the mexican economy and investment opportunities lorenza ... · source: omc source: us census...

The Mexican Economy and

Investment Opportunities

Lorenza Martínez Trigueros

August, 2011

1. Solid economic fundamentals

2. Attractive domestic market

3. Industrial development policy

Why Mexico? Why now?

Source: INEGI

Real GDP (Annual growth rate)

Strong recovery and macroeconomic stability

Annualized growth

2010: 5.4% 2009: -6.1% 2008: 1.2% 2007: 3.3% 2006: 5.2%

Economic Global Activity Index (IGAE) (Annual growth rate)

The Mexican economy has maintained higher annual growth rates than those observed in recent years.

Note: LB and UB are the lower and upper bounds for the 2011 forecasted value by Banxico

Fore

cast

fo

r 2

01

1

Source: Banxico


Source: Bloomberg

EMBI + Index

Inflation remains in line with the inflation target. The country risk compares favorably with other economies.

Consumption Price Index (Annual variation; %)

Observed

Inflation target

Interval variability

2010 Q4

2011 Q4

2012 Q4

3% (+/- 1%)


Despite the perceived slowdown in the U.S. and the World, Mexico is in a situation less vulnerable than other countries.

Macroeconomic Environment 2010-2011 (Score and Ranking)

Source: World Economic Forum. The Global Competitiveness Index: Basic Requirements. 139 economies are considered.

Emerging market overheating index, 2011

Source: The Economist

0 20 40 60 80 100

Argentina Brazil Hong Kong India Indonesia Turkey Vietnam Singapore Thailand Egypt Peru Philippines Chile China Colombia Poland Saudi Arabia South Korea Venezuela Russia South Africa Czech Republic Mexico Pakistan Taiwan Malaysia Hungary

Strong recovery and macroeconomic stability: the exchange rate

Nominal Exchange Rate (Pesos/USD)

Source: Banxico

Real Exchange Rate Index (Jan 2000= 100; compared to 111 economies)

Source: Banxico

Leh

man

Bro

ther

s B

ankr

up

tcy

Leh

man

Bro

ther

s B

ankr

up

tcy

Average: 102

115

And competitive prices for key inputs

Source: Key World Energy Statistics, EIA

Electricity prices for industry, 2010 (USD / kWh)

Heavy fuel oil for industry, 2010 (USD / tonne)



3. Industrial policy agenda

4. Concluding remarks


Source: AT Kearney, 2010

In the long run, developing countries will outpace G20 advanced economies

Projected average annual GDP growth rate (% 2009-2050)

Source: Goldman Sachs. The N-11: More Than an Acronym. Global Economics Paper No: 153. March, 2007.

1/ Estimaciones de Goldman Sachs

20501

5th

pla

ce

11th

pla

ce

2010

2006

It is estimated that by 2050, Mexico will become the fifth largest economy and its GDP per capita will be comparable with those of developed countries.

20501 2010

Gross Domestic Product (Billion Dollars)

GDP per capita (US Dollars)

Forecasted growth of middle income households1 (%, 2010-2015)

Source: Own estimations based on ata from Winning in Emerging-Market Cities,

Boston Consulting Group (2010).

1/ Middle income households are those with annual income over $10,000 dlls.

Expenditure of households on goods and services for individual consumption

(USD, 2008)

Although income levels in Mexico are similar to those in emerging economies, the level of household consumption is higher.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

Source: Own estimations based on data from Global Purchasing Power Parities and

Real Expenditures, 2005 International Comparison Program - World Bank (2008)

1/The original data are for 2005 and the estimations for 2008 were made using the

observed growth rates from those countries.




i. Trade facilitation

ii. Some sectors



Trade facilitation based on 3 strategies:

Tariff simplification

Customs facilitation

Institutional strengthening

of COCEX

Tariff simplification

Simple average tariff Industry; %

Tariffs with rate zero Industry; %

Customs Facilitation: Single window system

• One single delivery information window

• Every procedure is electronic

• The information will be delivered only once

• The information and requirements of each procedure will be defined clearly and explicitly.

• Has the Electronic Advanced Signature

• Low risk of permits falsification

• Easy implementation of single petition

• The personal contract will be eliminated.

