Weekly Review I January 17, 2024 by PRODENSA

GENERAL SITUATION IN MEXICO

Weekly Review I January 17, 2024

RELEVANT NEWS MAQUILADORAS IN MEXICO WILL NEED 600,000 MORE EMPLOYEES IF WORKING HOURS ARE REDUCED The legislative proposal to reduce the working day from 48 to 40 hours per week in Mexico would force maquiladora companies, responsible for manufacturing exports to the United States, to hire 600,000 additional workers in order to maintain current production levels, warned industrialists from the north of the country. Specifically, companies will need to increase their personnel by at least 20%, which means an equal increase in payroll costs and other personnel-related expenses such as uniforms, transportation, and food. This was stated by Thor Salayandía Lara, national vice-president of the National Chamber of the Transformation Industry (Canacintra), who said that the small and medium-sized companies that are part of the supply chain are not financially prepared and that the large ones will also face problems. “You are not going to get people who can fill those positions and there are many external things that legislators have not analyzed well,” said Salayandía Lara. He added that the proposal should be done in a gradual way and that productivity should be taken into account as a benchmark for any new changes intended in Mexico’s labor environment. “Mexico has a productivity of 20 dollars per hour and other countries, like Norway for example, produces 150 dollars an hour. We do not produce, and it is very unfortunate because we do not walk the same, the labor cost is increasing and there are no stimuli for the economy,” said the industrial leader.

RELEVANT NEWS He also added that this policy will end up causing inflation since additional money will be injected into the economy and at the same time companies will need to raise prices to compensate for the increase in their payroll. The proposal, which has generated a great deal of debate in the country, is currently stalled in the Chamber of Deputies after an agreement was not reached by the end of 2023. According to Jesús Alberto Zarazúa Perea, director of CL Laboral, who participated in the open parliament in which legislators and society discussed the reduction of the working day, he pointed out that it is possible that it will go forward in the next few months. He added that the problem will be more profound in the entire border area where there are very few unemployed and the maquiladoras will hardly find more personnel to hire. The maquiladoras located in Mexico, which employ almost 3 million direct employees, will need to increase their staff by 20% to produce the same parts, so they will need to hire 600,000 additional workers.

“The workday is being reduced by 20% and in that same proportion companies would have to hire personnel to continue maintaining production levels,” explained the labor lawyer. Zarazúa added that this reform is necessary for the country, but it must come linked to public and private policies that can increase productivity, as well as a dialogue between employers and workers so that the impact is not only carried by the companies. “Companies need time to implement this initiative because there is a problem of lack of people in several border cities and if they make an initiative and implement it the next day we will surely have many complications,” he said. For this reason, he asked the federal government to design incentives to help companies make the transition, especially small and medium-sized companies. SOURCE: FORBES MEXICO

KEYPOINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S MORNING PRESS CONFERENCE January 10-16, 2024

NATURAL DISASTERS • Reconstruction of Acapulco and Coyuca de Benitez after Hurricane Otis: In her statement, the Secretary of the Government, Luisa Maria Alcalde, expressed gratitude for the support received from the business sector 77 days after the hurricane. She provided updates on the current situation in Acapulco, highlighting the presence of 2,993 federal officials and an investment of 25,689 million pesos for emergency response and reconstruction. Emphasizing that the emergency phase has concluded, Alcalde stated that the focus has shifted toward the ongoing efforts of reconstruction. Governor of Guerrero, Evelyn Salgado, reported that 127 hotels, totaling 4,524 available rooms, are operational, with plans to open more hotels in the coming weeks. Acapulco closed the year with an 87% occupancy rate, contributing to an economic impact of 548 million pesos. LEGAL AFFAIRS • Constitutional reforms: President Andres Manuel Lopez Obrador announced plans to commemorate Constitution Day on February 5th at the National Palace, where he will present a comprehensive package of reform initiatives. These initiatives aim to benefit the people by addressing issues related

KEYPOINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S MORNING PRESS CONFERENCE to salaries, pensions, judicial power, and electoral processes. The president emphasized the need to reform pension systems, ensuring that retirees receive 100% of their salary as a pension, with a focus on workers affiliated with the IMSS and ISSSTE. He clarified that the government’s contribution would gradually increase to achieve this goal, aiming to rectify disparities created by reforms during the neoliberal era. • Labor reforms: The president explained that the labor reform he aims to present has two fundamental purposes: i) to prevent a situation where the minimum wage increases less than inflation, and ii) to ensure that workers receive a pension based on their last salary, rather than just half, as is the current practice. Additionally, he confirmed that the federal government will assume a significant portion of the pension imbalance resulting from these changes. Lastly, he indicated that the proposal to increase workers’ year-end bonuses (aguinaldo) to one month’s salary would not be a focal point for these reforms. WATER • Meeting Between AMLO and the Governor of Queretaro: The president indicated that he may meet with the Governor of Queretaro, Mauricio Kuri, on January 22nd to sign an agreement between the Federation and the state regarding Queretaro’s water, as well as to discuss other matters. • Drought in the Valley of Mexico: Regarding the possible political impact of drought and water scarcity during upcoming elections, particularly in the Valley of Mexico, the president mentioned that CONAGUA, along with the governments of Mexico City and the State of Mexico, are addressing this issue.

INTERNATIONAL AFFAIRS • Situation in Ecuador: The president expressed solidarity and support for the people of Ecuador and its government. He stated that he condemns these violent actions. At the moment, there is no information about Mexican citizens in this country, but efforts are already underway to provide assistance to those who may need it. • Guatemala’s New President: President Lopez Obrador congratulated the Guatemalan people on the democratic transition and the arrival of the new president, Bernardo Arevalo. He also expressed gratitude for the attentiveness of President Alejandro Giammattei. Regarding President-elect Arevalo, he characterized him as a responsible, serious, and progressive man, predicting success for the people of Guatemala. • International Armed Conflicts: The president advocated for dialogue in the ongoing conflicts between Israel and Palestine, as well as between Ukraine and

KEYPOINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S MORNING PRESS CONFERENCE Russia, with the aim of achieving peace. He lamented the loss of lives in wars. • Migration in the U.S.-Mexico Border: President Lopez Obrador mentioned that his relations with President Joe Biden and former President Donald Trump of the United States are very good. He emphasized that both leaders have been respectful of the country’s sovereignty. • Statements by Donald Trump: In response to Donald Trump’s statements upon winning in the Iowa Caucus, in which he declared the possible sealing of the borders with Mexico, the Mexican president stated that, in his opinion, it is merely a campaign argument. However, he emphasized the importance of maintaining good bilateral relations, as dialogue should prevail, and cooperation must be sought. The president recalled his differences with then-President Trump regarding tariffs but highlighted that an agreement was ultimately reached. He pointed out that closing a border is not feasible. ENERGY • Situation of the Federal Electricity Commission: In his statement, President Andres Manuel Lopez Obrador emphasized the strengthening of the Federal Electricity Commission (CFE) against past privatization interests. He credited this approach for maintaining low electricity rates with fair prices and warned that even private companies might be affected if they do not prioritize the well-being of the people. Manuel Bartlett, the head of CFE, stated that the capacity of the CFE will increase by up to 52%, thanks to the projects developed during the administration of President Andres Manuel Lopez Obrador. Bartlett mentioned strategic alliances with companies like Trans Canada Energia, New Fortress Energy, and Grupo Carso for various gas-related

projects. Regarding electrical networks, 2,600 km have been added to the transmission network since 2018, and currently, 4,036 km of transmission lines are under construction. As for distribution lines, between 2019 and 2023, 5,317 projects were executed, equivalent to 11,400 km. The head of the CFE also assured that, despite there being no increases in electricity tariffs, the revenues of the CFE have currently increased by 40%, and the Commission’s debt has been reduced by almost 19%. • Natural Gas Supply: The president discussed the impact of winter storms in the United States on gas supply, emphasizing that Mexico is taking preventive measures. He highlighted Mexico’s control over distribution lines, allowing the injection of energy from various sources into the grid. This, he assured, would prevent an increase in electricity prices for consumers. The president drew a parallel to a similar situation two years ago in Texas, where prolonged power outages occurred, contrasting it with a quicker resolution in northern Mexico.

KEYPOINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S MORNING PRESS CONFERENCE TRANSPORTATION • Using national railway routes for passenger trains: The president announced that 18,000 kilometers of railway tracks previously reserved for freight trains can now be utilized for passenger trains, offering the potential to connect the capital with cities in the north and south of the country. He emphasized the priority of passenger trains and mentioned ongoing discussions with entrepreneurs interested in managing national railway systems for improved transportation. The president stressed the importance of support from the armed forces, not only in security but also in constructing national infrastructure, citing successful examples such as the Felipe Angeles and Felipe Carrillo Puerto international airports.

