• Water treatment:  Mexican sugar producer Grupo Azucarero México (GAM) revealed it will begin construction next month on a new waste water treatment plant.  GAM has invested US$35 million over the past four years in automation process technology, as well as a system for generating electricity through steam produced by burning cane bagasse.
• Logistics: Guanajuato’s Guanajuato Interior Port multimodal logistics center will enter a new phase of expansion in the coming months.  Approximately US$55 million in new investment will be carried out to expand existing infrastructure at the site, which includes Customs facilities, a free zone, ground and air cargo handling services, industrial yards and related operations.
• Automotive: German engine components maker Getrag Transmissions Manufacturing inaugurated a new production plant in the central city of Guanajuato.  The US$500 million facility will manufacture transmissions for the Ford Fiesta line being built at Ford’s Cuautitlan Izcalli plant outside Mexico City.
• Manufacturing: French digital media manufacturer Technicolor will begin making 3D Blu-ray discs for Warner Brothers at its Guadalajara plant this year.  The company is investing US$11.4 million in the plant to boost production capacity.
• Green building: Mexican developer Homex announced plans to develop four new housing complexes in north western Mexico based on the concept of Integrated Sustainable Urban Developments.  The first of these complexes will require investment of US$27 million and all will incorporate green building technologies.    
• Real estate development: Cancun’s new mega convention center Cancun Messe, currently under construction, plans to open to the public to host the Latin American Food Show in September.  The expo center, which seeks to become the largest in Latin America, will have cost a projected US$270 million once complete.
• Aerospace: Bell Helicopter inaugurated a new manufacturing plant in the northern city of Chihuahua this month.  The plant will produce parts for Bell’s model 429 helicopter.
• Water treatment: Leading tequila producer Herradura inaugurated a new US$6.5 million water treatment plant at its production facility in Amatitan, Jalisco.  Herradura also announced additional investment of US$5 million to expand production capacity at the plant.
• Electronics: IT and electronics giant IBM recently invested US$20 million in its manufacturing plant at El Salto, Jalisco, to support production of data storage equipment for export.  The company reiterated its commitment to maintain and expand its Mexico operations.
• Rail freight: Railrod operator Kansas City Southern de Mexico announced plans to invest US$80 million to develop a freight terminal in the western state of Michoacan.  The terminal is intended to serve freight coming through the port of Lazaro Cardenas on Michoacan’s Pacific coast.
• Entertainment: Cinema operator Cinemex will invest US$9 million to develop a luxury movie theater complex in a large upscale shopping center currently under construction in the south eastern state of Tabasco.  The site will include VIP and 3D facilities.
• Aerospace: Canadian aerospace giant Bombardier announced plans to add five new plants to its existing manufacturing infrastructure in Mexico, via investment of US$300 million.  A stalwart of Mexico’s thriving aerospace industry, Bombardier advised it is considering investing a further US$100 million to increase its rail equipment manufacturing capacity in Mexico.

In the not-too-distant past, such an outcome on election day would primarily be cause for anger, frustration and concern.  But, as a great thinker once said, that was then and this is now.  Realistically speaking, many of us feared the elections would be the target of attacks by the drug cartels, particularly in the wake of last week’s murder of the front-running candidate for governor in the border state of Tamaulipas.  But when we crawled out of our hiding places this morning, we were greeted mostly with tales of corruption and gangstery old-school politics.  Just like the bad old days, which are actually starting to look kind of good by comparison.

The strong showing by the PRI is seen in some quarters as an ominous foreshadowing of return to the single-party domination and strong-arm tactics of yesteryear.  Certainly the reports of extreme electoral monkey business in Hidalgo and Veracruz suggest the PRI hasn’t forgotton how to throw a good old fashioned Mexican election.  Initial returns, however, indicate that the PRI actually lost the governorships of the states of Oaxaca, Puebla and Sinaloa, which are known for many nice things but seriously people pristine electoral democracy is not one of them.  Perhaps most promising, voter turnout in a good number of states was over 50%, according to published figures.  Even turnout in Tamaulipas approached 40%, which isn’t bad considering we’re on the verge of changing the state motto to “Hail of gunfire.”  So in light of widespread concerns about catching the “bullet flu” at the polls yesterday, on balance Mexicans should be commended for exercising their political rights.  Hopefully, the incoming governors, mayors and state legislators will show a similar commitment to democracy.  Hopefully.

