Weekly Review I October 18, 2023 by PRODENSA

GENERAL SITUATION IN MEXICO

Weekly Review I October 18, 2023

RELEVANT NEWS PRIVATE SECTOR REQUESTS CRE TO EXPEDITE PERMITS TO GUARANTEE ENERGY FOR NEARSHORING.

In light of the energy required by companies to relocate to Mexico to take advantage of nearshoring, the private sector has asked the Energy Regulatory Commission (CRE) to expedite permits as a complement to the tax incentives offered by the government. The Mexican Energy Council (Comener) indicated that the CRE’s permits for the development of the energy sector should be released as an immediate measure to have the energy products and services needed by the companies that will arrive as a result of nearshoring. After acknowledging the decree granting fiscal incentives to key sectors of the export industry driven by nearshoring, he considered that the CRE permits are necessary for the generation of conventional and renewable electric energy, the expansion of gas pipeline networks, service stations, and storage, among others.

Comener pointed out that the availability of products and services in the energy sector will be key in the decision of companies that decide to locate in Mexico. He pointed out that as a result of the pandemic in 2019, activities were suspended and subsequently the work for the issuance of permits by the (CRE) was done in shifts. This situation led to a huge backlog in all these types of procedures, which had a direct impact on businesses. “Despite the fact that the activity of the authority was regularized only a few months ago, the delay adds up to hundreds of procedures for all activities of electricity, natural gas, liquefied petroleum gas, petroleum products, and petroleum products terminals in the country,” he points out.

RELEVANT NEWS In addition to the delay in attention, there is the rejection of applications and the lack of advice on how to properly fill out such documents, which is another reason for the delay, which even forces the companies - in some cases - to hire the services of specialists. For example, the authority has denied amendments related to the start and completion of works, permits for production, and self-supply of energy, among others. With regard to petroleum products, the CRE has denied several permits for marketing, distribution, sale, and self-consumption, among others. At the beginning of the year, the backlog of procedures was significant; we estimate that there were more than 4,000 procedures pending in the value chain of petroleum products: storage, transportation, marketing, distribution, and sale, including assignments, new permits, and title modifications, among others. “Given this scenario, immediate decisions are needed to encourage the arrival of new investments. According to figures released by the Undersecretary of Finance, Gabriel Yorio, the government has registered investment “intentions” for 74,000 million dollars in 174 announcements made. The average amount foreseen is in the order of 425 million dollars per project, more or less,” he points out. SOURCE : FORBES MEXICO

KEYPOINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S MORNING PRESS CONFERENCE October 12 – 17, 2023

INDUSTRY • Tesla: Elizabeth Garcia Vilchis, head of communications for the Presidency, confirmed that Tesla will indeed set up its plants in Mexico, contrary to reports suggesting Texas due to legal uncertainties and lack of investment support. Tesla and Nuevo Leon authorities have also denied the Texas claims. JUDICIARY BRANCH • Cancellation of trusts: President Lopez Obrador doesn’t expect major repercussions from the Supreme Court budget cut. He criticizes a little-used trust benefiting high-ranking officials. He plans to reduce privileges but maintain salaries and benefits without layoffs. • The President also dismissed the threat of a potential strike by judicial employees as a tactic to protect their budget and suggested opposition lawmakers might challenge it as unconstitutional. He also expressed a desire for the democratization of the judiciary by allowing popular votes for selecting judges. Regarding alleged conflicts of interest among Supreme Court justices, he stated they were seeking alliances with opposition legislators. However, he denied any plans for legal action by the Judiciary Council. Instead, he proposed a constitutional reform to renew and cleanse the judiciary.

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

ENVIRONMENT • Rio Sonora Spill 2014: In 2014, a significant copper spill in the Rio Sonora by Grupo Mexico’s Buenavista del Cobre was deemed Mexico’s worst metal mining disaster due to rainfall and design negligence. Despite remediation efforts and legal actions, environmental damage persists. The Environment Secretary, Maria Luisa Albores, criticized the lack of comprehensive remediation plans and emphasized the need for improving environmental practices in the mining sector, including rebuilding tailings dams. • Industrial Pollution: Furthermore, President Lopez Obrador acknowledged the damaging health issues caused by industrial pollution. He aims to regulate water use, agrochemicals, and resource exploitation to protect public health and the environment. He plans reforms to promote balanced development and emphasizes his government’s focus on honesty and anti-corruption efforts. The issue is under review by SEMARNAT and other institutions. ELECTION PROCESSES 2024 • Selection Process: President Lopez Obrador stated that he has relinquished his role in the internal selection processes of MORENA for the 2024 elections, citing a busy agenda and no involvement in the decisions. He wished the best to the contenders and claimed to be unaware of the list of names.