NEWS BY STATE

BAJA CALIFORNIA A report by the Ahlers Center (2022) concluded that the economy of the cross-border region known as CaliBaja, which includes the U.S. counties of San Diego, Imperial, and the Mexican municipalities of Ensenada, Mexicali, and Tijuana, is equivalent to a gross domestic product of $250 billion. By 2025, Baja California will reach a population of four million and nearshoring will only attract more economic growth and therefore more pressure on Baja California’s energy system. In addition, the T-MEC has encouraged nearshoring to take advantage of the economic benefits of the North American Free Trade Agreement (NAFTA) by several transnational companies. According to CSIS (2023), energy reliability will be critical for Mexico to take advantage of the nearshoring movement as businesses access consistent and affordable energy, especially in energy-intensive industries such as manufacturing or the automotive sector. SOURCE: EL IMPARCIAL

SONORA At least seven industries from South Korea could arrive in Sonora in 2024 as part of the global phenomenon known as nearshoring, or relocation of companies seeking to settle in North America, informed the president of the Maquiladora and Manufacturing Export Industry (Index) in Sonora, Jesus Gamez Garcia. He explained that, although talks with plant representatives began this week, the process of analysis, evaluation and comparison with other entities to make the decision to relocate can take from six to 24 months. SOURCE: UNIRADIO SONORA

NEWS BY STATE

NUEVO LEON Governor Samuel Garcia Sepulveda of Nuevo Leon is preparing an unusually creative and surprising visit. Instead of following the traditional pattern of political visits, Garcia Sepulveda is heading to the Tesla Gigafactory in Shanghai, China, in search of inspiration for the development of Giga Mexico. This visit, scheduled for October 18, promises to be a trip full of discoveries and new ideas.

TAMAULIPAS This year an economic boost is expected for the southern region of Tamaulipas with the arrival of investments reaching almost 5 billion dollars. A total of 14 strategic projects are contemplated for this region, with an investment amount of 4.853 billion dollars. SOURCE: EL SOL DE TAMPICO

The Tesla Gigafactory in Shanghai is known for its rapid production and astonishing growth. As such, the governor is looking to gain valuable insights into innovative production techniques and sustainability. The goal is to apply this knowledge to the development of Giga Mexico and make it a global benchmark. SOURCE: ZBR

NEWS BY STATE

COAHUILA Regarding Coahuila’s relevance in the automotive industry, last December it contributed an amount of 17 thousand 243 million dollars (mdd), that is, 12.8% of national sales for 134 thousand 917.5 mdd. On the other hand, in the report for the July-September 2023 quarter, Coahuila also stood out in the transportation equipment manufacturing subsector, with a total participation in the total value of national exports of 40.9%, with a value of 55 thousand 224.2 million dollars. SOURCE: MEXICO INDUSTRY

CHIHUAHUA Two years into the current Administration, the Ministry of Innovation and Economic Development (SIDE) has boosted the growth of 13,934 Chihuahua companies through training programs, national and international promotion, financing, subsidies and advisory services. The head of the SIDE, Manque Granados Trespalacios, informed that in 2023 alone, more than 8,000 micro, small and medium-sized entrepreneurs were promoted, which translates into 19,397 new jobs. SOURCE: GOVERNMENT OF CHIHUAHUA

NEWS BY STATE

SAN LUIS POTOSI San Luis Potosi was positioned as a leader in the growth of industrial activity, according to data from the National Institute of Statistics and Geography (INEGI) for the month of September 2023. This state topped the list of Mexican states with the highest economic momentum in the industrial sector. The results of the Monthly Indicator of Industrial Activity by Federal Entity (IMAIEF) revealed that San Luis Potosi outperformed other entities, consolidating its position as an important engine of economic development. This outstanding percentage variation positions San Luis Potosi as a national benchmark in the industrial sector. SOURCE: CODIGO SAN LUIS

GUANAJUATO IDEA GTO and the Industry of the Future Alliance of France launched the Initiative: Women in the Industry of the Future to strengthen 3D Design skills for women in manufacturing and STEM sectors, to generate a dynamic ecosystem where they find opportunities for their professional and personal development and consolidate the Mentefactura Valley. This is a joint effort to strengthen the skills and competencies in 3D Design of women professionals, as well as students and graduates of mechatronics, mechanical, automotive and aerospace engineering careers in Guanajuato. SOURCE: TV4NOTICIAS

NEWS BY STATE

QUERETARO The Association of Industrial MSMEs of Queretaro has established offices in the United States, Germany, China and the United Kingdom to take advantage of nearshoring, said the president, Cuauhtemoc Acevedo. He stressed that one of the association’s main objectives will be to link MSMEs with industries abroad. SOURCE: DIARIO DE QUERETARO