Put me in coach

In the run-up to this weekend’s G20 meeting in Huntsville, Ontario, much ink has been spilled regarding the value of the Chinese currency.  Economists, pundits and observers of all stripes have taken positions on various sides regarding the question of how much and how fast the yuan (or Renminbi, if you prefer) needs to appreciate against other major currencies.  And, of course, how willing Chinese authorities are to allow this to happen.

Hypothetical scenarios projected in some circles of a rapid appreciation of 40% have China’s export competitors salivating.  Basic trade theory holds that by hiking the value of the yuan, Chinese exports become more expensive, making competing products made in countries such as Mexico that much more cost competitive.  Gaining ground of this type is seen as critical in the hotly disputed U.S. market for goods such as appliances and electronics.  Trade data for 2009 suggests that Mexico is already gaining some overall market share from China in the United States, and we have touched on the relative cost competitiveness between Mexico and China in this space before.

Mexican observers were quick to imagine their Christmas stockings filling up with export gains as the international media flooded with projections of a dearer yuan.  A recent report in Reforma cited an academic pundit in ticking off the potential benefits to Mexico: Increased exports to the United States, a rise in world oil prices, and even a possible bump in Chinese tourism to Mexico.  Much like Mexico’s hopes of defeating Argentina in the upcoming World Cup knockout match, however, a lot of unlikely things would really have to go right for this to work out.  The yuan itself, when ostensibly released from its dollar-pegged bondage by Chinese banking authorities last week, mostly behaved like a squirrel in the middle of the road: it moved hesitantly back and forth with no clear direction as the traffic of the G20 summit loomed.

Early feedback from G20 countries on China’s claims of a free-floating yuan reflects a good measure of skepticism about the true intentions of the Asian giant with regard to their currency.  As always, only time will tell what the outcome will be.  But if there is any significant appreciation of the yuan at all over the next year, it will be more than welcome in Mexico.  As would a dignified showing against Argentina, even if our fantasies of a stunning victory, or a 40% increase in manufacturing exports, go unfulfilled in the end.

• Real Estate:  Mexican real estate developer Marhnos announced plans to build up to five office towers in Mexico City over the next five years.  The company is projecting investment of approximately US$1.5 billion in the projects, which will be carried out in alliance with New York-based developers Turner International.
• Apparel: Sports apparel and footwear maker Grupo Charly is manufacturing in Mexico again after an absence of six years.  The  Mexican company offshored the last of its domestic production to Asia in 2004, but began to move some manufacturing back home last year to improve delivery times.  They project ramping up Mexico production to 600,000 pairs of sports shoes over the next three years.
• Automotive: Nissan Mexicana has reported plans to invest US$600 million at its plant in Aguascalientes, Mexico, to manufacture a new model car.  The auto maker plans to build 50,000 units annually of the new model, which will include 75% components from domestic suppliers.
• IT: Mexico’s top telco Telmex announced it will significantly expand its Triara Data Center over the coming two years.  The US$100 million facility provides integrated hosting services, data storage, backup and connectivity solutions to domestic and international corporate clients as well as government agencies.
• Automotive: U.S. truck maker Navistar announced its Mexican subsidiary Navistar Mexico will increase production by 50% by the end of the current year.  The company’s US$250 million facility in Escobedo, Nuevo Leon is the largest truck and bus chassis manufacturing plant in Latin America.
• Poultry: U.S. poultry giant Tyson opened a new animal oil and protein processing plant in the state of Durango.  The US$1 million dollar facility is part of a projected US$16 million in investment in the company’s Mexico agriculture and food operations this year.
• Software: Indian IT consultants Tata Consultancy Services (TCS) announced plans to open a third software development center in the state of Jalisco.  Tata, which also operates offices in Mexico City, two software development centers in Guadalajara and one in Queretaro, is a key player in Jalisco’s burgeoning software industry.
• Logistics: Work is underway on major expansions at the port of Veracruz, Mexico’s key container terminal on the Gulf of Mexico.  The expansions will include a logistics center to the north of the port, improving accessibility, and new rail connections.
• Retail: Mexico’s leading retailers will invest approximately US$1.5 billion this year in new store openings and upgrades, according to the ANTAD retailers’ association.  Department stores Liverpool and Palacio de Hierro, convenience chain Oxxo and others announced plans to return to expansion this year after mostly suspending growth during recession-plagued 2009.
• Steel: Mexico’s national steel producers association Canacero announced projected investment in the sector of up to US$10 billion over the next five years.  A boost in production is planned to meet recovering demand on the world market anticipated to begin next year.
• Tourism: Resort operator Sunset World announced plans to invest US$26 million in remodeling and expansion of existing locations in the Riviera Maya area.  The company also reportedly intends to make additional investments to construct a large “eco-luxury” hotel in the same area.
• Lighting: Indian lighting products giant Havells plans to invest US$100 million to build or purchase a manufacturing plant in Mexico.  The company already produces lighting ballasts at a plant in the border city of Matamoros, Mexico.
• Tourism: Singapore-based resort developer Banyan Tree revealed plans to build two new locations in Mexico with investment of over US$200 million.  The company’s proposed plans include development of a luxury location in the Guadalupe Valley, Mexico’s leading wine producing region.

