Weekly Review I March 1, 2023

GENERAL SITUATION IN MEXICO

Weekly Review I March 1, 2023

RELEVANT NEWS

TESLA’S LANDING IN NUEVO LEON CONFIRMED

It is a fact. After months of speculation, yesterday it was confirmed that Tesla will install an electric vehicle assembly plant in Mexico, in the metropolitan area of Monterrey, which will become the twenty-first in the country and possibly the most expensive one installed to date in the national territory.

The factory would imply an investment of between 5 and 10 billion dollars, which would exceed the amounts announced for the construction of other assembly sites in the last decade.

These include the KIA plant in Pesqueria, Nuevo Leon (2.3 billion dollars); the Infiniti-Daimler plant in Aguascalientes (1.4 billion dollars); the BMW plant in San Luis Potosi (1 billion dollars); and the Toyota plant in

Guanajuato (700 million dollars). The first three were announced in 2014 and the last one in 2015.

Tesla’s investment would also be the latest in a chain of announcements by automotive companies already established in Mexico to expand or adapt their production lines for electric cars.

During his morning conference this Tuesday, February 28, President Andres Manuel Lopez Obrador informed that he agreed with Tesla CEO Elon Musk that the plant will be installed in Nuevo Leon, with the condition that the entire production process will use treated and recycled water, in addition to working together with the government to solve the water crisis in the medium and long term.

SOURCE: EL ECONOMISTA

KEYPOINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S MORNING PRESS CONFERENCE

February 21-28, 2023

POLITICAL AGENDA

• Genaro Garcia Luna Trial: Mexican President Lopez Obrador believes that the trials of former Mexican officials, such as Genaro Garcia Luna, contribute to cleaning up corruption in the country. He criticized the Mexican judiciary for unfreezing the accounts of Garcia Luna’s wife and colleague while he was on trial in the US. The President criticized former President Calderon’s comments on the Garcia Luna case, emphasizing the irresponsibility of prioritizing the use of force over the cost of human lives and disappearances.

• Violence and drug trafficking: President Lopez Obrador attributed the violence in the country to the previous administration’s association with drug trafficking, specifically with the former secretary of public security, Genaro Garcia Luna. He denied that the current government is linked to the drug cartels and noted that journalists who previously supported Calderon’s government are beginning to rectify their opinions. The president emphasized that it is wise to change opinions based on new information, but it is problematic to be blind to criticism and refuse to be self-critical.

• Regarding public procurement, the responsibility of overseeing government purchases has been transferred from the Secretariat of Finance and

KEYPOINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S MORNING PRESS CONFERENCE

Public Credit (SHCP) to the Secretariat of Public Function. The change has not been implemented yet, but the responsibility has already shifted.

• Mining accident: The Mexican government promised to compensate the families of the miners and recover the bodies before the end of the current government, but Grupo Mexico says it is not feasible to recover the bodies within that time frame.

• Real estate cartels: The President expressed his support for the investigations into irregularities in properties linked to the administration of the Miguel Hidalgo municipality.

• INE Demonstration: The President referred to the INE March as a political matter where the opposition aims to maintain the oligarchy and its interests. He called for a counter-demonstration on March 17th.

FOREIGN RELATIONS

• John Kerry visit: Lopez Obrador announced that he will receive US lawmakers on March 19 and former US Secretary of State John Kerry on March 21.

• Peru: The President stated that he does not support the removal of the former President of Peru, Pedro Castillo.

• Nicaragua: Lopez Obrador stated that his government respects the situation in Nicaragua and is working towards a dialogue to resolve differences. He declined to comment on whether President Daniel Ortega violated human rights.

INFRASTRUCTURE

• The President provided updates on various infrastructure projects, including the completion of the Dos Bocas refinery, maintenance contracts for the Maya Train, and the expansion of ports and industrial parks in the Trans-isthmian corridor. He also noted that the new Felipe Angeles International Airport will be self-sufficient by December 2023.

• The Tren Maya project is progressing well, with the salvaging of archaeological sites almost complete. The train will be integrated with the Corredor Interoceanico to boost freight transport and will have new academic programs in the region. The first train will arrive on July 8, 2023, and security measures will be in place.

• Tesla will establish its plant in Nuevo Leon, with a series of commitments to address the water scar-

KEYPOINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S MORNING PRESS CONFERENCE

city issue. The federal government is supporting the state of Nuevo Leon to provide access to water for human consumption by assisting in the construction of water works.

