Weekly Report 109

GENERAL SITUATION IN MEXICO

Weekly Review #109 I June 15, 2022

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MANUFACTURING INDUSTRY TESLA SEEKS A SITE FOR A NEW MANUFACTURING PLANT OUTSIDE THE U.S.; MEXICO AND CANADA COULD BE THE CHOICE According to Elon Musk, CEO of Tesla, a new manufacturing plant could be outside the United States, and Mexico, along with Canada, are the options for a plant in North America.

According to the site Electrek, which obtained recordings of a meeting led by Musk last week, the CEO answered questions from employees, one of which was about where in the United States the next Tesla manufacturing plant will be located.

Musk’s response was that it is still undecided but that it may not be within the United States, and while they are looking at sites, there is also a consideration that it could be in Canada or Mexico.

While the CEO hinted that the company is actively looking for possible sites, for the moment, the priority in North America is to increase production volume at the Texas Gigafactory.

SOURCE: El Financiero

“The priority definitely is to get Giga Texas up to volume production, and it’s hard to get to volume production.

It’s much more important that we get Texas to volume production than finding a new site, but we’re looking,” Musk said.

The current mission is to ramp up electric car production, which is difficult, despite Tesla’s experience; however, the batteries are focused on achieving the goal in Texas.

However, the Model Y, built at the Gigafactory, is equipped with Tesla’s new 4,680-cell structural battery pack, which requires ramping up manufacturing of both the cell itself and the new electric SUV with the structural battery pack architecture.

Tesla has previously stated that its goal is to achieve volume production at the Gigafactory Texas by the end of 2022. Musk has also said that Tesla is likely to announce the site of a new plant by the end of the year.

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MANUFACTURING INDUSTRY MANUFACTURING INDUSTRY CONTRIBUTED 43.3% OF FDI IN QUERETARO During the first quarter of the year, the state’s manufacturing industry attracted 219.6 million dollars in Foreign Direct Investment (FDI), maintaining its position as the main recipient of foreign capital, representing 43.3% of the total FDI received by the state during that period (506.6 million dollars), according to records of the Ministry of Economy (SE).

Manufacturing investment in the first quarter of the year represents an increase of 203.6% in relation to the 72.3 million dollars that manufacturing attracted in the same period of 2021; however, it is still 47.9% below the 422 million received for this concept in the first quarter of 2020, shortly before the first effects of the COVID-19 pandemic.

Within the manufacturing FDI received by the state in January-March 2022, the plastics and rubber industry was the mainstay, accounting for 121.3 million dollars, 23.9% of the total FDI received by the state.

Next, the chemical industry was the second largest contributor to manufacturing investment, contributing 61.3 million dollars (12.1% of the total FDI attracted by the state). This was followed by the food industry, with 51.2 million dollars (10.1% of the state’s FDI).

However, unlike other periods, the manufacture of transportation equipment did not add to manufacturing investment; on the contrary, it reported a withdrawal of 3.6 million dollars in the first quarter of 2022. In contrast, one year ago, in the first quarter of 2021, transportation equipment investment totaled US$103.8 million.

SOURCE: El Economista

After manufacturing, the second branch with the largest injection of foreign investment was financial and insurance services, which contributed 148.8 million dollars in the first quarter of the current year, or 29.4% of total state FDI; this investment was mainly fed by the subsector of credit and non-stock market financial intermediation institutions.

Consecutively, the third sector with the greatest FDI attraction was commerce, which contributed 50.6 million dollars, 10% of the total FDI received by the state in that period.

In the first quarter of the year, Queretaro captured 506.6 million dollars of Foreign Direct Investment; mainly through reinvestment of profits, which contributed 56.6% (286.6 million dollars), through intercompany accounts, it added 173 million dollars (34.2%), and through new investments only 47 million dollars (9.3%).

With this figure, the entity accumulates 19,627.3 million dollars of foreign investment from 1999 to the first quarter of 2022.

Historically, the manufacturing industry has remained the main support for FDI, accumulating 11,214.9 million dollars from 1999 to March 2022, 57.1% of the total FDI received by the state.

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KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S Morning Press Conference June 9-14, 2022

INTERNATIONAL • Summit of the Americas: The President commented that Mexico’s role is to promote a change of an old and anachronistic policy to promote a new stage of integration of the American continent, respecting national sovereignty. He considered that China is growing as an economic power in the world, generating an imbalance that could impact the Americas, for which reason a warlike resolution must be prevented. He reflected that inflation is increasing with the current war in Ukraine and reorganizing the economic order of gas acquisition. He considered that Mexico should advance in self-consumption.