2. Increases transparency

3. Increases security

4. Facilitates information flow through countries

5. Reduces Risk Corruption

1. Reduces transaction costs

Advantages of Implementing:

Competitiveness: market access

Trade facilitation indicators:

2008 • 74

2009 • 43

2010 • 22

Mexico's position in the sub index for market access WEF

Source: World Economic Forum 2010 Source: Doing bussiness

Trading across borders rank

= improvement

Share of total manufacturing imports, USA (Top countries, %)

USA Imports Dynamics (Annual variation, %)

Source: U.S. International Trade Commission (2011)

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

JU

L-0

9

AU

G-0

9

SE

P-0

9

OC

T-0

9

NO

V-0

9

DE

C-0

9

JA

N-1

0

FE

B-1

0

MA

R-1

0

AP

R-1

0

MA

Y-1

0

JU

N-1

0

JU

L-1

0

AU

G-1

0

SE

P-1

0

OC

T-1

0

NO

V-1

0

Total China Canada Mexico

5

10

15

20

25

30

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

JA

N-1

0

FE

B-1

0

MA

R-1

0

AP

R-1

0

MA

Y-1

0

JU

N-1

0

JU

L-1

0

AU

G-1

0

SE

P-1

0

OC

T-1

0

NO

V-1

0

Mexico Canada China

Mexico has improved its position as a top trade partner to USA despite China’s entry to WTO.


2. Strong manufacturing platform for exports



i. Trade facilitation

ii. Some sectors



In general, the industrial policy is based on specific instruments…

Human capital

Regulation

Access to financing

Market growth

Government procurement

Promotion of

Innovation

… for several sectors. In particular, some of them exhibit good results: Information technologies, Aerospace, Automotive and Mining.

Information Technologies (IT)

20

What has been done to promote the IT sector in Mexico?

Exports & investment

Human capital

Legal certainty

IT promotion

Competitiveness and innovation

Quality impulse

Funding

PROSOFT 2.0: A long run public policy (2002 – 2013)

7 strategies

Positioning Latin American leader developer of IT solutions and services

with high processing capability.

Investment in IT as GDP %

0.7 1.7 2.3

Billing (MUSD)

2,296 10,870 15,000

Employment

124,245 600,000 625,000

2002 2010 2013

Start, progress and goals

The perception of Mexico in the international market for this sector is positive

Mexico is ranked as the fourth global player in the exports of IT services and BPO after India, the Philippines and China. Gartner analysis

Mexico is the only Latin American country that scored "Very Good" in the assessment of cost, while other countries have had only a grade of "Good." Gartner study

Mexico is set at position 6 in the Global Services Location Index 2011, becoming the first North American country due to the availability of human capital and the financial attractiveness (costs). AT Kearney

Mexico is ranked as the most competitive location allowing a cost savings of 53.4% in activities of Back Office / Call centers, 31.7% in Software Design and 34.1% in Web and Multimedia, compared to the location of U.S. operations. KPMG

Automotive

Strategies for sector development

Human Capital

Auto Decree (Benefits from investments in training)

Management Comittee Labor Skills

PRODIAT* (job preservation)

Investment Attraction

Auto Decree (Gains on investments in productive

infrastructure)

ProMéxico fund (cash payments to foreign

investment)

Competitiveness

PRODIAT (support for market failure

solutions) Auto Decree

(Bonded warehouse, public procurement)

PROSEC (preferential tariffs on inputs)

Technical Standards (Safety and environmental)

Supplier development

Auto Decree (Benefits for purchases from domestic

suppliers to overseas plants)

SMEs fund (Transfer of resources for the creation,

development and consolidation of SMEs)

Innovation Innovatec and Proinnova

(Resources for investment in technological innovation in production

processes)

AERI´s (Resources for the creation of strategic

alliances for innovation)

Technical Standards (Safety and environmental)

*/ In 2009, 518.2 million pesos were allocated for the preservation of human capital in the auto industry through the support of projects type “B”

The automotive sector as a strategic sector

The automotive industry in Mexico is a strong export oriented

sector. In 2010, Ward’s Auto placed Mexico in the

sixth position as vehicle exporter.

The same analysis reveals that it is the

ninth largest producer of motor vehicles

globally.

In 2010, KPMG ranked Mexico as the country

with lower parts production costs in a 10 countries selection

According to the US Census Bureau, in

2010 Mexico was the leading exporter of

automotive products to the United States with a 26% share of

total country imports.

