Weekly Review I August 9, 2023

GENERAL SITUATION IN MEXICO

Weekly Review I August 9, 2023

RELEVANT NEWS

MEXICO CONSOLIDATES ITS POSITION AS THE FIRST TRADING PARTNER AND SUPPLIER TO THE UNITED STATES

Mexico consolidated its position as the leading trading partner and supplier of the United States in the first half of 2023, the Census Bureau reported on Tuesday.

Of all the international trade in products carried out by the U.S. economy during the first half of the year, Mexico had a 15.7% share, followed by Canada (15.4%) and China (10.9%).

Globally, there has been a certain rearrangement of imports and exports due to the trade war between the United States and China, Russia’s invasion of Ukraine and the relocation of global value chains.

Against this backdrop, of all U.S. merchandise imports from January to June of this year, 15.5% originated in Mexico, 13.8% in Canada, and 13.3% in China.

While Mexico is competitive in foreign sales of durable goods, such as autos and appliances, U.S. exporters are especially competitive in capital- and technology-intensive manufacturing sectors, such as industrial supplies and capital equipment.

Of all U.S. exports of goods in the first half of 2023, 17.7% went to Canada, 16.0% to Mexico, and 7.2% to China.

As for the results for June alone, Mexico exported products to its northern neighbor for a customs value of 41.1 billion dollars, representing an increase of 4.4% year-on-year.

RELEVANT NEWS

This dynamism contrasted with the falls in the same indicator of the other two main U.S. trading partners: sales from Canada were 35,111 million dollars, a reduction of 14.5%, and those from China totaled 34,334 million dollars, a decrease of 29.3%, year over year.

From around the globe, in descending order of importance, the top foreign purchases by Americans are oil, cars, telephones, computers, and medicines.

Total product imports to the United States totaled 258.114 billion dollars in June, a 9.8% year-over-year drop.

In the opposite direction, U.S. foreign sales are dominated, also in decreasing order, by petroleum oils (except crude oil), crude oil, gas, autos, and integrated electronic circuits.

U.S. exports to Canada were $31.196 billion last June (-5.2% year-on-year), followed by those shipped to Mexico for $27.389 billion (-5%) and to China for $10.223 billion (-11.4 percent).

Globally, U.S. exports stood at $167.232 billion in June, down 8.4% from the same month in 2022.

With these results, Mexico ranked as the United States’ leading trading partner in June, with a 16.1% share, followed by Canada (15.6%) and China (10.5%).

And in terms of the largest suppliers of goods to the United States, Mexico was also in the lead in that month, with 15.9%, ahead of Canada (13.6%) and China (13.3%).

SOURCE: EL ECONOMISTA

Mexico’s economy grew at a surprising pace in the first half of 2023, improving projections for Mexican gross domestic product (GDP) for 2023 to align with official estimates, while the relocation of companies to the country thanks to nearshoring boosts the favorable outlook of private analysts.

Among other factors, the improvement in the outlook for the Mexican economy is also due to a healthier U.S. economy, which is keeping away the possibility of a recession and its impact on Mexico, being its main trading partner, which is a favorable factor for exports and historical remittances to the country month after month.

Also noteworthy is the investment in infrastructure projects by the Mexican Government, which now makes visible the benefits in construction and public spending, mainly in the south of the country, such as

the Olmeca refinery in Tabasco; the Mayan Train in the Yucatan Peninsula and the Tulum Airport in Quintana Roo, among other works considered as “priority”.

According to official figures from the National Institute of Statistics and Geography (Inegi), Mexico’s GDP increased by 3.6% in the first six months of the year, while the Ministry of Finance and Public Credit has estimated an annual growth rate of 2.3% in 2023.

For Bank of America Securities (BofA), this figure surprised the market by presenting the most favorable dynamics of the economic group of 20 (G20), excluding China, India and Indonesia.

