Weekly Report 110

GENERAL SITUATION IN MEXICO

Weekly Review #110 I June 22, 2022

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MANUFACTURING INDUSTRY KIA WANTS TO BRING ITS ELECTRIC CARS TO MEXICO One of KIA’s plans in the medium term is to be the leading company in electric cars in the world, so it wants to bring its models of this type to Mexico. However, considering that the market is not developed, the elimination of the Value Added Tax (VAT) would help boost the sale of such vehicles in the country.

The director of the automaker in the country, Horacio Chavez, told Forbes Mexico that these technologies are still expensive due to economies of scale, so an attractive price is needed to make them affordable for the people.

According to the executive, this has been achieved in countries that have implemented incentives and clear public policies, so he expects to obtain this in the short or medium term from the authorities, along with an infrastructure development plan to be able to use them on a daily basis.

“It seems to me that the value-added tax is the easiest thing to do. If they simply did not charge it, lowering the price of vehicles by 16% would make the commercialization take off, putting it at an accessible price”, he affirmed.

Horacio Chavez commented that over the years, they had had several talks with the authorities, but unfortunately, there has not been much progress, but the industry does not take its finger off the line and is starting to talk more about the subject.

SOURCE: Forbes Mexico

An example of this is the agreement to which Mexico adhered to the proposal of the President of the United States to try to reach a 50% joint marketing of vehicles, to which several powers have been incorporated.

“KIA is promising to become the leading brand in electrification and mobility issues if that is the company’s medium and short-term vision. Of course, in Mexico, we will be looking at more options, we will eventually have our electric vehicles, and we will end up adding to the portfolio of electric vehicles that KIA is developing,” he said.

As part of this plan, the company will launch in the country the second generation of its hybrid Niro, a model with which it has positioned itself as the second player in the segment in Mexico.

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MANUFACTURING INDUSTRY NEARSHORING BOOSTS RUBBER INDUSTRY IN MEXICO: HULTEK

The relocation of companies as a result of compliance with the Mexico, United States, and Canada Agreement (USMCA) has caused the rubber industry in Mexico to increase its production by 20% during the last year, and in the case of tires up to 50%, driven mainly by orders from the automotive sector, in addition to the appliance industry.

According to statistics from the National Auto Parts Industry (INA), Mexico manufactured automotive rubber products for a value of 1.434 billion dollars in 2020, and for the following year, production increased 19.3% to 1.71 billion dollars.

The rubber industry is 70% dependent on raw materials from abroad, but the location of supplier companies will provide great opportunities to be productive and competitive in the North American market, said Carlos Gonzalez, CEO of Hultek, a Mexican company that supplies custom-made rubber parts to the automotive industry.

In the case of rims and tires’ production increased 55% in one year, from manufacturing a value of 1.021 billion dollars to 1.581 billion dollars. “Auto parts companies are the ones that have most sought relocation due to the conditions and facilities of the new USMCA, which requires a higher regional content, but also offers multiple benefits, such as a more agile export and a very compact supply chain,” explained Carlos Gonzalez.

In 2020, the so-called nearshoring (relocation) of auto parts companies accounted for 12% of the statistics; by 2021, auto parts companies accounted for 50% of nearshoring at a national level, said the executive.

INA President Francisco Gonzalez said that as of the first quarter of this year, 379 million dollars have arrived, which are added to the investment originated in 2020, which accumulates 48,725 million dollars.

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MANUFACTURING INDUSTRY

“Many of these capitals come from Asia and Europe seeking to bring their production to Mexico with the concept of nearshoring and delivering their product on time, avoiding problems of being left on the road and attending to their supply chain,” he said.

There is also reshoring (investments that had gone to Asia and are returning), which a few years ago were displaced due to lower prices or advantages they had at the time in Asia, and these production lines are being brought back to Mexico.

The auto parts industry is increasing the production of gearboxes, combustion, and chassis, in addition to products for electric vehicles and radial tires for buses and trucks, air purification and cable, spark plugs, and many rubber parts.