Read the fine print

Here’s one that, we confess, took us by surprise: in a recent study of tax attractiveness for business, when the final numbers were in, Mexico came in at a whopping…wait a moment…(removes glasses, rubs eyes, puts glasses back on)…number one??!!

Well, we are beaming, we must say.  It’s not that we feel Mexico is not tax competitive – it’s just that, well, we’re still a little grumpy after filing our own Mexican corporate and personal taxes earlier this year.  But in KPMG’s Competitive Alternatives 2010 Special Report: Focus on Tax, Mexico is ranked number one, with the lowest Total Tax Index (TTI) based on a study of 95 cities in 10 countries.   The three major tax components under analysis in the report are corporate income tax, other corporate taxes, and statutory labor costs.  Tax systems vary widely from country to country, of course, and the overall tax burden on businesses can vary significantly by industry within a country.  Any attempt to boil down the corporate tax environment to a single index score will be complex, and KPMG addresses the challenges to such an undertaking in detail in their report.  Nonetheless, at least in this document, we are number one, and we must say we are well chuffed.  Now, if we can only keep the momentum going into the World Cup…

For a look at KPMG’s full report, go here.

• Beverage:  Mexican beverage giant and retailer FEMSA announced plans for US$750 worth of investment this year.  The lion’s share of the funds will go toward upgrades and expansions of bottling plants, while the remainder will support the company’s Oxxo chain of convenience stores.
• Automotive:  Chinese autoparts maker Minth opened a manufacturing plant in the northern state of Aguascalientes.  The plant, representing a total investment of US$16 million, is planned to supply molding and interior components to Nissan, Ford, Chrysler and Fiat plants in Mexico.
• Mining: Mining companies operating in Mexico will invest a combined US$13.8 billion through 2012, according to the Mexican Mining Chamber (Camimex).  The chamber projected that expansions and upgrades of operations in mining zones will contribute toward improvements in roads, electrification, potable water and other basic infrastructure in the areas.
• Automotive: Industry sources reported that Chrysler and Fiat plan to jointly produce a new model of SUV at the companies’ plant in Toluca, State of Mexico.  The model would join two other new compact models reported planned by Fiat for production at the Toluca plant.
• Automotive: German autoparts manufacturer Continental projected it will invest US$10 – 12 million this year, principally in equipment and software.  Continental is anticipating sales growth of 20% in 2010 as the automotive industry recovers from last year’s downturn.
• Electronics: Chipmaker Intel announced investment plans in the area of US$200 million over the next three years in support of its Guadalajara operations.  Planned projects include expansion of the company’s Design Center, the creation of a children’s technology museum and a center to promote relationships with small and medium sized Mexican firms.
• Renewable energy: The Inter-American Development Bank announced financing for four new wind farms for the generation of electricity to begun in 2012.  Total investment in the projects is projected at US$5 billion.