This caused the organization to raise its forecast for the Mexican economy to 3.2% at the end of the year, from a previous 2.3%, considering that “Mexico has had a good run so far”.

MEXICO’S ECONOMY IN GOOD HEALTH: THESE ARE THE KEY FACTORS THAT HAVE WARDED OFF PESSIMISM

RELEVANT NEWS

“Mexico’s economic activity has grown 3.5% or more for four consecutive quarters, well above its average growth rate of 2.5%,” it added.

In addition, the Bank of Mexico’s July monthly survey indicates that private sector specialists raised the growth estimate for the country in 2023 to 2.6%, while the consensus of the “Citibanamex Expectations Survey”, answered by 33 financial analysis groups, also raised its outlook to 2.7%.

Some financial groups such as Ve por Mas (Bx+) also improved their projection for the end of the year from 2.8% to 3%, as well as Invex, which foresaw an increase in GDP at the end of the fourth quarter of the year of 2.8%, from 2%, both more in line with official forecasts; while the International Monetary Fund also improved its forecast to 2.6% this year, from a previously estimated 1.9%.

Another factor considered by the Bank of America is that investment is recovering at an accelerated pace, after a long period of weakness, “driven mainly by proximity investments.”

However, he noted that the level of investment is only 3% higher than it was a decade ago, highlighting the injection of capital into machinery and equipment as a major factor in the nearshoring phenomenon.

BETTER PERSPECTIVES FOR NEARSHORING

According to data from the Mexican Ministry of Economy, in the first half of 2023, Mexican businessmen have made 174 investment announcements, for more than 64,504 million dollars, while maintaining that the country “is in an ideal moment to receive investments”.

During the first quarter of 2023, the Mexican agency registered a direct foreign investment of 18,636 million dollars, an amount 48% higher than the annual rate.

According to BofA, Mexico is already observing the effects of nearshoring due to the increase in the volume of investments and the benefits to the labor market with the creation of more jobs, with a streak of monthly gains during the year until the slowdown last July.

According to the most recent “Zoom Nearshoring” document from Santander Bank, the northern region of Mexico concentrates the best opportunities for the relocation of companies, with Chihuahua, Coahuila, Baja California, Tamaulipas, and Aguascalientes as the main entities with the best infrastructure and logistics.

Meanwhile, an estimate by the Global Business Council (Ceeg) estimates that Mexico could increase its GDP by up to 2.5% in the next six years due to nearshoring and reach foreign direct investment (FDI) levels of up to 50 billion dollars.

For the country’s industrialists, this phenomenon represents an opportunity to grow the country’s economy at a sustained 4% in the coming years, according to Eduardo Ramirez, treasurer of the Confederation of Industrial Chambers (Concamin).

SOURCE: FORBES MEXICO

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

AUGUST 02 – 08, 2023

POLITICAL AGENDA

• Response to Judicial Power: The president announced plans to respond within 48 hours to Judge Martin Adolfo Santos Perez, and to file a complaint with the Judicial Council. This is in response to a precautionary measure from the judge and other federal officials, restraining them from making “malicious” statements towards Xochitl Galvez. The president accused the judge of trying to silence him. Additionally, Secretary of the Interior, Luisa Maria Alcalde, mentioned that Xochitl Galvez is being advised by lawyers from the National Council of Strategic Litigation, which includes Gustavo De Hoyos, Claudio X. Gonzalez, Miguel Carbonell Sanchez, Lia Limon Garcia, and Fernando Gomez-Mont, among others.

• Textbooks: President Lopez Obrador addressed concerns over textbook content, stating that the Ministry of Public Education would reveal the materials to counter baseless claims of promoting communism by conservatives later this week. This decision aims to let the public assess the validity of the criticism and their support for the textbooks. The President emphasized the thorough process involving experts and educators in adapting the materials to modern societal contexts

KEYPOINTS OF PRESIDENT

ANDRES MANUEL LOPEZ OBRADOR’S MORNING PRESS CONFERENCE

with a focus on scientific and humanistic education. He highlighted educational goals, including reduced dropout rates through scholarships and better treatment of teachers, ensuring a minimum monthly salary of 16,000 pesos. Around 75% of public schools now have parent-managed maintenance budgets. Improved textbook content was also emphasized. The President stressed the rights-based approach to education and healthcare in his administration.