SOURCE: El Economista

“(Rubber) is a sector that offers great opportunities, both for raw materials -currently, companies like Hultek import up to 70% of all their raw materials-, as well as for other competitors that have the capacity to supply these large projects,” the rubber company representative added.

Currently, Mexico has production plants of some of the main rubber companies in the world, but these are mainly tire companies: Continental AG, Michelin North America, Goodyear, and Bridgestone, to mention a few.

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KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S Morning Press Conference June 14-21, 2022

POLITICAL AGENDA • Political-Electoral Reform: The President criticized the posture of the opposition legislators regarding any reform sent by the Executive. He reiterated that the transformation of a country does not depend only on laws. Therefore, within the legal framework, he will continue with his movement. He criticized that the opposition parties are against the political-electoral reform, arguing that they do it for their own interests since their financing will be reduced.

• Genaro Garcia Luna: The U.S. Attorney’s Office requested new elements to be added to the file of the former security secretary, referring to several audios in which the former official claimed to have harassed and persecuted journalists who were investigating him in Mexico, as well as to have paid millions of pesos to stop such actions. In this regard, a reporter asked if the Mexican government would initiate an investigation into the alleged bribes that took place. The President pointed out that it is up to the Attorney General’s Office to make such determination.

• Complaints by migrants against SAT on the southern border: A journalist denounced that SAT officials on the southern border of striping migrants of their vehicles and belongings. The President

pledged to investigate the facts and take action and sent a welcome message to people entering Mexico through the southern border. He recalled that Mexico’s relations with Latin American countries are excellent and “endearing.”

• Meeting with business people: The President detailed that, in his meeting with business people, they asked him to open a dialogue table to analyze the issue of gas imports, in addition to addressing issues of how to strengthen economic integration to attract more foreign investment.

• Tour of Guerrero: He mentioned that this weekend he will be in Tlapa to evaluate the construction of roads and begin the construction of a rehabilitation center for children with disabilities in the mountains of Guerrero. He thanked Teleton for their support, with whom he will work together.

The government will donate the land and will provide scholarships for pensions for children. Teleton will build the center, and it is possible that specialists from Cuba will help with the therapies.

INTERNATIONAL • Elections in Colombia and Latin American bloc: The President expressed his great satisfaction with the triumph of Gustavo Petro in Colombia.

He emphasized that he is happy because his gov-

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KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S ernment started a new stage: the resurgence of democratic movements with a social dimension in Latin America and the Caribbean. He pointed out that yesterday he spoke with Gustavo Petro about the search for the integration of the whole continent, including Canada and the U.S., to form a region in the world.

• Meeting with the President of the United States: The President stated that he will ask for a meeting with the President of the United States, Joe Biden, to address issues related to economic cooperation and support to the countries of Central America in order to face the migratory phenomenon, temporary work visas and to see the possibility of having a joint meeting of Mexican and American businessmen. This meeting is suggested to begin on July 15.

• Economic crisis in the United States: The President indicated that it is most likely that the United States will not enter into an economic recession.

He also mentioned that due to the economic integration and relations we have with the neighboring country, he expects them to have good results and progress since a worsening of the crisis could harm Mexico. He added that they are looking for options to help each other, which he mentioned will be one of the topics he will raise with President Biden.

ECONOMY • Basic food basket and PACIC: Ricardo Sheffield mentioned that the products of the basic food basket remain stable. There is no price control but rather an alliance in favor of consumers in the country. He accepted that there is an increase in the National Food and Beverages Price Index, but

this is at an international level. In the case of the 24 products of the PROFECO Basket, he repeated that prices remain stable. He assured that there will be no shortages. In the case of energy, the President assured that gasoline, diesel gas, and electricity prices will be maintained. Sheffield added that there is a meeting this week to follow up with producers and distributors regarding the development of PACIC. He mentioned that other policies are being worked on to reduce food prices, but he does not want to advance anything yet, although it will be very important.