• Presidential Elections in Colombia: President Lopez Obrador wished that the “Colombian brothers and sisters choose well and think about a real change and transformation.”

• Appointment of Ambassadors: Chancellor Marcelo Ebrard announced granting blessings to ambassadors. The Chilean government has already authorized the approval of Alicia Barcenas as the ambassador of this country. Likewise, Panama approved Jesusa Rodriguez. Finally, Patricia Ruiz was presented as a candidate to cover Mexico’s embassy in Colombia. The Chancellor pointed out that these actions are part of Mexico’s feminist policy.

• Meeting with John Kerry: The President will meet with the U.S. envoy for the fight against climate change to discuss proposals to attack this problem.

HEALTH • Tianguis del Bienestar: IMSS-Bienestar is participating in detecting diseases such as diabetes, and next Monday, INJUVE will be integrated. He pointed out that more than 224 million pesos have been saved in reduced storage costs. Soon, the program will be expanded to new Oaxaca municipalities with an emergency declaration due to Hurricane Agatha.

• Health: He pledged that there will no longer be problems with the supply of medicines in one year.

He explained that with the IMSS-Bienestar model, the new public health model is being developed, which originates with local inventories to know the assets and personnel available and what is missing.

ENERGY AND OIL SITUATION • Dos Bocas Refinery: The Federal Executive informed that a test period of approximately six months will begin at the refinery so that it will have the capacity to process 340 thousand barrels per day. He added that the plan is to finish the Tula coker and, this week, start the plan for a coker in

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KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S POLITICAL AGENDA

Salina Cruz in order to achieve the goal of self-sufficiency.

• PEMEX workers: The President commented that their request is being attended to so they do not lack their equipment and uniforms. He also pointed out that the basification will continue. However, they are reaching an agreement with the union leaders, whom he urged to basify first those with more seniority “so that there is no recommendation or influence.”

• Energy: AMLO warned that Iberdrola must pay the fine for violating the self-supply law. He reiterated that in the case of Iberdrola and business people associated with Iberdrola in Mexico, they do not want to reach agreements. They think they will “kick the can” until the government ends, and then they will return to their positions. He recommended that this not be done since the President will not conclude his government as an accomplice of a legal fraud as the Supreme Court of Justice of the Nation mentioned.

• Constitutional Moratorium: The President indicated that the opposition’s position to block constitutional reforms, such as the electoral reform, is based on the fact that they would no longer have the opportunity to carry out frauds. The President referred to the constitutional moratorium as a legislative “strike.” He pointed out that the most important reforms have already been approved; they are already a reality, such as the pension for the elderly and the pension for people with disabilities, scholarships for students, and the universal right to health. He reiterated the importance of having the National Guard as part of the Ministry of National Defense, arguing that having a civilian command in the public force is a mistake.

• Presidential Hangar: Regarding the water consumption in the Presidential Hangar, which is higher than that of the National Palace itself, the President explained that it is an inheritance they are trying to straighten out. For the time being, an expansion has been stopped because it is unnecessary, and they are looking to rehabilitate the airport due to the landslides that were not foreseen with Terminal 2. He also mentioned that the presidential airplane had not been sold because it was very luxurious and expensive. It has an appraisal of 110 million pesos. If the plane is not sold, it will be given to the Air Force so that they can organize trips.

• Elections: The President commented that he will not express his support for any candidate and will support whoever wins the party’s poll.

• Link to Drug Trafficking: In response to Ted Cruz’s accusations that President Lopez Obrador protects the dictatorship and allows drug trafficking to dominate the country, he urged Cruz to present

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KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S proof of his statements.

• Jovenes Construyendo un Futuro: Foreign Minister Marcelo Ebrard announced that 3,000 young adults will be served in a first phase of the program, focusing on the children of Mexicans who live in the United States in difficult situations. For the time being, the program will begin in the city of Los Angeles. However, there are plans to expand the program to more cities.

ECONOMY • Remittances: Ricardo Sheffield pointed out that the level reached 4.718 billion dollars. As the best remittance option, he recommended Ulink because it does not charge commissions and has an exchange rate of 19.55, and as the worst option, he pointed out RIA Money Transfer.

• Inflation: The President explained that decisions are being made, such as the implementation of PACIC and the elimination of the IEPS on gasoline, to avoid the impact of inflation. Likewise, support will be given to the CFE through investments so that there is no impact on consumers. Finally, he is promoting an increase in the area dedicated to basic agriculture through the delivery of fertilizers in order to have a greater food supply. Tariffs were removed to increase the entry of cheaper basic foodstuffs.

