Weekly Review I August 2, 2023

GENERAL SITUATION IN MEXICO

Weekly Review I August 2, 2023

RELEVANT NEWS

NEARSHORING WILL BE THE THIRD GREAT ECONOMIC MOMENT FOR MEXICO.

The CEO of Grupo Financiero Scotiabank in Mexico, Adrian Otero, considered that the relocation of value chains or “nearshoring” will mark Mexico’s third great economic moment, after the North American Free Trade Agreement (NAFTA) in 1994 and the energy reform of 2013.

“In Mexico, there have been three (economic) moments: the first, the signing of NAFTA in 1994; the second, the energy reform of 2013, when a peak in foreign investment of 46 billion dollars was reached in that year alone; and the third is ‘nearshoring’,” Otero explained in an interview with EFE.

The big difference, he pointed out, is that the first two were generated from Mexico, while relocation has been done from outside.

“That makes the moment we are living in very special and unique,” he stressed.

This economic phenomenon, which began in Mexico a little less than two years ago and extends to 15 states, has taken off this year with the arrival of large multinationals such as Tesla.

Otero explained that disruption in supply chains and a geopolitical environment that tends towards regionalization create a situation in which Mexico “has an extraordinary position to capture this opportunity”.

According to various analyses, he said, “nearshoring” could increase Mexico’s exports by between 75,000 and 200,000 million dollars.

“If we manage to capture part of this, it will position Mexico as the first (commercial) partner of the United States (it is currently the second),” he predicted.

Proof of this, said Otero, is that Scotiabank has increased its financing portfolio and its operations in the capital markets by 50%, especially in the industrial real estate sector.

SOURCE: FORBES MEXICO

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

July 26-31, 2023

POLITICAL AGENDA

• Supreme Court of Justice: The president pointed out that one way to ensure the impartiality of judges and the Judiciary is to have them elected through popular votes rather than behind closeddoor agreements. He also mentioned that before the end of his administration, he plans to submit an initiative to the Congress of the Union to reform the selection process of Magistrates, Justices, and even the Attorney General of the Republic.

• Drug control: President Andres Manuel Lopez Obrador stated that the information provided by DEA Chief Anne Milgram about drug cartels was not shared during the recent bilateral meeting with Elizabeth Sherwood-Randall. He called for better coordination between institutions and urged the DEA to share their data to improve collaboration. The President highlighted the lack of coordination between security agencies in the U.S. government. He mentioned that before his administration, the Secretaria de la Defensa Nacional (SEDENA), Secretaria de Marina (SEMAR), security agencies, and state authorities did not work together. However, now decisions are made

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

jointly, and daily coordination meetings are held to address insecurity in the country.

• Nayarit: During a morning conference, President Lopez Obrador and the Governor of Nayarit discussed various topics related to the state’s development. They highlighted the upgrades to the Tepic airport, the construction of highways, and the rehabilitation of San Blas. The education sector received attention with numerous scholarships and maintenance funding for schools. The President addressed issues concerning senior citizens, farmers, single mothers, and investments in healthcare. In terms of security, Nayarit has a relatively low perception of insecurity and ongoing efforts by the National Guard to maintain safety in the state.

• Trilateral meeting: Rosa Icela Rodriguez Velazquez, the Secretary of Security and Citizen Protection (SSPC), reported that meetings were held with representatives from the U.S. and Canadian governments. Progress was made in the Regional Committee against Fentanyl. Discussions with National Security Advisor Elizabeth Sherwood-Randall covered migration, drug trafficking, and arms smuggling. Mexico will undertake specific tasks to combat synthetic drug trafficking at customs, and technological tools will be employed to detect arms smuggling. Alicia Barcena Ibarra, in charge of the Ministry of Foreign Affairs (SRE), stated that the federal government is addressing the root causes of migration. There is a downward trend in the migration of Mexican people. Special emphasis is given to projects in the southern-southeastern region to integrate migrants. The U.S. government is also taking spe-

cific actions to contain illegal arms trafficking to Mexico, with the Southbound operation aimed at dismantling arms trafficking networks.