*/ In addition to Mexico, the selected countries were: France, Germany, Italy, Netherlands, United Kingdom, Canada, USA, Australia and Japan

0

20

40

60

80

100

120

140

Me

xico

Au

stra

lia

US

A

Ca

na

da

Fra

nce

Un

ite

d K

ing

do

m

Ne

the

rla

nd

s

Ita

ly

Ge

rma

ny

Jap

an

1 2 3 4 6 7 8

18 19

63

8390

101

Rey

no

sa, M

exi

co

Agu

asca

lien

tes,

Me

xico

Pu

ebla

, Mex

ico

Mo

nte

rre

y, M

exi

co

Shre

vep

ort

, USA

Gre

env

ille

-Sp

art

anb

urg

, US

A

Mo

ntg

om

ery,

USA

Ad

ela

ide

, Au

stra

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Mel

bo

urn

e, A

ust

ralia

Par

is, F

ran

ce

Det

roit

, USA

Ma

nch

est

er,

UK

Ham

amat

su, J

apan

Mexico has significant competitive advantages in the automotive industry

26

Advantage in automotive assembly costs (Index 100 = USA)

Position in automotive parts assembly by city (Position of 102 considered cities)

Source: KPMG. Guide to international business location, 2008.

48

40

32 31 30

25 24

23

.5

20

16

0

10

20

30

40

50

Toy

ota

Ge

org

eto

wn

(US

A)

Toy

ota

Ca

mb

rid

ge

(Ca

na

da

)

Ch

rysl

er

Be

lvid

ere

(US

A)

Ford

Dea

rbo

rn (U

SA)

GM

Sil

ao (

Me

xico

)

Ch

rysl

er

Tolu

ca (M

exi

co)

Nu

mm

i (U

SA

)

Toyo

ya P

rin

ceto

n W

est

(USA

)

GM

Pa

rma

, Oh

io (U

SA

)

Hyu

nd

ai M

on

gtgo

mer

y (U

SA)

1.84

2.53 2.6 2.6

6 3.07

3.09 3.1

9

3.32 3.4

5

3.46

0

1

2

3

4

Ch

rysl

er

Du

nd

ee

GE

MA

(US

A)

GM

Sp

rin

g H

ill (

US

A)

Toy

ota

Ge

org

eto

wn

(U

SA

)

Toy

ota

We

st V

irg

inia

(U

SA

)

GM

Fli

nt

So

uth

(US

A)

GM

Flit

No

rth

(USA

)

GM

To

na

wa

nd

a (U

SA

)

Ch

rysl

er

Ma

ck A

v. II

(U

SA

)

Ch

rysl

er

Sa

ltill

o (M

exi

co)

GM

Ro

mu

lus

(USA

)

Mexico has developed high performance plants that can be compared with the best plants worldwide.

27

Top 10: Engine production (Hours per produced engine)

Source: Oliver Wyman Automotive Consulting Services. The Harbor Report, June 2008. Note: Considers 61 Plants in North America, Europe y South America in 36 cities.

Top 10: Stamping process (Parts per hour)

28

24% 26%

0%

5%

10%

15%

20%

25%

30%

35%

40%

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

México Canadá Alemania Japón

Major exporters of automotive (Participation in the total six first)

Share of the US imports (Percentage)

Source: OMC

Source: US Census Bureau

The results in the automotive sector are evident

• In 2010 the Mexican automotive industry was the largest exporter to the United

States, achieving a share of imports of automotive products in the country of 26%

2008 2009 Change

% %

European Union 53.1 53.8 0.7

Japan 13.9 12.2 -1.7

United States 9.0 8.6 -0.4

Korea 4.0 4.4 0.4

Mexico 3.8 4.3 0.5

Canada 4.2 4.0 -0.2

Other 12.0 12.7 0.7

Mexico Canada Germany Japan

29

A good example in the automotive sector is Nissan, a successful firm in Mexico

Nissan's main markets in 2010 (%)

Source: Based on information from Ward´s Auto.

Nissan Mexico Suppliers' share, 2004-2008

(%)


2. Strong manufacturing platform for exports





1. The Mexican economy has been recovering fast from the 2009 crisis and is expected to perform favorably during 2011.

2. Mexico has shown responsible macroeconomic policy and has strengthen the domestic market and its growth potential.

3. The rapid growth of exports, their diversification and the increase in our market share of the US market reveal the competitiveness of the Mexican industry.

4. Mexican government is implementing actions to consolidate our industry and to further increase its productivity.

Concluding remarks

The Mexican Economy and

Investment Opportunities

Lorenza Martínez Trigueros

August, 2011

the mexican economy and investment opportunities lorenza ... · source: omc source: us census...

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