• Inflation: When asked about the current inflation, the President stated that in Mexico’s case, actions are being taken to face the world inflation problem. He mentioned that the crisis cannot be faced without a strong, productive activity. Mexico is

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KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S INFRASTRUCTURE

now looking for energy self-sufficiency since the petrochemical industry and fertilizers were destroyed previously, and the country has become an importer. He mentioned that currently, 36 billion pesos had been invested in energy matters.

— He stated that we have to promote self-consumption of foodstuffs such as corn and beans, for which fertilizers are going to be produced; likewise, tariffs are being removed for food imports in order to be able to buy them at a good price; there is also an agreement with the United States for the purchase of some foodstuffs because Mexico is affected by inflation in this area.

— He reiterated that this year we can guarantee that gasoline, diesel, and electricity prices will not increase.

— In terms of foreign investment, he said that Mexico is one of the countries in the world that is receiving more foreign investment, highlighting the re-signing of the Free Trade Agreement as a success.

• Internet infrastructure: The President highlighted that his administration decided to buy shares in ALTAN in order to have a telecommunications network in conjunction with the support of private companies. He also mentioned that the Mexican government is the company’s majority shareholder and, therefore, they are the ones who manage it and make the decisions. Additionally, he specified that there will be an internet network that benefits 70% of the country’s population. He expressed that in order to cover the remaining 30% of the population, a thousand antennas will be installed, and several kilometers of the Federal Electricity Commission’s optical fiber will be put into operation.

• Mayan Train: Diego Prieto, General Director of the National Institute of Anthropology and History (INAH), commented that all archeological discoveries found along the Mayan Train route are safeguarded. In addition, he stated that at the President’s request, existing archeological zones will also be improved through the PROMEZA program.

SECURITY • Monthly Security Report: Tollbooth Takeovers Prevention of tollbooth takeovers is being carried out with the “Plan Caseta Segura” (Safe Tollbooth Plan). This prevented the loss of 7 billion 845 million pesos during 2022, and from 2020 to June 9, 2022, 31 billion 554 million pesos.

• National Guard: General Luis Rodriguez Bucio, Commander of the National Guard, stated that there are 57 barracks under construction for the National Guard. He indicated that by the end of the

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KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S year, they seek to have 594 facilities. Regarding the distribution of fertilizers, the National Guard provided security to 1,122 trips where these were transported.

• Violence in the country: After several violent events that took place yesterday in different parts of the country, such as San Cristobal de las Casas (Chiapas) and the State of Mexico, the leader condemned that these types of events continue to occur. He specified that in the case of San Cristobal de las Casas it is about two groups that are disputing the control of a market. He affirmed that action is already being taken and regretted that one person lost his life. He concluded by adding that the violence in the aforementioned states is based on the search of one organized crime group for others that have a presence in the entity, omitting to answer the question as to whether there is a peace agreement with these groups.

ENVIRONMENT • Environment: On the commitments to combat climate change, President Lopez Obrador recalled that the problem of gas burning in the atmosphere originated when the decision was made to inject wells with nitrogen to extract more crude oil, especially in Cantarell. He informed that this issue was discussed with John Kerry, U.S. Special Envoy for Climate Change, and tomorrow the subject will be addressed in the meeting with various leaders.

HEALTH • Monkeypox: The Undersecretary reported that there are currently five active cases in Mexico. He explained that this is an infectious disease, and although there are two vaccines to prevent it, they have little efficacy. He pointed out that there is no evidence that it is a rapidly spreading disease, and therefore the population should not be concerned about a pandemic.

• The Secretary of Health, Dr. Jorge Alcocer, spoke about the recruitment day for doctors, in which 14,300 vacancies were granted. Forty sites were set up to receive documentation from applicants, and 10,920 physicians attended, while 6,229 did not show up for the appointment.