ECONOMIC

• Economic Growth: The federal Executive expressed pride and happiness in the results presented by INEGI, which reflect the success of the strategy to reduce poverty. Despite criticism of his government, he mentioned that the economic growth for this year is projected to be 3.6%. The president cited the significant increase in the minimum wage during his administration, which, contrary to opposition experts’ arguments, did not lead to inflation or economic crisis.

• Wealth: President Lopez Obrador emphasized that his model of “economia moral” (moral economy) proves that economic growth alone is not sufficient; the most crucial aspect is the well-being and equitable distribution of wealth. He stated that the economy and commerce have been reactivated, with people having increased purchasing power, resulting in no consumption crisis.The INEGI’s survey showed that the average current income in the lowest 10% of the population has

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

INDUSTRY

increased by 19.9% since 2018. All income deciles exhibited growth, including the highest decile (except for the period of 2020-2022), resulting in a national average increase of 11%. The President highlighted that between 2018 and 2022, real labor income for the poorest 10% of households increased by 29%, and income from social programs rose by 24%. When asked about the country’s economic growth forecast, considering the International Monetary Fund’s expectation of 2.6%, the President stated that the Secretary of Finance and Public Credit, Ramirez de la O, is working on the projections and that they look promising. He believes the country will grow by more than 3%. The President cited data and information about store sales and consumer behavior to support his optimism about the economic situation, indicating that people have money and are making purchases.

• Mining: In response to a reporter’s complaint regarding the protective measures (amparos) some companies have filed following the reform of the Mining Law, and the accusation against Ricardo Salinas Pliego for being involved in these actions, the president pointed out that no more concessions for mining exploitation are being granted. Many of the concessions previously awarded are being returned by the concession holders themselves because they are now required to pay taxes on them. Additionally, these companies were not using the concessions for material extraction but rather for speculative purposes. The president also mentioned that the permission for a mine owned by Salinas Pliego in Baja California Sur was canceled, and he had a discussion with the businessman, who understood the situation.

• Vulcan Materials: The President announced that a proposal is being made to Vulcan Materials, the company that owns the Calica bank, to purchase approximately 2,400 hectares for around 6.5 billion pesos (based on an appraisal by the SHCP). The proposal includes the conversion of the remaining jungle and mangrove areas into a protected natural reserve to combat climate change. Additionally, they plan to develop ecotourism in the already impacted area, including the port, to transform it into a cruise ship dock. If an agreement is reached, the legal complaints against the company would be suspended. However, if no agreement is reached, the legal proceedings will continue.

KEYPOINTS OF PRESIDENT

ANDRES MANUEL LOPEZ OBRADOR’S MORNING PRESS CONFERENCE

INFRAESTRUCTURE

• Maya Train: Javier May, the General Director of Fonatur, provided updates on the Tren Maya’s progress, highlighting the CFE project and welfare programs. The initiative includes infrastructure for train service, improvements to archaeological sites, construction of hotels, expansion of protected areas, and reforestation efforts. Additionally, 317 welfare projects were implemented in affected communities, including improvements to roads, schools, healthcare, and housing for those in need.

• Electricity: The CFE General Director, Manuel Bartlett, stated that the necessary infrastructure is being built to electrify the Tren Maya. He emphasized that such a large-scale project had never been undertaken before, and it contributes to the national development by benefiting the southeast region of the country. The project required an investment of over 8 billion pesos, resulting in the creation of more than 5,500 direct jobs and over 8,000 indirect jobs.

• Hydraulic energy: President Lopez Obrador provided updates on the Texcoco Lake rescue project, where an ecological park is being developed in the designated Area of Natural Protection. He emphasized that the lands are being returned to the communities of Atenco. During the weekend, he visited three construction sites in Nayarit, Nuevo Leon, and Jalisco, supervising dam works in these states to ensure a stable water supply for domestic use, agricultural irrigation, and electricity generation. The president also highlighted the Agua Saludable para La Laguna project, aimed at preventing diseases caused by arsenic consumption in the region.

SECURITY

• Security: The President presented a comparative graph showing homicide rates during other presidential terms. According to data from INEGI, homicides have decreased by 10% from 2021 to 2022. He mentioned that almost 70% of the crimes in the country are related to gang confrontations, although he acknowledged that some media outlets manipulate data, with exceptions. The President emphasized that violence is addressed daily in the country.