• Daylight saving time and financial effects: President commented that the information is being given in time and that it is very likely that there will no longer be daylight saving time because “people do not want it.” He added that there are already analyses that point out that the energy savings due to daylight saving time are minimal and that the government will present a plan for energy sav-

ings. He commented that nothing is happening in financial terms.

TECHNOLOGY • Altan Redes: The President informed that Altan Redes was created in the previous government, where concessions and credits. However, they began to have difficulties in providing telecommunications services; currently, its network has a reach of 70%. Due to the government’s commitment to bringing the Internet to all the towns in Mexico, and the effects that the bankruptcy of Altan Redes could have, it was decided to purchase so that there would be a telecommunications company at the service of Mexico. He commented that it is a company with a majority participation of the State; the report on the operation will be given by the Ministry of Finance this week.

WATER SCARCITY • Water scarcity: The President mentioned that there is communication with the government of Nuevo Leon; he has spoken with business people, and there is a collaboration between the business sector of Nuevo Leon and especially from the Monterrey metropolitan area to help with the water supply. He commented that he hopes the situation is temporary and that the rains will begin to stop the water shortage. He stated that too many industries were approved in areas with water shortages, going to the extreme of granting permits for plants that produce beer for export. This has caused a water shortage for domestic use, which must be prioritized. I reiterate that we have to plan ahead and that everyone is helping, including business people.

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NEWS BY STATE

BAJA CALIFORNIA The Health Secretary of Baja California reports 958 active cases in the past 14 days. The vaccination plan continues this week with the booster application for the adult population, and this week the registration begins for children under 5-11 years old. Tijuana and Ciudad Juarez are the cities with the most companies with the Program for the Manufacturing, Maquiladora, and Export Services Industry (IMMEX), making them very attractive cities for investment by product export companies.

SONORA Official reports confirm 259 new cases in the last 7 days. This Thursday, June 16, registration begins for children from 5 to 11 years of age. Last week the State Congress eliminated the mandatory use of face masks in the entity. The Governor of Sonora mentions that they have advanced with the process to begin the construction of the HomePort of Puerto Peñasco, a work that will bring multiple benefits to the state and the north of the country.

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NEWS BY STATE

NUEVO LEON The main companies in the state contribute an average of 20 million Mexican pesos each to the government of Nuevo Leon to face the water crisis. The director of Water and Drainage of Monterrey commented that some companies give wells to the state, and others, with their donation, support the exploration of new wells.

COAHUILA The head of the Secretary of Education in Coahuila (SEDU), Francisco Saracho Navarro, assured that practically all the clusters and regional organizations conformed by the government, companies, and the educational sector are working together to meet the business demands in the training of young people and professionals.

TAMAULIPAS Matamoros, Tamaulipas will be the first city in the state to have a Metrobus. This project is being carried out to facilitate the mobility of workers to industrial parks.

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NEWS BY STATE

SAN LUIS POTOSI Given the rebound in cases of COVID-19 in recent days in San Luis Potosi, the use of face masks in the state will be mandatory in order to care for the health and well-being of the population. The state governor, Ricardo Gallardo Cardona, and the Secretary of Health, Daniel Acosta Diaz de Leon, determined that the use of face masks will be mandatory in open and closed spaces starting this Monday, that is, at all times and places. They indicated that in addition to the COVID-19 detection test application module, located at 1080 Carlos Diez Gutierrez Street in the capital, they will also be carried out at the “Bosques de Jacarandas” Health Center and at the Family Medicine Unit in Soledad. of Graciano Sanchez, as well as in the units enabled in the interior of the state. The general director of the State Health Services, SES, urged those with the most common symptoms of the disease such as cough, fever, fatigue, and loss of taste or smell, to go to one of the medical units to be tested. If there is an increase in positive cases in the coming days, new locations will be enabled to carry out free tests on a massive scale.

JALISCO To reinforce protection against COVID-19, the Vaccine for All day continues, which invites all authorized population groups to apply the extra dose of this biological: adolescents from 12 to 17 years old, young people from 18 to 29 years old, adults from 30 to 59 years; adults older than 60 years; pregnant women and health personnel. The way to obtain this booster is very simple: In the case of adolescents from 12 to 17, it is required that five months have passed since they received their last dose; in the case of adults, only four months are required. Applying the booster of the vaccine is an important preventive measure since it helps to contain the cases of COVID-19 and to avoid the occurrence of complications or the risk of death from this disease; for which the Jalisco Health Secretariat (SSJ) invites the population that meets the required time to go to the active vaccination modules in the state. In the same way, the greater number of vaccinated people helps to reduce the mutations of the SARS-CoV-2 virus, so if there is no dose yet, there is still an opportunity to go for the first dose of the vaccine or to complete regimens with a second dose. The biologic to be supplied is Pfizer-BioNTech. For the convenience of the residents of the Guadalajara Metropolitan Area, they can go by appointment or without an appointment, either to the Benito Juarez Auditorium or to one of the authorized health centers. In the interior of the state, appointments are not required. A great fluidity is registered in the vaccination points without long waiting in line.

