Mexico Economic Weekly - February 27

UNCLAS MEXICO 000582


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 - February 27


1. (U) The Mexico Economic Weekly supplements reporting from
Mission Mexico 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:


ECONOMY AND FINANCE:
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BAJA CALIFORNIA ELECTRONIC INDUSTRY DECREASES PRODUCTIVITY -
Tijuana

GASOLINE PRICES INCREASE IN TIJUANA - Tijuana

TRUCKING COMPANIES PROTEST HIGH FUEL PRICES, TAXES - Monterrey


TRADE AND INVESTMENT:
--------------

FOREIGN DIRECT INVESTMENT (FDI) DROPPED 31.6% IN 2008
- Mexico City

CHINESE FIRM/NISSAN TO BUILD MORE CARS IN MEXICO - Mexico City

NEW COMPANY OPENINGS- Monterrey

AIRLINES: UP FROM THE ASHES? - Guadalajara


LABOR:
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JOBLESS RATE HIT RECORD HIGH- Mexico City

TIJUANA MUNICIPALITY SUPPORTING UNEMPLOYED - Tijuana

MEXICAN LABOR CONGRESS RE-ELECTS LEADER - Mexico City


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ECONOMY AND FINANCE:
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3. (U) BAJA CALIFORNIA ELECTRONIC INDUSTRY DECREASES PRODUCTIVITY:
Production in the electronics industry in Baja California has fallen
20%, forcing the industry to cut staff according to the President of
the National Chamber of Industry (CANIETI),Jose Antonio Arroyo.
According to Arroyo, the situation is so serious that one company
had to lay off two thousand workers. Unemployment in the city has
reached over four percent from under two percent just a year ago.
(Tijuana)


4. (U) GASOLINE PRICES INCREASE IN TIJUANA: The price of Premium
gasoline went up from 9.39 pesos per liter to 9.46 pesos per liter
confirmed the president of the Association of Petrol Station Owners
of Tijuana (APEGT) February 24. Magna and Diesel remained at the
same price. Gas price increases in the border region have angered
locals. (Tijuana)


5. (U) TRUCKING COMPANIES PROTEST HIGH FUEL PRICES, TAXES: On
February 24, 600 cargo truck drivers with the support of CANACAR
took part in a protest primarily against the high cost of diesel and
the flat tax (IETU) on trucking companies. Similar to other
trucking protest that have taken place around the country, the
protesting truckers drove around the city in long caravans slowing
down traffic. The protest was peaceful and the protest route was
announced ahead of time so commuters could make other plans. In
late January, President Calderon announced that the government would
reduce the monthly increase of diesel prices by 75%, from 20 cents
every month to 5 cents every month but CANACAR points out that
diesel prices continue to be higher in Mexico than the U.S. In
addition to lower fuel costs and the elimination of the flat tax,
CANACAR is also demanding a 50% reduction in highway tolls, more
security for trucks on national highways and a ban on the import of
used cars. (Monterrey)

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TRADE AND INVESTMENT:
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6. (U) FOREIGN DIRECT INVESTMENT (FDI) DROPPED 31.6% IN 2008:
Foreign direct investment flows to Mexico reached USD$ 18.6 billion
in 2008, dropping 31.6% from 2007, the most significant decline
since 1982. The Secretariat of the Economy explains that the
decline was more significant because FDI bounced back in 2007 when
several companies began to invest again after the uncertainty that
the 2006 presidential elections generated. The global financial
crisis hurt investors' expectations mirroring their pessimism on the
economic outlook. Of the total FDI received 33.1% was channeled to
the manufacturing sector; 22.9% to mining; 21.4% to the financial
sector; 9.3% to retail sales; 4.3% to services; 4.2% to
transportation and communications; and 4.8% to others. Most FDI in
manufacturer has gone into the aeronautic and medical device
sectors. The majority of the investment came from the U.S. (45.7%);
Canada followed with 11.8%, and Spain with 11.1% of the total. The
government expects FDI to decline even further in 2009 to total USD
15 billion. Analysts noted that in order for Mexico to attract more
investment, the government would have to open the following sectors:
telephony, infrastructure and energy. (Mexico City)