• Armed Forces: President Lopez Obrador denied claims that the armed forces halted investigations into the Ayotzinapa case and stated that efforts are ongoing to find the missing students. He characterized the accusations as a campaign to discredit the armed forces. The President highlighted the unprecedented actions taken by his

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

government, including detaining high-ranking authorities and others related to the case. He labeled this issue as political, suggesting adversaries don’t genuinely care about human rights or the disappeared. The President criticized certain organizations for not taking transformative actions and concluded that the campaign aims to portray the military negatively to allow foreign governments to exert control, as was done in the past. He emphasized the armed forces’ commitment to justice.

• Journalists: The President addressed journalist assassinations, stating that efforts are being made to prevent them from happening. He emphasized that they are working to protect journalists and the general population as well. The President mentioned that crime rates, particularly homicides, have been decreasing in the country. He highlighted that during the Calderon administration, there was a widespread narco state across the country, but progress has been made in addressing this issue.

NEWS BY STATE

BAJA CALIFORNIA

There will be a new flight between Baja California and Arizona. The new Phoenix-Tijuana flight will be launched in February 2024 and will connect Tijuana Abelardo L. Rodriguez International Airport with Phoenix Sky Harbor International Airport, being operated by an Embraer 175 aircraft with a capacity for 78 passengers.

SONORA

Nearshoring places Sonora in the sixth best place to invest. Forbes Magazine published the study “Score del nearshoring” of the banking institution Banorte, in which Sonora appears in the sixth place of the states mainly benefited by the commercial agreements with the United States, as well as by the specialization of the labor force for those who form or will be integrated to the industrial sector.

SOURCE: INDUSTRIAL NEWS BC

EL SOL DE HERMOSILLO

NUEVO LEON

During the first quarter of this year, Nuevo Leon’s economic activity showed a variation of 3.6% at the annual rate and was the entity that had the greatest influence on the variation of the total economy of the northern region, according to Inegi’s Quarterly Indicator of State Economic Activity (ITAEE, for its acronym in Spanish).

SOURCE: EL ECONOMISTA

CHIHUAHUA

Regal Rexnord, with an investment of $13.5 million dollars, will be installed in the state of Chihuahua, bringing high-value jobs.

This plant will be dedicated to the manufacture of connection mechanisms for the aerospace industry and helicopter stabilizers, which, according to the company, will be made with critical components for aerospace safety.

These products will require advanced materials and specialized processes.

The plant will be 125,000 square feet in size and will be located in the Bafar Industrial and technological park.

This new investment will create a total of 240 jobs in Chihuahua.

SOURCE: MEXICO INDUSTRY

COAHUILA

With 103 investment projects, this year the manufacturing of transportation equipment expects to generate 65,803 new jobs, estimated Governor Miguel Angel Riquelme Solis.

He highlighted that the State Ministry of Economy registered investments of 6,948 million dollars in this line of production.

Once its operation is completed, and with the manufacturing of its products at 100 percent, it could generate around 60,000 new jobs, considered the State Governor.

SOURCE: GOVERNMENT OF COAHUILA

AGUASCALIENTES

The National Institute of Statistics and Geography (INEGI) has published the information of the Quarterly Indicator of State Economic Activity corresponding to the period from January to March 2023. In this report, the following results for Aguascalientes stand out:

• A growth of 4.0% compared to the previous quarter, that is, October to December 2022.

• Compared to the same period in 2022, an increase of 0.6% was observed.

San Luis Potosi ranked among the ten states in the country with the best economic performance during the first quarter of 2023 compared to the previous quarter, according to the Quarterly Indicator of State Economic Activity (ITAEE). (ITAEE).

The report, published by the National Institute of Statistics and Geography (INEGI), detailed that San Luis Potosi grew at a quarterly rate of 3% between January and March 2023, as well as 3.8% compared to the same months of 2022.

SOURCE: HERALDO

SAN LUIS POTOSI

SOURCE: LIDER EMPRESARIAL

QUERETARO

The aerospace industry in Mexico will have greater growth in the coming years, particularly the regional supply chain in the Bajio region, as it has shown itself to be one of the most dynamic sectors due to the nearshoring phenomenon.