• Morelos Prosecutor: President Lopez Obrador reiterated that the arrest of the Morelos prosecutor, Uriel Carmona, was legal, as the Supreme Court of Justice of the Nation (SCJN) has stated that he has immunity regarding federal crimes. However, the arrest was made for a crime falling under local jurisdiction.

• Migration: President Lopez Obrador stated that migrant safety is a priority and noted a 26% increase in regional migration between June and July. He reiterated that the Secretary of Foreign Relations, Alicia Barcena, will provide information on this matter in the upcoming week.

• Xochitl Galvez: President Lopez Obrador questioned the consideration of his remarks as gender-based political violence in response to a reporter’s query about the National Electoral Institute’s impending resolution. He defended his right to express concerns about the “conservative bloc” aiming to regain power. He reiterated his stance on Xochitl Galvez being associated with certain interests and pledged not to mention her if prohibited by the resolution, implying potential bias in favor of the oligarchy within the Electoral Tribunal.

• Future Development: President Lopez Obrador revealed his intention to leave a draft of future development topics for Mexico’s next administration. This outline, or preliminary project, encompasses issues his government may not complete but believes should be pursued to stimulate economic growth, guide regional development, and enhance social well-being.He emphasized that this blueprint would represent his vision of priority subjects, serving as an optional guideline for the incoming government. Notable among these topics are regional development, fostering the Plan Sonora for renewable energy generation, rational water management, promoting specific crops, and outlining crop restrictions.

• Presidents Approval: The Coordinator General of Social Communication of the Presidency, Jesus Ramirez Cuevas, presented the results of the Morning Consult survey, indicating President Lopez Obrador’s approval rating at 64%. This reflects a 2% increase compared to the previous week’s measurement.

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

achievements. Common crimes have decreased by 17.9%, and homicides by 17%. The President anticipates a reduction of up to 20% in homicides by the end of his term. Kidnapping victims have decreased by 73.9%, and motor vehicle thefts by less than 45.7%.

• Tamaulipas: President Lopez Obrador discussed the issue of alleged impunity and insecurity in a state where officials lead the State Prosecutor’s Office. He acknowledged that the direct appointment of attorneys general and anti-corruption prosecutors by governors has not produced desired outcomes. He highlighted the challenge of addressing these officials due to their protection by the Federal Judicial Power. He mentioned considering legal reforms to modify the autonomy of these positions. Regarding Tamaulipas, the President expressed confidence in Governor Dr. Americo Villarreal’s integrity and commitment to social justice, assuring that the situation will be resolved.

INTERNATIONAL

SECURITY

• CDMX: President Lopez Obrador discussed improved security in Mexico City, attributing it to effective policies dating back to Engineer Cardenas’ time. Crime rates and insecurity perceptions decreased during his tenure, with notable progress in reducing homicides and vehicle thefts. Marcelo Ebrard’s administration achieved even greater reductions. Half of stolen vehicles were insured, aiding insurers’ statistics. Lopez Obrador credited welfare programs and enhanced police training and equipment for these improvements.

• Security achievements: The Federal Executive highlighted their administration’s security

• Visit to Washington D.C.: President Lopez Obrador stated that his visit to Washington aims to follow up on agreements regarding migration and arms trafficking, and to strengthen economic and trade integration between the countries. He mentioned that BlackRock recently highlighted Mexico as a top destination for foreign investment. He expressed appreciation for the positive relationship with President Biden, emphasizing that Biden is the first president not to build a wall, unlike previous Republican presidents. Lopez Obrador reiterated two strategic priorities: enhancing integration with North America and

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

promoting short- and medium-term integration in Latin America, with the goal of emphasizing the region’s significance in the United States.

