the mexican economy and investment opportunities lorenza ... · source: world economic forum. the...

The Mexican Economy and Investment Opportunities

Lorenza Martínez Trigueros July, 2011

1. Solid economic fundamentals

2. Strong manufacturing platform for exports

3. Attractive domestic market

4. 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 annual growth rates above 4%, higher than those observed in recent years.

Source: Banxico


Source: Bloomberg

EMBI + Index

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

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




4. Industrial policy agenda

5. Concluding remarks


Competitiveness Advantages in Mexico

1. Geographic Location Large U.S. border and coast both at the Pacific and Atlantic Oceans

2. Preferential access to foreign markets

11 FTAs with 43 countries and an approved legal framework with major trading partners

3. Skilled and competitive labour force

Skilled workforce at relatively low cost, managerial skills and cultural affinity

4. Demographic window In the next three decades, the number of economic dependents will reach a record minimum (2025)

Mexico enjoys great advantages to compete in the global market

Attractive FDI destination

Europe Asia

South America

Northamerica

Africa Central America

Mexico’s geographical location provides easy access to all markets in the Americas

27 APPRI’s

11 FTA’s

6 ACE’s

Through 11 free trade agreements, Mexico enjoys preferential access to 43 countries with a population of over 1 billion people, and 75% of world GDP

Global Services Location Index, 2010 (From 0-10 and considers: Financial Attractiveness, People Skills and

Availability and Business Environment)

Source: AT Kearney, 2010. Published on the 2nd half of 2010.

In a ranking of 50 countries, Mexico is placed 6th in attractiveness of offshore locations.

From 2009 to 2010, Mexico climbed up 5

positions

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

JUL-

09A

UG

-09

SEP-

09O

CT-

09N

OV-

09D

EC-0

9JA

N-1

0FE

B-1

0M

AR

-10

APR

-10

MA

Y-10

JUN

-10

JUL-

10A

UG

-10

SEP-

10O

CT-

10N

OV-

10

Total China Canada Mexico

5

10

15

20

25

30

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

JAN

-10

FEB

-10

MA

R-1

0A

PR-1

0M

AY-

10JU

N-1

0JU

L-10

AU

G-1

0SE

P-10

OC

T-10

NO

V-10

Mexico Canada China

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

Source: UNESCO Statistics (2010)

Engineering Graduate Students

(Per thousand inhabitants)

0.39

0.45 0.47 0.50

0.58 0.57 0.57

0.62 0.64

0.61

0.30 0.29 0.27 0.25 0.24 0.23 0.22 0.20 0.20 0.21

0.23 0.23 0.23 0.23 0.22 0.22

-

0.1

0.2

0.3

0.4

0.5

0.6

0.7

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

México

EUA *

Mexico is increasing the number of engineering graduates

Mexico

USA

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

plac

e

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.

Focalized sectoral actions

Instruments

To inform and coordinate

stakeholders

«Detecting sub-sectors with potential for

further growth in the Mexican economy»

Roadmap Regional analysis

Financial market

development

Government procurement

Regulation

Stage 1: Implementation

Stage 3: Identified sectors

• Information technologies

• Aerospace

• Automotive

• Mining • Fruits and flowers • BPOs • R&D services • Music, movies, radio & TV • Design and architecture

• Food industry • Medical devices • Electronic equipment • Health services • Tourism

Promoting innovation

Stage 2: Developing strategies

In general, the industrial policy is designed as follows:

Human capital

Regi

onal

Sus

tain

able

Dev

elpm

ent

18

Information Technologies (IT)

19

The IT sector in Mexico has shown a strong growth rate and it is expected to keep this pace

2095

2785

0

500

1000

1500

2000

2500

3000

2002 2011

4

32

0

5

10

15

20

25

30

35

2002 2011

-1%

13%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2002 20112

42

0

5

10

15

20

25

30

35

40

45

2002 2011

Hund

red

USD

Sources: (1) PROSOFT, (2) INEGI, (3) Select, (4) Own estimates with data from ATKearney & Select