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NEWS BY STATE

GUANAJUATO The Ministry of Health of Guanajuato indicated that the pandemic regained strength, in the last week, from June 6 to 12, 749 new infections were registered in the state, a figure that had not been seen since the end of March, when it reached 1,594 confirmed cases during the week of 14 to 20 and that it was the “exit” of the fourth wave. According to the Federal Ministry of Health (SSA), despite the increase in COVID cases, Guanajuato is not among the states most “affected” by active cases in Mexico; it indicated that there are ten entities with more active cases. In Guanajuato, Leon is the city that has the record for the most cases. However, it remains below other municipalities at the national level, which currently has up to five times more impact from the pandemic than Leon.

QUERETARO The Ministry of Health of Queretaro reported zero deaths from COVID-19 last Monday, and after an update of data on the SISVER platform - Epidemiological Surveillance System for Respiratory Diseases -said that in the previous three days, 246 cases of the disease had been added. In the state (19 cases were reported on Saturday, three were registered on Sunday, and 224 this Monday), there are 144 women and 102 men. The accumulated record is 139 thousand 708 cases; 52% are women, and 48% are men. A total of 278 patients were discharged, with a record of 132 thousand 872 discharges (95.10%).

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NEWS BY STATE

STATE OF MEXICO Mexico City, the State of Mexico, and Michoacan unveiled the new Flow Recovery Plan in the El Bosque Colorines Canal. The project will focus on improving the water flow from Michoacan lands to the Valley of Mexico metropolitan area.

At a press conference, Claudia Sheinbaum explained that an agreement was signed between the three states, and it is the first project of its kind. She specified that it consists of a financial agreement and involves subnational coordination to improve environmental services and prevent the country’s central region from running out of water.

CDMX From December 2018 to May of this year, the Fund for Social Development (Fondeso) of Mexico City has deployed 141,909 credits, a figure that triples the number of financings given in the entire previous state administration. At a press conference, the head of the Ministry of Economic Development (Sedeco) of Mexico City, Fadlala Akabani Hneide, announced that it is part of a strategy to promote entrepreneurship and improve the city’s economy.

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ECONOMIC RECOVERY

ECONOMY AND INVESTMENTS IN MEXICO

NORTHWEST

NORTHEAST

- VARIAN Varian installs a high-tech plant in Tijuana, representing an investment of an investment of 20 MDD.

- APTIV To be installed in Coahuila with an investment of 14.7 MDD. The new plant will be located in the municipality of Frontera and will generate 3,200 new jobs.

- YANGFENG Invests 17 MDD in its fourth plant in Coahuila. Expects to start operations in March 2023, generating 1,000 new jobs.

LABOR

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ALVARO GARCIA HR, Vice President

HEALTH AS A FUNDAMENTAL RIGHT At the 110th International Labor Conference (CIT), delegates approved a resolution to add the principle of safe and healthy work as one of the fundamental rights of the International Labor Organization (OIT). The resolution, adopted at the CIT plenary session just last Friday, June 10, underscores the importance of healthy work environments.

The OIT decision marks a milestone for all member states of this United Nations organization specialized in labor issues, of which Mexico is a member, as they are committed to promoting and respecting the fundamental right to a safe and healthy work environment. Until today, there were four categories of fundamental principles and rights at work: freedom of association and collective bargaining, the elimination of all forms of forced labor, the abolition of child labor, and, finally, the elimination of discrimination in respect of employment and occupation. Occupational health is added as a fifth item.

CONSULTING

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KURT SCHMIDT Consulting Director

DIVERSIFY YOUR SUPPLY CHAIN STRATEGY! Many companies started to look at diversifying their supply chains by either reviewing their manufacturing footprint or de-risking their supply chain & nearshoring their procurement strategy.

Mexico has been the obvious choice for de-risking the supply chain for many companies. Although certain commodities can’t be found, Mexico has developed a strong supply base over the past decades.

In general, we see 90% of the key commodities supplied to the manufacturing industry can be found.

Finding the right supplier/partner is key. Every company has a different strategy and/or requirements, such as HVLM (High Volume Low Mix) or LVHM (Low Volume High Mix) factors that we often see buyers being turned away as the strategy doesn’t align with the seller’s roadmap.

We can help you find the best suppliers for your supply chain strategy. Contact us for detailed information.

www.prodensa.com contact@prodensa.com