• Tour in Latin America: President Lopez Obrador confirmed his attendance at the North American Leaders’ Summit later this year. He also reiterated his participation in the Latin America and Caribbean Summit on New Antidrug Policies in Cali, Colombia, at the invitation of President Gustavo Petro. He will meet with Petro on September 9th, coinciding with the summit’s conclusions. Following that, he plans to travel to Santiago, Chile, to commemorate Salvador Allende’s anniversary and respond to President Gabriel Boric’s invitation.

ECONOMY

• Economy: President Lopez Obrador highlighted Mexico’s strong economic performance, ranking second globally in recovery after China. GDP is projected to rise by 0.7% in Q2 and 1.3% by yearend. Inflation decreased to 5% due to lower gasoline prices, with food driving inflation more than energy. The minimum wage increased significantly, boosting families’ buying power. Unemployment decreased by 2.5%, and over 1.2 million jobs were created since 2020. The Mexican peso appreciated against the US dollar. Mexico remains a top US trade partner, attracting substantial foreign investment without increasing debt. Poverty reduced, aided by government assistance, and remittances are expected to reach 60 billion dollars this year.

• Banamex: President Lopez Obrador revealed that the government initially considered acquiring Banamex to establish a state-owned bank for

managing funds, saving on fees, and preserving cultural heritage. He suggested that this project might continue under the next administration, despite potential ideological debates about state involvement in the economy, similar to discussions in the energy sector. He also noted significant profits of banks, including Banamex, and their role in the economy.

ENVIRONMENT

• Water scarcity: President Lopez Obrador announced that he will provide information in the coming days regarding the status of groundwater and surface water in the country. He explained that certain crops or industries require significant water, but the priority is domestic consumption, allocating the remaining water for agriculture and industrial development through careful planning. He noted that this challenge is most prominent in the northern region, as 70% of the country’s water is situated in the southeast. He concluded by mentioning that water and agricultural authorities are collaborating to present a map depicting water scarcity and stress.

• Water in San Luis Potosi: President Lopez Obrador mentioned the review of a water concession granted to a company supplying a golf course in the capital through CONAGUA. He also noted collaborative efforts with the Director General of CONAGUA to enhance water supply in coordination with the state government. The President reiterated his administration’s progress in concluding various water infrastructure projects, like “Cuchillo II,” to provide water to Nuevo Leon.

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

PRIVATE SECTOR

• Tax evasion: A reporter questioned the use of civil associations and foundations for corporate consolidation and tax collection, citing concerns about their misuse. President Lopez Obrador acknowledged that this was a past practice, no longer allowed in his administration. He highlighted legal adjustments to prevent tax forgiveness, reiterated his commitment to no tax increases or fiscal reform, and mentioned efforts to combat false invoicing and tax fraud. The President emphasized successful budgetary revenues, timely VAT refunds, and increased tax collection, with a 6.0% real increase compared to the previous year. He assured ongoing efforts to address these issues and review the situation.

• Food industry: A reporter raised concerns about a study indicating misleading labeling and poor quality in certain products. The reporter suggested featuring this information during presidential press conferences to inform the public. President Lopez Obrador agreed and proposed sharing such findings on Mondays with the head of PROFECO to expose harmful and deceptive products, including those with excessive air content or unhealthy ingredients. The President emphasized the importance of informing consumers about the health effects of items like chips, soft drinks, and bottled water.

HEALTH

• IMSS: In response to a direct question about companies accused of monopolistic practices in the Mexican Social Security Institute’s (IMSS) tenders for comprehensive anesthesia services, the president revealed that Zoe Robledo is already addressing this matter. He mentioned that next Tuesday, a report will be presented to explain the situation concerning companies that have been penalized and then change their focus or reconstitute themselves to participate in tenders again at high prices. He assured that the issue is already being addressed, including specific cases.