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

SECURITY

• Latin American Encounter: President Lopez Obrador mentioned that he hasn’t recently met with his counterparts from the Pacific Alliance countries but invited them to the “Encounter for a Fraternal and Prosperous Neighborhood” on October 22 in Palenque. The meeting aims to address urgent regional issues, including migration, security, economic cooperation, and seeking deeper U.S. government assistance for regional development. However, not all Latin American representatives will be able to meet due to a focus on resolving migration issues. • U.S. Mexico Relations: Also, the President emphasized Mexico’s strong relationship with its neighbor and the U.S. dollar, indicating that Mexico will maintain it as an international reference currency. He acknowledged the benefits derived from economic and trade practices and the significance of the North American bloc, despite the challenges in renegotiating the trade agreement. He mentioned his attendance at the Asia-Pacific Meeting but indicated that he doesn’t plan to travel abroad in the final stage of his administration. • War in Israel: President Lopez Obrador mentioned that more Mexicans want to return to Mexico amid the conflict. Priority is given to children and the elderly. 287 have arrived, and 774 are yet to come. Two more planes depart tomorrow, part of an ongoing airlift to evacuate Mexicans from Europe, with the aircraft stationed there. The hope is for a swift end to hostilities.

• Criminal Groups: In response to a reporter’s question about the piperos (fuel transporters) in Tamaulipas being forced to spill their cargo by criminal groups, President Lopez Obrador stated that his administration has successfully combated fuel theft (Huachicol), resulting in savings of over 291 billion pesos during his term.

NEWS BY STATE

BAJA CALIFORNIA Baja California was the State that contributed the most to Mexico’s Industrial Gross Domestic Product in the first half of 2023 with 6.1 percent, said Governor Marina del Pilar Avila Olmeda based on figures from the National Institute of Statistics and Geography (INEGI) replicated by the Confederation of Industrial Chambers of the United Mexican States (CONCAMIN). During the ninety-ninth edition of “Mornings with Marina del Pilar”, the state governor emphasized that Baja California has strengthened its position as a leader in the industrial sector in the country, positioning itself above Mexico City, as well as other states that also have an important industrial vocation. SOURCE: JORNADA

SONORA With the objective of encouraging all those who are or could become suppliers of the maquiladora industry, providing tools for their growth and creation, a workshop course on financing will be held on October 19, as part of the local supply program offered by the Economic Development office of the city council. Yoselin Cardenas, director of this office, explained that a few months ago this action was initiated with maquiladora managers, with the inertia that “nearshoring” has at this time and to further exploit this new economic path. SOURCE: EL DIARIO DE SONORA

NEWS BY STATE

NUEVO LEON Some 50 Asian companies could soon set up operations in Nuevo Leon. A delegation of Nuevo Leon officials, headed by state governor Samuel Garcia, is in Tokyo, Japan, on a mission that will be extended to five cities in China in the coming week. Emmanuel Loo, Undersecretary of Investment at the state Ministry of Economy, has indicated that approximately 60% of the companies planning to meet with the officials are in the electromobility industry. SOURCE: EXPANSION

NEWS BY STATE

TAMAULIPAS In the first semester of 2023, industrial activity in Tamaulipas rebounded by increasing 4.2 percent and becoming one of the six states with the best production in all its activities, according to the index of the National Institute of Statistics and Geography (Inegi), although in the annual incidence, it still has a minimum setback.

COAHUILA The governor of Coahuila, Miguel Riquelme Solis, said that a few weeks before the end of his administration, new investments continue to be confirmed and existing ones expanded, which consolidates the state in a permanent economic development. He reiterated that security, skilled labor and certainty for investors (domestic and foreign), as well as labor peace and the level of education of its workforce, are the main attractions for the arrival of more companies or the expansion of those already installed in the territory. SOURCE: VANGUARDIA

Part of this was due to the increase in the energy sector, since oil and gas extraction was the leader in this area, tripling other entities, despite the fact that in the maquiladora industries, construction and agriculture and livestock sector it remains in negative numbers at a quarterly level, as in the year. SOURCE: MILENIO

NEWS BY STATE

QUERETARO In an effort to balance economic growth with environmental preservation, the head of the Secretariat of Sustainable Development (SEDESU) of Queretaro, Marco Antonio Del Prete Tercero, presented the ‘Queretaro Environmental Agenda’ during the XIII International Congress of Financial Research. This initiative seeks to promote a sustainable development model that takes into account the importance of decarbonization and environmental protection as fundamental pillars. The event took place at the Anahuac University, where Secretary Del Prete Tercero highlighted the efforts of the state of Queretaro to lead in environmental protection through two outstanding programs: the Circular Economy System and the State Seal of Low Carbon Emissions, the only offsetting mechanism of its kind in Mexico. SOURCE: CLUSTER INDUSTRIAL