ENERGY

• Energy: The Mexican government is working on promoting the use of clean energy sources and reducing dependence on fossil fuels.

• Regarding electricity generation, the President stated that 544 applications for the generation of electric energy have been submitted to the National Energy Control Center (CENACE) and that the government is seeking to promote the use of renewable energy sources in the country.

HEALTH

• The Mexican government is implementing a universal vaccination program to address the decline in vaccination coverage caused by major pharmaceutical companies withdrawal from distributing vaccines globally.

• The Federal Commission for the Protection against Sanitary Risks (COFEPRIS) has initiated administrative proceedings against Psicofarma for monopolizing the sale of psychiatric drugs to both the government and private sectors. COFEPRIS found issues with the company’s production lines, including cross-contamination between medications and problems with the traceability of active substances, leading to sanctions and production line stops. Despite a shortage of medications in the private sector, the public sector is not affected because it purchases from external suppliers.

NEWS BY STATE

BAJA CALIFORNIA

The monthly meeting of Index partners was held last week, where it was mentioned that one of the most important objectives is to maintain the investments that are already made in the city and in the state. Pedro Montejo Peterson, president of Index Coast Zone, mentioned that when companies already installed in the state grow, due to logistics or growth, they go to other regions to expand their operations, but it is necessary to create optimal conditions for them to stay.

SONORA

This Monday, February 27, Alfonso Durazo presented the Sonora Sustainable Energy Plan to presidents of various business chambers in Mexico. The governor of Sonora highlighted that the plan first intends to consolidate in the entity, to later be replicated mainly in border entities. “With the development of renewable energies, we have the expectation of receiving up to double the foreign investment of what is now received in these times of nearshoring,” said Francisco Cervantes Diaz, president of the Business Coordinating Council. He also mentioned that at the national level, especially in the north, there are currently 400 industrial warehouses installed, which confirms the interest of companies in investing in the country.

NUEVO LEON

This week, President Andres Manuel Lopez Obrador that an agreement was reached with Elon Musk after a video call to establish a facility of Tesla in Nuevo Leon that will create around 3,000 new jobs.

COAHUILA

With the industrial growth that is coming to the region, driven by the arrival of Tesla in Nuevo Leon, the Saltillo Suburban Train becomes more economically viable to connect in the medium term with the airport and the metropolitan area of Monterrey and would guarantee the transfer to Nuevo Leon of approximately 1,500 people every day.

TAMAULIPAS

Around 26 new investment projects are in the process of investing on Tamaulipas, representing at least $215 million dollars, this will also have an impact on a generation of 2,275 jobs.

SOURCE: FORBES MEXICO, VANGUARDIA, EL SOL DE TAMPICO

GUANAJUATO

With a capital of 3.4 billion dollars in 60 investment projects and the generation of 32,400 jobs, Germany is Guanajuato’s third largest industrial partner. In the current state administration headed by the Governor of the State, Diego Sinhue Rodriguez Vallejo, 12 projects have been completed with an investment of 953 million dollars and a projection of 8,300 jobs. The head of the Ministry of Sustainable Economic Development (SDES), Ramon Alfaro Gomez, highlighted the importance of renewing the confidence of investors and their conviction to maintain and expand their operations in the state.. Alfaro Gomez added that with the arrival of German companies, there is an exchange of labor culture based on values such as punctuality, efficiency, quality, adherence to rules and respect for the environment. Other German firms that already have an important presence in Guanajuato are: Volkswagen, BDF Beiersdorf (Nivea), Hella, Kostal, Thyssenkrupp, Schaeffler, Kromberg & Schubert, Mubea, Marquardt, Kamax, BHTC, Kolbenschmidt, Willi Elbe, Würth Elektroniks, Tekfor / Neumayer, Wallstabe & Schneider, among others. The companies have set up in municipalities inside and outside the industrial corridor and are mainly from the automotive-automotive parts, metal-mechanical, general industry, pharmaceutical, and cosmetics sectors.