NEWS BY STATE

BAJA CALIFORNIA

The construction of a new industrial park in Tijuana has begun. The project will be developed on a 25-hectare site, and the first building of the industrial park, which will have an area of approximately 38,000 square meters, is scheduled for delivery in the first half of 2024. This expansion seeks to meet the growing demand for industrial space in northern Mexico, especially driven by the Nearshoring phenomenon, which involves the relocation of manufacturing operations closer to North American markets.

SONORA

Sonora is preparing for a promising closing of the year in terms of employment and economic growth. According to the Ministry of Economy, at least 30,000 new jobs are expected, a figure that exceeds the initial projections of 15,000.

“We have a projection of 30,000 jobs by the end of the year. Index indicated 15 thousand jobs in their numbers, but they easily project that they will go to 20 thousand jobs at the end of the year, but with all that we are seeing in nearshoring, we estimate that at the end of the year we will reach the goal of 30 thousand new jobs in Sonora”, mentioned the Governor of Sonora.

SOURCE: MEXICO NOW

SOURCE: NORO MX

CHIHUAHUA

Governor Maru Campos Galvan’s economic policy integrates a very specific strategy to attract investment. In Chihuahua, they are generating the conditions to make the state a competitive region.

Develop relevant talent that responds to the present and future requirements of the industries, through an effective linkage between companies, academia, and government, to ensure that Chihuahua has available talent, highly prepared and with a pro-business culture with years of experience.

Continuous and decisive investment in areas such as energy, water, connectivity (air, rail, and land), industrial complexes (reserves and industrial parks), and security to provide certainty and security for investment and business development.

They have a comprehensive program of incentives and government support to back new investment projects, which includes facilities for payroll tax exemption, land concessions, and training incentives, and technological services for the development of talent.

SOURCE: MEXICO INDUSTRY

NUEVO LEON

During the last 12 months, Nuevo Leon (NL) has generated 27,799 net new jobs in the manufacturing sector, which represents 17.78 percent of those created in the same period at the national level, which were 156,349 job positions, said Engen Capital.

The company said that with this generation of jobs in the industrial sector, Nuevo Leon ranks second with the highest number of jobs created, surpassed only by Coahuila with 29,254, representing 18.7 percent of the total.

COAHUILA

The peace and tranquility, as well as the excellent labor climate in Coahuila, motivated businessmen and industrialists from 20 countries to set up or expand their factories in the state in the last 66 months, highlighted Governor Miguel Angel Riquelme Solis.

The state governor said that the close coordination between all public security forces, together with the support of the authorities that facilitate the arrival of more companies to Coahuila, allowed the consolidation of 231 investment projects for the order of 12,272 million dollars.

SOURCE: EL SOL DE LA LAGUNA

SOURCE: EL FINANCIERO

SAN LUIS POTOSI

In a marked advance, the Automotive Cluster of San Luis Potosi has registered an increase of approximately 40% in its affiliations, thanks to its collaborative efforts with companies that have chosen to establish themselves in the state. According to Luis Alberto Gonzalez Olvera, Director of the cluster, this increase is the result of a strategy that seeks to promote the benefits of being part of the organization and facilitate the participation of companies in the automotive ecosystem.

The San Luis Potosi Automotive Cluster has taken a proactive approach, visiting new companies that have arrived in the state to present the advantages of joining this network. The focus is especially aimed at strengthening the supply chain and attracting new plants, especially those coming from Asia.

SOURCE: CLUSTER INDUSTRIAL

GUANAJUATO

In the first quarter of 2023, Guanajuato ranked third nationally in the amount of industrial activity, with growth of 8.1% compared to the same period last year.

Guanajuato recorded 148 percentage points in March, an improvement compared to the 136.9 points recorded in the same period of 2022. This figure is above the national average of 119 percentage points.

SOURCE: AM

QUERETARO

Queretaro’s economic growth continues to rise, because in the first quarter of the year it was 7.3 percent, compared to the same period in 2022, informed Marco Antonio Del Petre Tercero.