At the beginning of 2023, according to the National Statistical Directory of Economic Units (2022), there were more than 132 economic units that generate close to 5.51 billion Mexican pesos, an 18 percent increase.

SOURCE: AM QUERETARO

GUANAJUATO

Israel recognizes Guanajuato as the entity in Mexico with the greatest technological development that has been implemented to provide society with greater strength in this area and entrepreneurship; it has shown interest in projects to be implemented in this country.

During the program, CAMBIOS of Channel 6 hosted by Miguel Angel Puertolas, the general director of Idea GTO, Juan Antonio Reus, made reference to the technological development in Guanajuato, in the ‘Mentefactura Nodes’ which are characterized by being centers of entrepreneurship based on knowledge.

SOURCE: MILENIO

CDMX

Marti Batres Guadarrama, the head of the Mexico City government, presented a strategy to attract more investment capital to the city. During discussions with business representatives, he highlighted the city’s strengths, including its talented workforce, reduced crime rates, and extensive internet connectivity. The government has made efforts to simplify business procedures and promote investment, leading to increased public works investment and digitalization of processes. The private sector praised these efforts and pledged to support and promote the city’s development. They emphasized Mexico City’s innovative initiatives in technology and sustainability, which have contributed to its economic growth and infrastructural improvements. Overall, the goal is to make the city more attractive for investment and facilitate its economic development.

STATE OF MEXICO

During heavy rains, two landslides occurred on the Villa Guerrero-Tenancingo federal highway in the State of Mexico. The incidents, which involved debris obstructing traffic in both directions, did not result in any injuries or vehicle damages. Emergency services cleared the debris, and the road was reopened after a two-hour closure. Authorities advised caution for those using the highway and residing nearby due to the increased risk of soil softening during continuous rainfall in the region.

SOURCE: EL ECONOMISTA

SOURCE: MILENIO

INVESTMENT NEWS

NORTHEAST

CVG

American company CVG just opened its doors to its new factory in the municipality of Aldama, Chihuahua where they will keep providing for pieces to the EV manufacturing industry, it will have an investment of $10 million and generate around 1,700 jobs.

REGAL REXNORD

American company Regal Rexnord dedicated to the manufacture of crucial components for the safeness of Helicopters or planes has just announced its plans to install in Chihuahua with a $13.5 million investment that will generate around 240 high-value jobs.

KYUNGSHIN

South Korean company Kyungshin, with a $45 million investment, inaugurates its three plants in Gomez Palacio, Durango, creating up to 2,200 jobs in the region. The plants will manufacture battery modules for electric vehicles, electronic cards, and harnesses.

CENTRAL MEXICO

ABIC

ABIC Group, a Japanese automotive sector supplier, will create 260 new jobs with its second plant in Mexico. The new plant, located in Pabellon de Arteaga, Aguascalientes, involves an investment of $11 million and will supply aluminum components to clients such as Marelli and Tesla.

MURATA SPRING

Japanese company Murata Spring, a specialist in automotive spring production with a capacity of 2.5 million units per month, will expand its plant in Aguascalientes, Mexico. The expansion, announced in collaboration with Aguascalientes Governor, aims

to stimulate economic growth and create additional job opportunities, bolstering the local automotive industry.

CDMX SOFTYS

Chilean company Softys, a manufacturer of personal and general hygiene products, acquired Puebla-based Grupo P.I. Mabe, also in the same industry, for $300 million. The decision was driven by the strategic and attractive location of the state, known for its urban growth. The acquisition is expected to lead to the creation of 1,400 new jobs.

NATIONAL FISHER PHILLIPS

Atlanta-based law firm Fisher Phillips plans to open three offices in Mexico, staffed with a team of lawyers from Deloitte. The move comes in response to the increasing demand for labor and employment advice in the country due to updated trade deals and shifts in manufacturing. The team, consisting of approximately 60-70 lawyers and professionals, will cater to large international clients, providing guidance on employment law disputes and labor negotiations.

SOURCES: CLUSTER INDUSTRIAL, MEXICO INDUSTRY, EL ECONOMISTA, REUTERS