SOURCE: GOVERNMENT OF GUANAJUATO

QUERETARO

During his tour of California, the mayor of Queretaro, Luis Nava, participated in a working meeting with the mayor of Los Angeles, Karen Bass, where in the company of 58 Mexican mayors, Secretaries of Economic Development, and business leaders, they discussed issues such as trade between their districts and thus open opportunities to create a linkage corridor. The Mayor of Queretaro visited the Netflix studios to present diagnostics, objectives, and projections for the upcoming launch of the BLOQUE Innovation Center, which shows the Municipality of Queretaro as a city that is committed to innovation and reducing the digital divide for citizens of all ages.

SAN LUIS POTOSI

The Municipal President of San Luis Potosi participates in the Convoy for the Internationalization of Municipalities, organized by the Ministry of Foreign Affairs. Promotes North American investment in San Luis Potosi, as well as, attracting tourists. Mayor Enrique Galindo, together with Foreign Minister Marcelo Ebrard, met with the Mayor of Los Angeles, Karen Bass. Foreign Minister Marcelo Ebrard Casaubon emphasized that this is the first time this type of meeting has been held with Mexican municipalities, largely on the initiative of the cities themselves, which have specific work agendas in Los Angeles with the authorities, with companies and also with universities and other activities, making it a very productive working visit. “We come with very specific objectives for work, investment, and welfare in our cities,” he said

CDMX

The Revolutionary Institutional Party (PRI) has accused the National Regeneration Movement (MORENA) of trying to judicialize the governor election process in the State of Mexico due to the “closed” race between their candidate, Alejandra del Moral, and Delfina Gomez. The PRI claimed that MORENA is seeking to win through legal means what their candidate is losing in terms of popular support. MORENA recently filed 33 complaints against Alejandra del Moral and the political parties that support her, including the PRI, the National Action Party (PAN), the Party of the Democratic Revolution (PRD), and New Alliance State of Mexico (NAEM).

The PRI argued that MORENA is worried about Alejandra Del Moral’s growing popularity and is using baseless complaints to attack her, even engaging in political gender violence. The PRI expressed disappointment with MORENA for filing complaints that do not contribute to the monitoring of the election’s legality. The PRI emphasized that their campaign is complying with electoral laws and will continue to do so, as they are committed to upholding the law.

STATE OF MEXICO

Starting from today, restaurants in Mexico City will be required to display the price of their dishes and any additional costs for using balconies or a cover charge at the entrance. This regulation, which will be published in the Official Gazette of Mexico City, aims to prevent restaurants from overcharging their customers and to ensure compliance with the law. The measure comes after several complaints about excessive charges in restaurants’ terraces in the capital were made on social media. The regulation does not aim to impose sanctions but rather to inform customers about the prices of the food they will be consuming. The head of the government, Claudia Sheinbaum, explained that the new rule applies to all 56,000 establishments in the city that serve food, from street vendors to high-end restaurants. The Federal Consumer Prosecutor reported that last year, 569 complaints were received from customers who were not charged the prices displayed on menus or charged additional fees without prior notice. The regulation also requires restaurants to display the menu at the entrance with a minimum size of 35cm by 50cm, show the payment methods available, and provide contact information for authorities where customers can file complaints for any discriminatory or abusive practices.

INVESTMENT NEWS

CENTRAL MEXICO

KIO:

KIO, a Mexican technology company, is expanding in Queretaro, with a $400 million investment to strengthen its operations and create 250 jobs.

ZF GROUP

ZF Group, a global automotive manufacturer based in Germany is expanding in Queretaro with a $240 million investment to manufacture and create 1,300 jobs.

NORTHWEST

MODINEER GROUP

Modineer Group, an automotive manufacturer, is starting operations with a $30 million investment in Ciudad Juarez, Chihuahua, and will create 350 new jobs.

NORTHEAST

HNI CORPORATION

HNI Corporation, a US-based manufacturer, is expanding in Saltillo, Coahuila, with a $106 million investment and create 1,300 jobs.

MATCOR MATSU

MATCOR Matsu, an automotive manufacturer, is expanding to Ramos Arizpe, Coahuila, with a $10.4 million investment.

AGP GLASS

AGP Glass, an automotive manufacturer, is expanding in Santa Catarina, Nuevo Leon, with an $800 million investment and will create 700 jobs.

DIFARMER

DIFARMER, a Mexican health company, is expanding in Torreon, Coahuila with a $10 million investment to enhance their operations and create 150 jobs.

NEARSHORING: A REALITY FOR MEXICO

“Nearshoring is a reality today for Mexico that generates employment, economic development, social mobility and well-being for Mexicans. The degree of success will be determined by our ability to generate with great agility the conditions that allow us to take advantage of it to its full potential.”