Be the first on your block

Mexico’s progress in making greater use of renewable energy sources has long been shackled by regulatory restrictions on independent energy generation by private enterprises and citizens.  This, of course, has much to do with the histrionics of political sectors that oppose energy reform for reasons wholly unrelated to energy, but that’s another topic.  It’s a fundamental problem of, as we say in Mexico, “ni picha, ni cacha, ni deja batear.”  The resources of the Federal Electricity Commission (CFE) are far too stretched to finance a wide range of innovative alternative generation projects, particularly at the micro level, but regulation has largely prevented anyone else from generating electricity, even for their own consumption.  Some furtive steps toward modernization of the regulatory framework fortunately have been taken in recent years.  One such step, introduced almost surreptitiously in 2007, was the Interconnection Contract for Small-Scale Solar Energy Sources, which permitted private generation of up to 10kw for residential use and 30kw for general low tension use.  Although the practical impact of this regulatory innovation was virtually nonexistent, it is significant nonetheless in that it represents Mexico’s first toe-dip in the waters of net metering for private electricity generation.  Now, however, the government has taken another important step forward toward clearing the way for wider use of net metering for private electricity generation.

The Official Gazette (Diario Oficial de la Federación) published on April 8 a new Interconnection Contract for Renewable Energy Sources following its submission by the Energy Regulatory Commission (CRE).  The new contract, which supplants the Interconnection Contract for Small-Scale Solar Energy Sources, represents two important advances: 1) it expands the parameters of allowable independent electricity generation by allowing residential users and small businesses to produce higher volumes of electricity than under the previous net-metering mechanism; and 2) it allows for net-metered independent generation using “renewable sources” of energy rather than limiting the scheme to small scale solar generation.  The new contract also details the methods and procedure for billing and crediting deficits or surpluses once consumption and generation are accounted for.

Expanding the permissible generation methods to include wind, hydro, tidal and other alternative energy sources removes an important constraint from non-governmental energy development.  The step also should help to raise awareness of opportunities for net metering and independent power generation in general in the country, which heretofore has been low, to say the least.   A high profile, friendly promotion campaign to spread awareness and demystify independent generation would be welcome, but we’re not asking for miracles.  For now, the efforts of environmental groups, specialized equipment dealers and early adopters will have to suffice.  But at least we’re moving forward.

For anyone interested in examining the new contract, the details are published here.

