Mexico Economic Weekly - December 11

UNCLAS MEXICO 003650


STATE FOR WHA/MEX, WHA/EPSC
STATE FOR EEB
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GWORD
TREASURY FOR IA
ENERGY FOR WARD, LOCKWOOD AND DAVIS


E.O. 12958: N/A
TAGS: ECON EFIN ETRD ENRG ELTN EAIR PGOV SENV MX
SUBJECT: Mexico Economic Weekly - December 11


1. (U) The Mexico Economic Weekly supplements individual reporting
from the Consulates and the Embassy Mexico Economic Section to
provide a sense of ongoing trends. Please contact Adam Shub
(shubam@state.gov) or Sigrid Emrich (emrichs@state.gov) for
questions or comments about this report.


2. (U) Table of Contents:

TRADE/INVESTMENT:
--------------

MEXICO STILL ATTRACTIVE TO FOREIGN INVESTMENT DESPITE FINANCIAL
CRISIS (Mexico City)

BUSINESS STYMIES GOVERNMENT'S TARIFF-REDUCTION PLAN (Mexico City)

GUADALAJARA AIRPORT TO CLOSE TERMINAL, DEFER INVESTMENT
(Guadalajara)

MONTERREY REAL ESTATE DEVELOPER MOVING FORWARD (Monterrey)

FULL IMPACT OF SLOWDOWN YET TO HIT INDUSTRIAL SITE DEVELOPERS
(Matamoros)


FINANCE/ECONOMY:
--------------

SECURITY AND ECONOMIC CONCERNS CAUSE MONTERREY TECH ENROLLMENT DROP
(Monterrey)

CHIHUAHUA SAVINGS ACCOUNT DEPOSITS DECLINE 12%; CREDIT CRISIS AND
POOR SECURITY CONDITIONS TO BLAME (Ciudad Juarez)

NAFIN CREDIT PROGRAM CRITICIZED (Monterrey)

GROUPO INDUSTRIAL SALTILLO CANCELS SALE (Monterrey)


LABOR:
--------------

MAQUILADORAS EXPECT TOUGH LABOR NEGOTIATIONS (Matamoros)


ENERGY:
--------------

LEADERS CONFIRM OPENING OF PEMEX MARKETS TO DRAW FDI (Matamoros)


TRADE/INVESTMENT:
--------------


3. (U) MEXICO REMAINS ATTRACTIVE TO FOREIGN INVESTMENT DESPITE
GLOBAL FINANCIAL CRISIS:
Several U.S. companies recently announced significant investments
and expansion plans in Mexico thanks to its proximity to the U.S.,
cheap labor and the peso depreciation, which makes exports
attractive to foreign consumers. On December 5, Best Buy opened its
second-largest store worldwide in Mexico. The company has plans to
open more stores in central Mexico taking advantage of the expected
population growth. Given the contraction in the U.S. construction
and real estate sectors, American Standard decided to move its bath
furniture production from the U.S. and Brazil to its Mexican plants
in Aguascalientes and Tlaxcala. The government projects that FDI
will reach US$ 20 billion in 2008, down about US$ 25 in 2007.
(Mexico City)


4. (U) GOVERNMENT WILL DELAY REDUCTION AND ELIMINATION OF DUTIES:
The National Confederation of Industrial Chambers (Concamin)
succeeded in delaying the implementation of the government's bold
tariff-reduction plan. According to members of Concamin, who this
week met with Under Secretary Lorenza Martinez, the Secretariat of
Economy agreed to postpone implementation until July 2009.
According to the government's proposal, the average tariff would
have been reduced from the current 10% to 2% in 2012. Martinez
acknowledged negotiating with the industry, but refused to give a
new date for the plan's implementation. The government had planned
to reduce 80% of tariffs for third country imports, but Concamin
submitted a more limited proposal to reduce only 33% of tariffs.
Currently, 20% of products have a zero tax. The industry and the
government will continue to discuss strategies to simplify foreign
trade, including customs operations. (Mexico City)


5. (U) GUADALAJARA AIRPORT TO CLOSE TERMINAL, DEFER INVESTMENT:
Grupo Aeroportuario del Pacifico (GAP),the operator of Guadalajara
International Airport (GDL),has announced plans to close the second
of its two terminals and defer planned investment in a second
runway, an intermodal bus station, and other facility improvements.
Terminal 2 was inaugurated in August 2007 at a cost of USD 5 million
to serve the regional flights of AeroMexico Connect and Alma
Airlines. When Alma suspended all service in November 2008,
Terminal 2 lost 50 percent of its operations and became financially
unviable. Figures for the first 10 months of 2008 indicate that
passenger traffic at GDL grew by an anemic one half of one percent;
the suspension of Alma service is likely to turn these numbers
negative for the full year. (Guadalajara)


6. (U) MONTERREY REAL ESTATE DEVELOPER MOVING FORWARD:
Notwithstanding the economic downturn, a prominent Monterrey-based
real estate developer told post December 8 that his firm was moving
forward with projects. Provided that a company had sufficient cash
to ride out the recession, the contact noted, now was a good time to
embark on investments that would bear fruit once the economy began
to expand again. Indeed, the bear market conditions would help in
getting better deals from the construction companies. The Monterrey
Group of Ten companies are suffering, our contact concluded, because
they had experimented with risky derivatives contracts and hadn't
thought through the implications of borrowing short-term. Sticking
to one's core business, he concluded, remains the best strategy.
(Monterrey)