AGUASCALIENTES The National Institute of Statistics and Geography presented the results of the Monthly Indicator of Industrial Activity, which reveals that the state registered a positive variation of 12.9% in September 2023. At a regional level, Aguascalientes is one of the three entities that registered an increase, only ranking below San Luis Potosi, which varied 18.8%, below Aguascalientes is Queretaro, with 5.4%; Jalisco, with .02% and Guanajuato, with -.6%. SOURCE: EL SOL DEL CENTRO

JALISCO In Jalisco, the economic growth estimated by researchers at the University of Guadalajara for 2024 will be between 3% and 3.5%. Their data reflects that at the end of last year, Jalisco reached a growth of between 4.11% and 4.76%, above national growth rates. SOURCE: EL OCCIDENTAL.

NEWS BY STATE

CDMX Vallejo-i would Reach 25,000 million pesos in Investments. The Vallejo-i plan in Mexico City, designed to boost the industrial sector, is expected to attract a total investment of 25 billion pesos by the end of the current local administration. The plan, introduced in 2018 during Claudia Sheinbaum Pardo’s leadership, aims to capitalize on Azcapotzalco’s industrial potential and leverage the Pantaco customs, with a focus on nearshoring. The objectives include attracting new businesses, establishing a leading industrial innovation cluster in the Mexico Valley, increasing Foreign Direct Investment (FDI), and raising Vallejo’s contribution to Mexico City’s GDP from the current 8%. The announcement was made by Fadlala Akabani Hneide, the head of the Ministry of Economic Development, during a press conference on economic projections for 2024. SOURCE: EL ECONOMISTA

STATE OF MEXICO State of Mexico in Industrial Activity Growth in 2023. As of the eighth month of 2023, the State of Mexico did not rank among the top five nationally in terms of industrial activity growth, lagging behind in sectors such as mining, electricity, water, gas supply, and construction. Tamaulipas, Quintana Roo, Queretaro, Colima, and Nayarit were notable performers during this period. Quintana Roo led nationally with a substantial 118.8% increase in industrial production, while the State of Mexico showed comparatively lower indicators, with -1.3% in August 2023 and 0.5% in September 2022, according to INEGI’s data. The report provides short-term statistical information at the state level, emphasizing Quintana Roo’s strong performance in mining and construction sectors. SOURCE: EL SOL DE TOLUCA

INVESTMENT NEWS NORTHWEST PACCAR PACCAR, an American company, has invested 15 million dollars to establish a new operational center for EVs in Mexicali, Baja California. The project is expected to create 200 jobs in the region. SEV SEV, a Chinese automotive manufacturing company, will invest 225 million dollars to inaugurate its first project in Durango, creating 1000 jobs in the region. NORTHEAST YURA EVC South Korean company Yura EVC will invest 46.2 million dollars to inaugurate an automotive manufacturing facility in Torreon, Coahuila, creating 1100 job opportunities in the region. LENNOX INTERNATINAL INC. American company Lennox International will invest 150 million dollars to inaugurate a new manufacturing facility in Ramos Arizpe, Coahuila, generating 700 job opportunities in the region. PROLEC GE Prolec GE has announced a new electric transformer facility in Apodaca, Nuevo Leon, with an 85-million-dollar investment. This project is expected to create 500 jobs in the region. DAIMAY Daimay, a Chinese automotive manufacturing company, has invested 45 million dollars to establish a new facility in Ramos Arizpe, Coahuila. This project is expected to create 800 jobs in the region.

INVESTMENT NEWS

CENTRAL MEXICO SAILUN JINYU GROUP Sailun Jinyu Group, a Chinese tires manufacturing company, has invested 240 million dollars to establish its first manufacturing facility in Leon, Guanajuato. The amount of jobs that will be created has not been disclosed yet. REHAU GROUP REHAU Group, a German automotive manufacturing company, has invested 25 million dollars to inaugurate its third project in Apaseo el Grande, Guanajuato, creating 200 job opportunities in the region. XINQUAN Xianquan, a Chinese automotive manufacturing company, has invested 100 million dollars to establish its second facility in Aguascalientes City, generating 700 jobs in the region.

EURO GROUP Euro Group has opened a new automotive manufacturing facility in Queretaro, with a 50-million-euros investment. This project is expected to create 500 jobs in the region. SOUTH GRUMA Mexican company Gruma will invest 87 million dollars to inaugurate a food facility in Hunucma, Yucatan, creating 800 job opportunities in the region. SOURCES: CLUSTER INDUSTRIAL, MEXICO INDUSTRY, MEXICONOW