4

303

0

50

100

150

200

250

300

350

2002 2011

0

27

0

5

10

15

20

25

30

2002 2011

0

24

0

5

10

15

20

25

30

2002 2011

65

90

- 10 20 30 40 50 60 70 80 90

100

2002 2011

Thou

sand

Promoting states (total of 32)

Number of firms Growth rate IT & BPO Exports

IT Clusters IT Parks Quality Certified Centers Engineering and technology graduates

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 Placement

Mexico is the Latin American leader in developing IT solutions and services with high processing capability.

IT investment/GDP 2010: 1.7% 2013: 2.3%

Sales 2010: 10,870 MUSD 2013: 15,000 MUSD

Employment 2010: 600,000 2013: 625,000

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

7 strategies 4 objectives

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

The IT sector is a strategic supplier for other sectors in the economy

They provide IT Services to:

They develop

their own IT:

Elec

tron

ic a

nd E

lect

ric S

ervi

ces:

Au

tom

otiv

e se

ctor

:

They provide IT Services to:

Aerospace

The growth in the aerospace sector responds to an industrial scaling process.

Simple parts, assembly and

aircfraft components

Turbines, fuselage, arneses and landing gears

Design and engineering

activities

Assembly of complete airplanes

Increase in the added value:

Expected by the end of the decade

2006: Experience gained from other sectors such as automotive and electronic

2010: Operations from leading companies from the aerospace industry, even in engineering and development projects.

2020: Projects with more added value and the use of innovative material.

julio de 2011

1. Promotion and development of the Internal and External Market: • Industrial

compensations scheme (offsets)

•Commercial facilitation through IMMEX and PROSEC programs and tariff exemption for importation inputs.

•Exports control agreements. (Wassenaar)

2. Human Capital Development •Aeronautics

engineering programs.

•Creation of the National Aeronautics University.

•Creation of COMEA, which integrates schools and universities in order to strengthen the linkage with the productive sector.

3. Technologic Development • Integral Innovation

System.

• Extend the innovation support mechanisms, for example the AERIS, and networks that CONACYT supports.

• Development of infrastructure laboratories. The first aerospace laboratory is built.

4. Strengthening and Development of the industry capacities •Development of

national suppliers.

•Clusters

• Scaling to activities of greater added value.

• Investment attraction (Promexico and local governments).

26

Strategies and supporting actions to the Aerospace Sector

• Institutional framework, formalized through the National Strategic Plan currently in process. •Support programs like the Innovation Fund, Promexico PRODIAT, SME´s

•Aerial Security Agreement(BASA)

5. Development of transversal factors

27

Results

Exports Average growth rate superior to

20% for the last 5 years.

In 2010, exports by 3,266 millions,

historical maximum.

Employment Employment has

tripled, from 10,500 in 2006 to 30,000 in 2010.

The aerospace sector generates remunerations higher than the economy

average.

Companies Located in 17 states of the

Republic.

Between 2006 and 2010 the number of companies doubled; from 109 to 238

industrial plants.

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

Mexico is the first place in aeronautic manufacture investment in the world, with 33 thousand millions of dollars between 1990 and 2009. Aerostrategy Management Consulting

Within the transport equipment manufacture sector, the aeronautic industry stands out for being on the most interesting to invest in México. Boston Consulting Group (BCG)

Mexico is the ninth supplier of aeronautic products to the United States, above nations such as China, Korea, Australia and Spain. Data from the US Department of Commerce

Mexico stands out as the country with lower operating costs of manufacture equipment plants and aerospace components, even 30% lower than the European countries. Study “Competitive Alternatives” by KPMG.