The Secretary of Sustainable Development (SEDESU) said that this increase should be a reason to invest and boost the development of suppliers and the arrival of new companies to the entity.

SOURCE: EL UNIVERSAL

CDMX

Omar Garcia Harfuch, the Secretary of Citizen Security, holds a significant lead in preferences for the upcoming election for Mexico City’s Chief of Government, according to a Mitofsky opinion study, 10 months before the election. He leads by up to 21.1 points, demonstrating a solid advantage over other candidates. In an alliance between Morena, PT, and PVEM, Garcia Harfuch would secure 47.3% of the votes, surpassing Santiago Taboada from PRI, PAN, and PRD with 26.2%. Other Morena candidates also show strong potential. Clara Brugada would win with 42.1% against Taboada’s 28.7%, and Mario Delgado would secure 40.2% compared to 30.5% for Taboada. Even if Ricardo Monreal were to compete, he would achieve 38.6% against Taboada’s 29.5%. Garcia Harfuch’s support is solid among Morena members, showcasing his leadership across different categories and strengthening his position in the competition.

SOURCE: EL ECONOMISTA

STATE OF MEXICO

Efforts to create a new Constitution for the State of Mexico, initiated under Senator Higinio Martinez, are currently halted due to a lack of consensus with the incoming government led by Delfina Gomez Alvarez. While the project remains on hold, the focus has shifted to more immediate priorities, like updating administrative laws. The staff for the Technical Secretariat has concluded their work, and discussions with the governor-elect are pending. The intention is to resume the constitutional reform process after the new cabinet takes office, taking into account the new administration’s perspective and goals. The aim is to establish a fresh constitutional framework that aligns with the new government’s objectives.

SOURCE: MILENIO

INVESTMENT NEWS

NORTHEAST

VIMERCATI VINEY

Italian company Vimercati Viney will invest $200 million in Nuevo Leon, making it the latest addition to the state’s growing electromobility hub. The announcement came during Governor’s work trip to India, where he also secured investments from top companies. The plant will be in Apodaca and is expected to create 240 new jobs.

CAPSTONE COPPER

Capstone Copper inaugurated a $26 million Filtration Plant in Zacatecas, creating 533 direct and 430 indirect jobs. The Canadian mining company focuses on precious and industrial metals extraction and has copper reserves in the region.

TRANE

Irish company Trane, a manufacturer of home goods, announced an $18 million expansion in Apodaca, Nuevo Leon, creating 200 new jobs.

The Irish company specializes in the production of heating, ventilation, and air conditioning systems.

NORTHWEST

FIBRA MACQUAIRE

Fibra Macquarie is investing $90 million in a new industrial park in Tijuana,

Baja California. The project, covering 25 hectares, will include three modern industrial buildings spanning 81,140 square meters of Gross Rentable Area. It aims to address the increasing demand for industrial spaces in northern Mexico, driven by the Nearshoring trend.

KURTZ ERSA

Kurtz Ersa is constructing a new electronic equipment manufacturing plant in Ciudad Juarez, with a focus on specialized electronic equipment, including state-of-the-art reflow ovens for surface-mount electronic component soldering on PCBs. Completion is expected by spring 2024, making them the first company to produce such machines in Mexico.

CENTRAL MEXICO WITZENMANN

German company Witzenmann inaugurated a $14 million expansion in Guanajuato, creating 352 new jobs. The new facilities will produce high-tech products, including those for electromobility, demonstrating their commitment to sustainability with the installation of a thousand solar cells.

CDMX

ONEST LOGISTICS

Onest Logistics announces an investment in Tepotzotlan, Estado de Mexico, strengthening the logistics sector and generating 800 jobs. The expansion project is expected to contribute to economic growth and job creation in the region.

SOURCES: CLUSTER INDUSTRIAL, MEXICO INDUSTRY, EL ECONOMISTA