Tarik ramirez

INVERSIONES

February 2017

Investing in Mexico; a vision towards trade uncertainty

Case Study: Investing in México

1) Solid macroeconomic environment Due to its macroeconomic and political stability, growing domestic market, consistent economic growth rate, and highly-skilled young force.

2) Ambitious reforms agenda boosting México’s potential growth Commitment of the Government to promote reforms that foster the country's economic outlook by transforming energy, financial, telecom, and labor markets.

3) México is an open economy that guarantees access to international markets Through a network of free trade agreements, the country enjoys an strategic geographic location and competitive cost to service global markets.

Source: ProMexico, SURA Investment Management

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US main trade partners

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Mexico´s export partners

Source: OEC

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US represents 73% of Mexico´s exports.

Tariffs or BAT would have significant impact on Mexico's economy, however installed base will not disappear Deep commercial and infrastructure ties make difficult to imagine a reverse on this trend Main issue at stake: FDI Main reason: Uncertainty 4

Mexico´s exports

Source: OEC

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Products that are an important for the US consumer base would be impacted by Border Adjustment Tax. Significant inflation would be the obvious consequence Cars, Electronics, Computers, Refrigerators, TV´s, Beer, Agriculture goods, Clothing, Beef, Cement among other products would suffer price increase 5

Mexico´s labor cost Hourly compensation costs in manufacturing (2015) 60 50 40 30

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Mexico´s labor costs in manufacturing are only 15% of those from US

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Currently, China´s labor costs are 40% more expensive than those from Mexico, and it would require a China currency depreciation of approx.

67% to match Mexico´s labor competiveness

20 10 Norway Belgium Denmark Sweden Germany Australia Austria Finland France Ireland Netherlands Italy United States Canada United Kingdom Spain Japan New Zealand Singapore South Korea Israel Greece Argentina Slovakia Portugal Estonia Czech Republic Brazil Poland Hungary Taiwan Mexico Turkey Philippines

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Source: US department of commerce

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Mexico´s export partners

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The only one hurt by an increase in trade tariffs will be de US consumer though a significant increase in consumer prices

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Mexico´s labor competiveness is unparalleled, and will continue to be so even with significant commercial tariffs

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Uncertainty in trade politics in the US could create a trade slowdown that could affect global growth

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Most probable outcome in NAFTA; win-win renegotiation (US has too much to loose if abandoning treaty)

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