Automotive

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

Mex

ico

Aus

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SACa

nada

Fran

ceU

nite

d Ki

ngdo

mN

ethe

rlan

dsIt

aly

Ger

man

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pan

1 2 3 4 6 7 818 19

63

8390

101

Reyn

osa,

Mex

ico

Agua

scal

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exic

o

Pueb

la, M

exic

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Mon

terr

ey, M

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Shre

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Gree

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SA

Mon

tgom

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USA

Adel

aide

, Aus

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ia

Mel

bour

ne, A

ustr

alia

Paris

, Fra

nce

Detr

oit,

USA

Man

ches

ter,

UK

Ham

amat

su, J

apan

Mexico has significant competitive advantages in the automotive industry

31

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

Toyo

ta G

eorg

etow

n (U

SA)

Toyo

ta C

ambr

idge

(Can

ada)

Chry

sler B

elvi

dere

(USA

)

Ford

Dea

rbor

n (U

SA)

GM S

ilao

(Mex

ico)

Chry

sler T

oluc

a (M

exic

o)

Num

mi

(USA

)

Toyo

ya P

rince

ton

Wes

t (US

A)

GM P

arm

a, O

hio

(USA

)

Hyun

dai M

ongt

gom

ery

(USA

)

1.84

2.53 2.6 2.66

3.07

3.09 3.19 3.

32 3.45

3.46

0

1

2

3

4

Chry

sler

Dund

ee G

EMA

(USA

)

GM S

prin

g Hi

ll (U

SA)

Toyo

ta G

eorg

etow

n (U

SA)

Toyo

ta W

est V

irgin

ia (U

SA)

GM Fl

int S

outh

(USA

)

GM Fl

it N

orth

(USA

)

GM To

naw

anda

(USA

)

Chry

sler M

ack

Av. I

I (US

A)

Chry

sler S

altil

lo (M

exic

o)

GM R

omul

us (U

SA)

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

32

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)

The automotive sector has a highly developed supply chain in all the productive regions

More than 100 suppliers for:

142 suppliers for:

More than 190 suppliers for: More than 70 suppliers for:

DCH

+ Access to Detroit

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”

Decree to support the competitiveness of the automotive industry

\* In all cases, companies have to: • Have their own trademarks registered at the Mexican Industrial Property Institute (MIPI) or being authorized by the owner. • To comply with applicable standards

Fiscal automotive deposit

(customs law)

International trade benefits

(e.g. test vehicles imports) as established in the customs

Law

Deemed of national origin for government

procurement auctions regardless where vehicles

were produced

Benefits:

Requirements* At least 100 million dollars of

fixed assets Registration up to 3 years

before 50,000 unit are produced

Requirements* Carry out or will carry out the

manufacturing, assembling or armoring using licenses of an Original Equipment Manufacturer

Added value of at least 50% of the car’s price before taxes

Requirements*: 50,000 light vehicles manufactured

the previous year Renewed with 30,000 units as long as

the fall in production isn’t larger than the decrease in the demand.

At least 100 million dollars of fixed assets

Companies that had manufactured in Mexico

50,000 vehicles for at least 1 of the last 3 years

Companies that carry out or will carry out the

manufacturing, assembling or armoring

of vehicles

Companies that have invested 100 million dollars,

as well as companies that have not produced 50,000 vehicles annually, but they

will.

Article 3 Article 4 Article 7

36

24% 26%

0%

5%

10%

15%

20%

25%

30%

35%

40%

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

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 0.7Japan 13.9 12.2 -1.7United States 9.0 8.6 -0.4Korea 4.0 4.4 0.4Mexico 3.8 4.3 0.5Canada 4.2 4.0 -0.2Other 12.0 12.7 0.7

Mexico Canada Germany Japan

37

Japan and Mexico have a strong potential to take advantage of their economic complementarities

Japan’s exports of vehicles (Annualized growth rate)

Source: Japan Automobile Manufacturers Association

Japanese exports of vehicles by region (% of total exports)

38

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

(%)

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 July, 2011

the mexican economy and investment opportunities lorenza ... · source: world economic forum. the...

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