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NEWS BY STATE

BAJA CALIFORNIA The Health Secretary of Baja California reports 1,254 active cases in the past 14 days and only 2 new active cases in the past 24 hours. The vaccination plan continues this week with the application of the first and second dose to complete the scheme vaccination and the booster application for the adult population. The registration for children under 5-11 years old continues this week directly on the government web page. Next week the CANACINTRA employment fair will be held where more than 40 different companies from industry, commerce, and services will participate.

SONORA Official reports confirm 550 new cases in the last 7 days. This Thursday, June 16, registration begins for children from 5 to 11 years of age. The Government of Sonora recommends the use of face masks for people in a vulnerable situation, either due to their age or physical condition. The Governor will present this week the progress made in Puerto Peñasco for the first phase of what will be the largest solar plant in Latin America. The direct benefit for more than 4 million people in reducing the cost of energy and creating jobs.

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NEWS BY STATE

NUEVO LEON Samuel Garcia presented to the private sector the Master Plan to Guarantee Water until 2050. In the short term, new wells have been built, 1 m3 per second of leaks have been recovered, 196 shallow wells are being drilled and Conagua has authorized 29 deep wells, which are due to be reflected next month, which would add 1.3 m3 per second and 2 m3 per second, respectively.

COAHUILA During the 1st quarter of 2022, the workforce in manufacturing increased, according to INEGI. Total employed personnel in the manufacturing industry in April 2022 increased 0.1% compared to the immediately previous period, the number of workers grew 0.3%.

TAMAULIPAS The private sector in northern Mexico considera Tamaulipas as a potential location to establish product storage sites, derived from the rise in inventories of companies, a trend detected in the first months of 2022 and highlighted before the Bank of Mexico (Banxico).

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NEWS BY STATE

SAN LUIS POTOSI Juan Carlos Valladares Eichelmann, head of the Secretariat of Economic Development (SEDECO) in San Luis Potosi, indicated that the state expects to consolidate 15 new investments by companies and corporations. In this sense, the official explained that the current administration is already negotiating with business people to materialize such investments, five of which are moving forward to be announced shortly.

He emphasized that investment in road infrastructure works is one of the main allies for consolidating these and other investments, as it facilitates mobility and logistics strategies of large companies.

JALISCO FIFA announced that Jalisco will host matches during the tournament to be held in North America. The Akron Stadium will host 3 international matches during the 2026 World Cup. As part of the celebration of the 199th anniversary of Jalisco as a Free and Sovereign State, the Governor of the State, Enrique Alfaro Ramirez, confirmed that Jalisco will once again host the World Cup in 2026.

AGUASCALIENTES The governments of Queretaro, Guanajuato, and Aguascalientes will create the Gran Bajio strategic alliance, which will aim to deploy the economic development potential of this region in the center of the country, said Maria Teresa Jimenez Esquivel. “We are going to make a fair competition, where we can take advantage of the potential of each of the states, of their regions and, at the same time, consolidate the Gran Bajio as the national leader it already is. “Mauricio Kuri, Diego Sinhue, and I share a vision that has a lot to do with our party; of course, each one has his own personality and, of course, the challenges in each state.”

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NEWS BY STATE

GUANAJUATO As part of the tour of this country, the Governor of Guanajuato, Diego Sinhue Rodriguez Vallejo, met with representatives of the Icelandic Chamber of Commerce and showed them the viability of Guanajuato for investment. The Governor presented the benefits of Guanajuato’s territory as an investment venue where he highlighted the professionalization of human talent and the geographic location that allows connectivity and tourism and trade logistics within and outside Mexico but stressed the intense work to make Guanajuato the Valley of Mindfacturing.