– Emilio Cadena, CEO of Prodensa

In recent years, the term “nearshoring” has gained great momentum. More and more companies have started talking about the need to implement a nearshoring strategy for their companies. There are several key factors that have accelerated the need for companies to go nearshore. Amongst the most notorious we find the supply chain during the COVID-19 pandemic, consumer decision-making and speed to market, operations control, the China-US conflict and talent availability in the US.

Nearshoring is the relocation of operations to a nearby country instead of a distant one. It involves taking advantage of the know-how of the labor force in neighboring economies, knowledge of the production culture, and years of experience. Nearshoring is often chosen by companies as an alternative to offshoring, which involves outsourcing to a country located far away from the company’s home country. In this way, delivery times are accelerated and there is greater certainty about the economic reality of neighboring countries.

In this context, Mexico has become a popular nearshoring destination. Today we find a totally favorable scenario for companies that adopt nearshoring as a relocation strategy. Mexico is a popular for several reasons:

• Geographic proximity to the United States, the world´s largest consumer economy, which means that there is minimal time zone difference between the two countries, which facilitates communication and collaboration.

• Low labor costs which make it an attractive destination for companies looking to reduce costs.

• The trade agreement between Mexico, the United States and Canada (USMCA).

• Skilled workforce which can help ensure high-quality work and strong business outcomes.

Maria Ines Salazar

THE INDUSTRIAL INFRASTRUCTURE HAS DEVELOPED IN RECENT YEARS.

Cultural similarity which can help ease communication and collaboration between companies in the two countries. Consequently, Mexico has become the natural destination to take advantage of the transfer of production chains from Asia to America. Nearshoring generated about $30 billion in foreign direct investment in Mexico by the end of 2022. Further on, according to Datametrica-Aporta, in January 2023, 23 new nearshoring investment announcements were reported in Mexico, totaling approximately US$2.5 billion (GBM, 2023).

Although the northern states of Mexico have been the first witnesses of nearshoring, the economic impact is beginning to be seen in different states of the Bajio region and it is expected that investment will soon reach new regions in the center and south of the country. Moreover, to become more competitive the Mexican government is looking to implement various policies and programs to promote and support the country’s industry.

Overall, nearshoring to Mexico provides an opportunity for companies to reduce costs, accelerate delivery times, and achieve strong business outcomes. If you are a company looking to Nearshore, Grupo Prodensa can help you find the best option by offering comprehensive industrial park development services, real estate consulting, support to companies in their investment projects in Mexico and advisory services to establish themselves in the country and comply with regulations and legal requirements. The company has more than 30 years of experience in the market and has worked with a wide range of national and international clients.

BIBLIOGRAPHY Prodensa Intelligence

GBM. (2023) ¿Como va el nearshoring en Mexico? Retrieved from: https://gbm.com/academy/como-va-el-nearshoring-en-mexico/ N.D. (2022) Nearshoring: Discover the top advantages, Connect. Retrieved from: https://connects.world/nearshoring/#:~:text=It%20is%20 called%20nearshoring%20when,closer%2C%20more%20cost%20effective%20location.

Lopez Tamayo, D. (2022) Nearshoring, oportunidad historica para Mexico en comercio exterior, BBVA. Retrieved from: https://www.bbva. com/es/mx/nearshoring-oportunidad-historica-para-mexico-en-comercio-exterior/

Garcia Sepulveda, S. (2023) Que es offshoring, nearshoring y reshoring - y como se beneficia un estado en Mexico, World Economic Forum. Retrieved from: https://es.weforum.org/agenda/2023/01/explicado-que-es-offshoring-nearshoring-y-reshoring-y-como-se-beneficia-un-estado-en-mexico/

Mahoney, N. (2022, December 27). US-Mexico trade growth to remain steady in 2023, bolstered by nearshoring. FreightWaves. https://www. freightwaves.com/news/us-mexico-trade-growth-to-remain-steady-in-2023-bolstered-by-nearshoring

Noguez, R. (2023, January 24). Nearshoring ha traido a Mexico mas de 19,000 mdd de inversiones en el ultimo año. Forbes Mexico. https:// www.forbes.com.mx/nearshoring-trae-a-mexico-mas-de-19000-mdd-de-inversiones-en-el-ultimo-ano/