NEWS BY STATE

JALISCO Generating an alliance between private initiative, civil society, universities and government, identifying areas of opportunity, is the way to recover the greatness and competitiveness of Guadalajara and consolidate Jalisco as the engine of the national economy. This was stated by the municipal president Salvador Zamora Zamora before the Council of Industrial Chambers of Jalisco (CCIJ), as part of the presentation: Tlajomulco, the New Economic Engine of Jalisco. Among those in attendance were Cesar Castro Rodriguez, coordinator of the CCIJ; Blanca Noelia Caro Chaparro, director of the CCIJ; and Gonzalo Huerta Madrigal, vice-coordinator of the CCIJ. SOURCE: LA VOZ DEL SUR

AGUASCALIENTES Aguascalientes recorded an industrial activity index of 97.4% in June 2023; the figure represents a positive annual variation of 4.6%, contributing 0.08% to the national variation in the industrial sector, according to INEGI’s Monthly Industrial Activity Indicator by State. A breakdown of Aguascalientes’ contribution to industrial growth by sector shows that in mining there was a slight decrease of 0.06%. However, in electricity, water and gas, there was a growth of 0.37%. Construction experienced an increase of 1.13%, while manufacturing industry stood out with a growth of 3.17%. SOURCE: HERALDO

NEWS BY STATE

CDMX The process to determine the candidacy for Mexico City’s Chief of Government is becoming complicated. The ruling coalition, Morena, is divided between two candidates: Omar Garcia Harfuch, Claudia Sheinbaum’s favorite, and Clara Brugada, a minority but vocal faction of the party prefers. The opposition, PAN, and its allies is also struggling to find a competitive candidate. According to a poll published yesterday by Buendia y Marquez, Garcia Harfuch has a clear advantage over Brugada in terms of name recognition, opinion balance, and preference to be Morena’s candidate. This advantage could give him a boost in the race for mayoralties and the local congress. SOURCE: EXPANSION

STATE OF MEXICO The Cutzamala System is a system of dams and reservoirs that is located in the states of Guerrero and Michoacan. It is the main source of water for the Valley of Mexico, which is home to over 22 million people. The drought that is affecting the Cutzamala System is the worst in over 20 years. The water reduction will affect all residents of the Valley of Mexico, including households, businesses, and industries. The government is urging residents to conserve water during this time. SOURCE: ANIMAL POLITICO

INVESTMENT NEWS

NORTHEAST KAWASAKI Japanese company Kawasaki has invested $200 million in Salinas Victoria, Nuevo Leon, Mexico, generating over 1,000 direct jobs. This venture primarily focuses on manufacturing motorcycles, heavy machinery, aviation equipment, and energy systems, aiming to boost exports to the United States, Canada, and Australia. TEREX GENIE United States-based company Terex Genie has invested $140 million in a new facility in Nuevo Leon, Mexico, which will create 1,500 jobs. This venture mainly focused on manufacturing platforms and construction vehicles.

THE HOME DEPOT The Home Depot, headquartered in the United States, inaugurated its new Global Technology Center in Monterrey, Nuevo Leon, Mexico, with the aim of attracting and integrating top professional talent to work with their technology teams in the United States and Canada. ACUITY BRANDS USA based Acuity Brands, invested $50 million in its sixth plant in Nuevo Leon, Mexico, for producing lighting fixtures. This investment will lead to the creation of up to 1,500 jobs within a year to a year and a half, as the plant reaches full operational capacity, with a current workforce of 700. The facility, focused on catering to various lighting markets, will primarily export its products, significantly to the United States, alongside Europe and South America.

INVESTMENT NEWS

SURMAN INDUSTRIAL PARK SIP has invested around $37 million in the development of an industrial park in Coahuila, which is a phased project covering 338 hectares. The first phase spans 120 infrastructure including electrical, natural gas, and water facilities. The park is part of a future larger employment landscape, with 42,033 jobs generated in Coahuila during the first nine months of 2023. CENTRAL MEXICO GUANAJUATO GOVERNMENT The Guanajuato government proposes a $10 million investment for a hydrogen plant to boost sustainable public transport. Although the total job creation was not specified, this initiative, in collaboration with Iberdrola, aims to address the region’s growing energy demands, which may generate employment opportunities in highly competitive areas.

PROTONICS Korean automotive company Protonics is investing $4 million and creating 150 jobs in Queretaro, Mexico, within the Las Palmas complex. This venture is in line with Protonics’ expansion into the automotive sector of the region, reflecting a broader trend of foreign investment in Mexico’s automotive industry. SOURCES: CLUSTER INDUSTRIAL, EL FINANCIERO, MEXICO INDUSTRY