional, AMLO submitted a bill to Congress on October 2021 to amend the Constitution. The attempted reform was highly controversial and sparked high tensions on the USMCA frame. The United States and Canada both filed consultations for Mexico, following the defacto implementation of the failed bill.

SOURCE: PRODENSA INTELLIGENCE AND EL ECONOMISTA

SOURCE: PRODENSA INTELLIGENCE

NEARSHORING

Mexico is currently an extremely attractive territory for the relocation of production chains, thanks to its proximity to one of the world’s main markets: the United States. According to Banco de Mexico’s study on Nearshoring and companies in Mexico, the main reasons why companies are relocating to Mexico are due to trade tensions between the United States and China and to comply with the USMCA Rules of Origin. They are also seeking to shield themselves from supply chain disruptions caused by the Covid- 19 pandemic and Russia’s war against Ukraine.

A report by CBRE shows that 2022 is expected to close 2022 with nearly 14% growth in terms of new or net new demand and total space marketing (gross demand) very similar to last year. “At the close of the third quarter of 2022, 1 million 200 thousand m2 of demand for Nearshoring was reached, this represents almost double the annual figure with which it closed 2021, explains Francisco Muñoz, executive vice president of Industrial and Logistics at CBRE. The Monterrey and Saltillo markets concentrated 61% of the demand for Nearshoring at the national level. While auto parts manufacturing dominated the activity of industrial space transactions by Nearshoring in most of the markets in the center-north of the country.

SOURCE: CBRE AND DELOITTE

MANUFACTURING SECTOR COMES TO A GLOBAL STANDSTILL

The U.S. manufacturing sector grew steadily in August, but activity in China and the euro zone fell as the war in Ukraine and restrictions over Covid-19 in China hurt businesses, various manufacturing indexes released September showed. The widespread weakness in global manufacturing activity added to signs of sluggish demand in many countries. The Institute for Supply Management (ISM) Index reported that U.S. manufacturing activity was unchanged at 52.8 points on august. Outside the U.S., however, signs of strain deepened. Manufacturing activity across the Eurozone contracted for the second consecutive month. The Eurozone PMI index, compiled by S&P Global, declined to 49.6 points in August from 49.8 in July.

Similarly, China’s Caixin manufacturing PMI for China is already below contraction, falling from 50.2 to 49.5 points. As for Mexico, in July, manufacturing employment grew 1.6%, making four months of loss of dynamism with annual comparisons, according to the results of the Monthly Survey of the Manufacturing Industry (EMIM) for that month, released on September 14th by the National Institute of Geography and Statistics (Inegi). From March to date, the sector’s payroll has grown only 0.1%, while only from December of last year to March it had grown 1%, according to the figures.

SOURCE: EL ECONOMISTA

MANUFACTURING, THE ECONOMY’S DRIVING FORCE

The manufacturing sector is one of the most important pillars of the Mexican economy. The maquiladora and export manufacturing industry contributes 39.8% of the gross domestic product (GDP) and employs 18% of the total number of workers registered with the Mexican Social Security Institute (IMSS), which is equivalent to approximately three million people, according to figures from the National Council of the Maquiladora and Export Manufacturing Industry (index). As of August, 6,457 establishments were reported with the Manufacturing, Maquiladora and Export Services Industry (IMMEX) Program in Mexico, which generated three million 226,983 jobs.

The northern states that contribute most to exports are Baja California, Chihuahua, Coahuila, Nuevo Leon, Sonora and Tamaulipas. Furthermore, during the High- Level Economic Dialogue, (HLED), the president of Index Nacional said that the aim is to generate an understanding between the two governments to find out what can be done on issues such as logistics, value chains and energy.

SOURCE: MEXICO INDUSTRY

MEXICO’S ECONOMIC OVERVIEW

According to the OECD, real GDP growth is expected to slow from 2.5% this year to 1.6% in 2023, but to rebound to 2.1% in 2024. Consumption will be supported by the gradually improving labor market, although high inflation will detract from its strength. Exports will continue to benefit from high integration in value chains, but their dynamism will be dampened by the slowdown in the United States. Inflation will fall to 5.7% in 2023 and 3.3% in 2024.

SOURCE: OECD

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