7. (U) FULL IMPACT OF SLOWDOWN YET TO HIT INDUSTRIAL SITE
DEVELOPERS:
The worst from the slowing economy has yet to come according to some
industrial park managers in Reynosa and Matamoros. In regard to
industrial site development, current plans are expected to move
forward with few, if any, investors fearing the downturn enough to
stop construction of new plants or expansions that are already
underway. However, a significant slowdown in construction - starting
with engineering layoffs followed by manual laborers- is estimated
to begin in the first quarter of 2009 as current projects wrap up.
Marketing and sales jobs are expected to be safe for the time being,
with hopes of leasing available space, particularly as U.S.
companies consider moves to the border region to save money on
cheaper labor. Prologis, one of the world's largest industrial site
developers, is still operating at 92 percent capacity in its Mexican
industrial parks according to Juan Carlos Lopez, Prologis Vice
President and Market Officer for Mexico. While Prologis expects a
drop off in 2009, they are hopeful to maintain around 85 percent
capacity, though many plans for new construction such as a new
industrial park in Matamoros and further expansion in Reynosa, have
been scrapped until the economy improves. (Matamoros)


FINANCE/ECONOMY:
--------------


8. (U) SECURITY AND ECONOMIC CONCERNS CAUSE 45% DROP IN U.S.
MONTERREY TECH STUDENTS:
The number of U.S. undergraduate and graduate students will fall to
60 or 70 next year according to the Instituto Tecnolsgico de
Monterrey (i.e., Monterrey Tec - a top private university in
Mexico). Officials told Consul General Williamson and PAO Huizinga
during their December 3 visit to the school that the expected 45%
drop is a result of security fears and economic concerns. With
respect to Mexican students, university officials said that the
economic crisis was limiting the entry of new Mexican students and
causing some current students to drop out. (Monterrey)


9. (U) CHIHUAHUA SAVINGS ACCOUNT DEPOSITS DECLINE 12%; CREDIT
CRISIS AND POOR SECURITY CONDITIONS TO BLAME:
Savings account deposits in Chihuahua's banking sector fell 12% from
June to September, according to Mexico's National Institute of
Statistics and Geography (INEGI). At the end of June, the gross
savings deposit capitalization in the local banking sector stood at
MX$ 40 million; by the end of the third quarter that figure had
fallen to MX$ 35 million. In recent weeks Chihuahua banks have also
tightened consumer credit availability and raised interest rates on
credit cards. While savings deposits have declined, checking
account deposits in Chihuahua have remained steady at MX$ 16.1
billion. While these saving rates are already low, their decline
signals distress in the local economy. Local press accounts
attribute the drop to a myriad of factors, including: 1) lower
confidence in the local banking sector as a result of the
international credit crisis; 2) the rise in unemployment in the
state's manufacturing sector; and 3) the deteriorating security
situation. Banking in El Paso, for instance, is considered by many
to be safer both in terms of financial and personal security.
(Ciudad Juarez)


10. (U) NAFIN CREDIT PROGRAM CRITICIZED:
Nacional Financiera (Nafin) is failing to free up credit to small
and medium sized businesses (PYMES, in Spanish),according to a
December 4 statement by Federico Toussaint, the president of
Caintra, Neuvo Leon's business association. Nafin's program to
guarantee up to 12.5 million pesos of loans is not being accepted by
banks, therefore companies are being denied credit or seeing their
credit lines reduced. Toussaint plans to meet with the Secretary of
Finance, Nafin and the Mexican Banking Association to resolve the
matter. (Monterrey)


11. (U) GROUPO INDUSTRIAL SALTILLO CANCELS SALE:
Group Industrial Saltillo (GIS),a large industrial conglomerate
based in Coahuila, cancelled the sale of its home wares division on
December 4. The company cited the volatile financial markets and
weak overall economic conditions as reason for canceling the sale.
The company planned to use the proceeds of the sale to reduce debt.
The decision to cancel the sale also comes in the wake of US$536
million in derivatives losses announced in October. EconOff met
with Fitch Ratings, a bond rating company, and was told that the
future of the company remains uncertain. GIS is set to roll over a
large portion of its debt next year and Fitch Ratings current has a
negative outlook on the company's bond issues. (Monterrey)

LABOR:
--------------


12. (U) MAQUILADORAS EXPECT TOUGH LABOR NEGOTIATIONS:
The Matamoros Maquiladora Association (AMMAC) is beginning its
latest round of labor negotiations this week with SOJIIM, the
largest CTM union in Matamoros. According to AMMAC Labor Committee
Director Angelica Gomez, the negotiations are expected to be
difficult, primarily due to pressures from the workers in regard to
inflation, the diminishing value of the peso versus the dollar, and
lay-off fears in the local industry. According to AMMAC data,
negotiations by individual companies have shown salary increases
jump 25 percent since August, with summer negotiators settling at 4
percent increases and the most recent agreements at 5 percent or
more. AMMAC is encouraging its members to work together, with
President Monica Gonzalez Greer telling members in attendance at the
December monthly meeting: "Historically, statistics clearly show
that Association negotiations get better results for members than
individual company efforts." Greer added that the number of members
committed to group negotiations is down this year and that the union
has been placing particularly strong pressure on maquiladoras to
negotiate separate contracts this year. (Matamoros)


ENERGY:
--------------


13. (U) LEADERS CONFIRM OPENING OF PEMEX MARKETS TO DRAW FDI:
Government and industry leaders expect the energy reform package
approved by the Mexican Congress in October to create opportunities
for investment in ancillary services in the natural gas and
petroleum sectors. According to members of the Secretary of
Economy's office in the municipality of Reynosa, Tamaulipas - home
to significant petroleum refining and natural gas exploration
installations - changes in PEMEX are expected to attract significant
new investments in ancillary service providers. The municipal
government expects thousands of potential new jobs related to the
industry. (Matamoros)


Garza