QUERETARO Governor Mauricio Kuri Gonzalez led the presentation of the “Contigo Seguro de Desempleo” program, which, with a total of 32 million pesos, aims to benefit five thousand people who involuntarily lost their jobs. As part of the actions, economic support of 3,500 pesos will be granted for two months, as well as a link to a formal and dignified job. He explained that this strategy is intended to reduce the difficulties faced by people in their search for employment, providing them with two paths: to provide the necessary skills and knowledge so that they can have a well-paid job and through investment in Queretaro, where vacancies are offered to meet the demand for work.

In this sense, he announced that at the moment, they have about 40 thousand jobs in the pipeline. He recalled that in 2019 34 thousand jobs were registered, and five months into 2022, they have 31 thousand jobs accounted for.

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NEWS BY STATE

STATE OF MEXICO At least nine personalities from the political life of the State of Mexico are vying for the candidacy for the government of that state, which will be the apple of discord from today until 2023. The parties that make up the opposition coalition Va por Mexico have guaranteed they will run together in the June 2023 election in the state. Those who sound to dispute this postulation belong to the National Action Party (PAN) and the Institutional Revolutionary Party (PRI) are two PAN members and three PRI members. The other ally, the Partido de la Revolucion Democratica (PRD), lost the great strength it had in the eastern zone and lacks outstanding personalities, so for now, it has no prospect to measure before the allies. The PAN members: Enrique Vargas and Laura Rojas. In the PRI, Alejandra del Moral Vela and Ana Lilia Herrera Anzaldo are running, although Ernesto Nemer Alvarez could also appear, all three of them with a wide local trajectory. On MORENA: Hector Duarte, Delfina Gomez and Higinio Martinez. All candidates with a long trajectory in national politics.

CDMX Xochitl Galves of PAN unveils herself as the opposition candidate for Head of Government. Although the senator said she is ready to serve as Chief of Government of the capital city, she said that if her project does not win, she will support whoever wins. She commented about mobility issues, asking rhetorically why the people opposed the Mitikah mega tower? And answering because it implies more cars and more water to be consumed. Then the water and mobility issues can be solved, and she would bet on a verticality of the city, but without cars, with other forms of public transportation.

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ECONOMIC RECOVERY

ECONOMY AND INVESTMENTS IN MEXICO

CENTRAL MEXICO JABIL Jabil will invest a total of $400 million over the next few years with six thousand new jobs; on the same day.

SANMINA Sanmina executives confirmed an investment of US$216 million and the creation of 2,000 jobs in Jalisco.

INTEL 8 MDD investment by Intel in the semiconductor area, i.e., research and development, which will generate 200 high-paying and specialized jobs.

FRÄNKISCHE Fränkische celebrates 10 years of growth and inaugurates second plant in Guanajuato.

FLEX Flex will expand its operations in Jalisco, will invest more than 100 MDD.

LABOR

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ALVARO GARCIA HR, Vice President

MULTICOLORED TALENT At this time of year, it is increasingly common for companies’ websites, institutional pages, and social networks, as well as those of their executives, to be full of multicolored images seeking to highlight the commitment of organizations to foster inclusive work cultures.

There are a variety of groups that can help companies take action to create workplaces that are strong in diversity and inclusion. You can also consult the learning guide published this year by the International Labor Organization (OIT) to help employers’ and workers’ organizations, design measures to ensure equal opportunity and treatment for LGBTQ+ people in the workplace.

There is already a precedent in Mexico of a first case in which a person won a homophobia lawsuit against a workplace. It is possible that under the new justice system, which is yet to be implemented throughout the country, the number of lawsuits alleging discrimination will increase, as this could avoid the conciliatory stage.

WORKFORCE

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Mexico’s Federal Labor Law is the most important employment legislation, supported by various governmental agencies. Below is a comparative list.

ROBIN CONKLEN Business Development

Mexican workers and employers pay into a Social Security fund that is unlike any one agency in the United States. Social Security in Mexico provides medical and surgical services, pharmaceutical and hospital Needs, work risk insurance, disability and life insurance, retirement and unemployment insurance, Pensions, social and childcare services, and low-income home loans.

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