7. (U) CHINESE FIRMS/NISSAN TO BUILD MORE CARS IN MEXICO: Changan
Auto plans to set up a factory in Mexico to produce 50,000
automobiles per year in partnership with Mexican firm Autopark, the
Chinese firm announced on February 24. A framework agreement
between the two companies has been signed and the firms are now
negotiating the details of a joint venture. Changan joins two other
Chinese manufacturers who recently announced investments in Mexico -
Geely and First Auto Works. The First Autoworks joint ventnure
involves an investment of $150 million and will produce up to
100,000 vehicles when it reaches full capacity. The plant will
begin operations in 2010. The Japanese carmaker Nissan said that
with the yen revaluation it will transfer part of its production to
Mexico, either to the plants in Cuernavaca or Aguascalientes.
Nissan4s plan is to export the vehicles from Mexico to Asia.
Meanwhile, Honda said that it would continue to produce its CVR in
El Salto, Jalisco and Mazda announced price increases for all of its
models. Companies such as Toyota have stopped importing units
because the peso4s depreciation has increased prices almost 30%.
(Mexico City)


8. (U) NEW COMPANY OPENINGS: Despite lowered economic forecasts
for Mexico, foreign direct investment has not completely dried up in
Nuevo Leon and neighboring Coahuila. In the first two months of the
year several large manufacturing/production facilities have opened
including plants for companies such as Lenovo, Hershey's,
Schlumberger and Lenox. Coahuila has been hit hard by declines in
auto-parts exports and welcomed the opening of the non-auto related
plants. Lazy Boy and Daimler Trucks factories are expected to open
soon in Coahuila as well. In the Monterrey area, Lowe's Companies
is still on track to open five stores in 2009. Each store
represents an investment of US$18 to $20 million. (Monterrey)


9. (U) AIRLINES: UP FROM THE ASHES?: Less than four months after
the demise of Guadalajara-based ALMA airlines with the loss of more
than 600 jobs, Mexicana Airlines announced it will create a new
subsidiary, Mexicana-Inter, to fill the resulting gap in regional
air travel. The new airline is scheduled to launch operations on
March 14, using former ALMA aircraft and gates in Guadalajara, and
could possibly employ up to 400 ex-ALMA employees. If it succeeds,
the new carrier will provide a much needed boost to the aviation
sector in western Mexico. (Guadalajara)

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LABOR:
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10. (U) JOBLESS RATE HIT RECORD HIGH: The official unemployment
rate reached 5% in January, the highest since INEGI updated the
figures in 2000. The number of unemployed reached 2.2 million,
416,000 more than in January of 2008. Although President Calderon4s
employment programs will help to marginally mitigate the impact, the
situation is expected to get worse in the coming months because of
the economic situation and stricter migration controls in the U.S.
Migration to the U.S. has traditionally provided an escape valve
which kept the jobless rate under a certain control. Official
unemployment statistics can be misleading since the figures do not
distinguish between fully employed persons, underemployed persons or
persons actively seeking work. Moreover, the OECD estimates that up
to 45 percent of all Mexicans who are currently "employed" work on
the informal economy. (Mexico City)


11. (U) TIJUANA MUNICIPALITY SUPPORTING UNEMPLOYED: At a February
24 Employment Fair sponsored by the municipality, 7,573 job-seekers
showed up for only 2,700 openings on offer. The municipal
government announced it will give one thousand pesos ($USD 70) to up
to five thousand job-seekers who did not find work (the fact that
the city announced this prior to the job fair may have increased
attendance). The municipal government has been working hard to
publicize its efforts to ameliorate the economic pain brought on by
the slowdown of the U.S. economy. (Tijuana)


12. (U) MEXICAN LABOR CONGRESS REELECTS LEADERSHIP: On February
23-24 the Confederation of Mexican Workers (CTM),the country's
largest association of labor unions held its 130 Ordinary General
Assembly. The event was one of the CTM's regularly scheduled
gathering of the organization's state and national leadership. As
is customary at such events the CTM's National Executive Committee,
it board of directors if you will, presented a number of reports on
the state of the organization, its most pressing priorities for the
coming year and a summary of the CTM's recent accomplishments. One
of the most significant occurrences at this year's gathering was the
nomination (as the sole candidate) and approbation (by a show of
hands) of the CTM's next Secretary General for the period 2010-2016.
To no one's surprise the current national leader of the CTM, Joaquin
Gamboa Pascoe, was reelected. Gamboa Pascoe has a close "go along
to get along" relationship with President Calderon and, barring the
unforeseen, his reelection means that the GOM will most likely have
few real problems with the CTM for the remainder of the Calderon
administration. (Mexico City)

BASSETT