• Steel:  Mexico’s steel manufacturing industry chamber of commerce Canacero projected investments of US$10 billion over the next five years to significantly boost production in the sector.  Canacero estimates production will increase 13.5% this year over 2009, when output dropped significantly.
• Airports: The Mexican Ministry of Transport (SCT) announced plans for three new airports to be constructed in 2010, with investment of US$36 million.  The local airport developments are planned for La Pesca in the northeast and the tourist sites Creel in the north and Palenque in the south.
• Transport: Inter-city bus operator Grupo IAMSA reported it plans to add 300 new luxury buses to its fleet this year.  The US$100 million investment is slated to go primarily to Volvo for the new buses.
• Aerospace: French aerospace manufacturer Grupo Safran inaugurated two new plants in an aerospace park in the central state of Queretaro, site one of Mexico’s leading aerospace clusters.  The approximately US$150 million investment set up plants for Safran’s affiliates Messier-Dowty and Snecma to produce jet engine parts and undercarriages.
• Solar power: BP Solar, the solar technology subsidiary of Great Britain-based energy giant BP, announced plans to subcontract the assembly of solar modules with Jabil Circuit in Chihuahua, northern Mexico.  Plans call for producing modules with a combined capacity of 45 MW, with the possibility for expansion as demand dictates.
• Retail: Mexican low-priced department store chain Coppel announced aggressive expansion plans, including forays into the Brizilian and Argentinian markets.  The program includes investment of approximately US$120 million and the opening of 100 new stores, principally in southern Mexico.
• Automotive: Japanese automaker Nissan announced it will begin producing its new model of the Micra compact automobile at the company’s plant in Auguascalientes, Mexico.
• Food processing: Mexican processed dairy products maker Chilchota reported plans to return to the retail milk market, which it had exited in 2000.  Chilchota will invest US$10 million to launch milk presentations for supermarket sale, despite heavy competition from market leaders Lala, Nestle and Alpura.
• Real estate: Spanish real estate developer Grupo Lar announced plans to reactivate stalled projects and launch new developments in Mexico in 2010.  The company will invest some US$40 million, principally in residential developments.
• Rail transport: Mexican railroad operator Ferrocarril del Valle de México (Ferrovalle) announced plans to invest approximately US$12 million this year in infrastructure and equipment upgrades.  The company is projecting an increase in container freight in 2010.
• Retail: Leading Mexican retailer Soriana revealed plans to invest US$200 million to open 42 stores under its new “Soriana Express” format.  The new format targets middle and lower middle class consumers in locations with populations of under 50,000.
• Retail: Leading office supplies retailer Office Depot announced US$60 million in upcoming investment, including the opening of 10 new stores in Mexico.  The chain opened seven stores in Mexico in 2009 despite the extremely depressed economy.
• Water management: The Mexican government announced upcoming tenders for water management infrastructure projects worth an estimated US$2.6 billion.  The government is seeking foreign investment for the projects which include aqueducts, water treatment facilities and desalinization plants, among others.
• Aviation: Mexican domestic airline Interjet announced plans to invest US$50 million to expand its MRO facilities at its base at the Toluca airport.  Since launching passenger service in December 2005, Interjet has grown to become Mexico’s fourth largest airline.  Interjet provides aircraft maintenance services to airplane leasing companies.
• Medical: Centro Medico ABC, one of Mexico´s leading private hospitals, will construct a new Neurosciences and Orthopedics Center in the upscale Santa Fe zone of Mexico City.  The announced US$16 million in investment in the project will include design services and acquisition of advanced technology clinical equipment, among other outlays.
• Industrial gas: U.S. industrial gases producer Praxair announced planned investment in Mexico of US$150 million in 2010.  Projects include a new air separation plant in Monterrey and upgrades to plants in the states of Hidalgo, Queretaro and Tamaulipas.
• Aerospace: Mexican industrial group Grupo Kuo, best known for its Herdez brand of processed foods, has announced it will enter the aerospace manufacturing industry this year.  The group, which also manufactures chemicals and autoparts, is in the process of obtaining SAE AS 9100B certification and hopes to begin manufacturing landing gear components by the end of this year.
• Logistics: The Queretaro Intermodal Terminal is projecting investment of up to US$100 million this year for expansion of land area and infrastructure.  The planned upgrades include construction of a new terminal for handling refrigerated cargo.

In Mexico, Secretary Clinton’s meeting with President Felipe Calderón and his security team was surely welcomed by some and decried by others.  Given the United States’ history of interventions in Mexico both military and political, many in Mexico discard out of hand any cooperation proposed by the neighbor to the north as a subterfuge to cover ill-defined but surely nefarious ulterior designs.  While this perception emerged for good reason, we feel that under the current circumstances, the question of intent is now academic.  While many political leaders in Mexico look for ways to spin the drug violence for partisan gain, the cartels continue to act with near impunity.  With executions and home invasions related to drug trafficking taking place in Atlanta, Phoenix and other U.S. cities, the cartels are now a domestic security threat in the United States, not just someone else’s problem in one of those other countries.

The U.S. government has spent the past thirty years throwing money at interdiction while voraciously navel-gazing in the face of unbridled domestic consumption of drugs such as cocaine, heroin and metamfetamine (and forgive us, but we will be an absolute monkey’s uncle if no member of Secretary Clinton’s high level security team, including Secretary Clinton herself, has never smoked a joint or huffed a rail at some point in their lives).  Remember “Just Say No”?  OK.  So really, far from obsessing about how to further abuse Mexico, we feel that the U.S. government has failed to give sufficient attention to Mexico in recent years, considering the substantial economic and social importance of Mexico to the United States.  Will the Obama administration’s sudden Cortéz-like discovery of Mexico be a case of too little, too late?  Perhaps, but in this case we feel that “better late than never” is more appropriate.  The long-entrenched susceptibility to corruption among Mexico’s law enforcement agencies, military and political class makes President Calderón’s domestic allies in the fight against drug trafficking undependable at best, and the results are splashed across the front pages every morning.  If it takes greater cooperation – or intervention, if you prefer – by the United States to help Mexico achieve rule of law, well, then unfortunately, we made our petate and now we’ll have to lie on it.