Weekly Report 116

GENERAL SITUATION IN MEXICO

Weekly Review #116 I August 3, 2022

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MANUFACTURING INDUSTRY MEXICALI’S MAQUILADORA INDUSTRY EXPORTS INCREASED BY 17% Figures from the National Institute of Statistics and Geography (INEGI), report an increase of 17 percent at an annual rate in exports of Mexicali’s maquiladora industry in the accumulated period January-May 2022 compared to the first five months of 2021.

In absolute terms, income from abroad in the capital’s maquiladora sector totaled 20 thousand 290.6 million pesos as of May 31, 2022, up from 17 thousand 371.5 million last year.

The Institute’s data indicate that Mexicali’s maquiladora industry reported the highest amount of income from exports since records have been kept for a January-May period.

It should be recalled that exports in the municipality account for 13 percent of the total reported by the maquiladora industry in Baja California, which amounted to 152 thousand 162.1 million pesos during the period in question.

SOURCE: Industrial News

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KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S Morning Press Conference July 26 –August 2, 2022 ENVIRONMENT:

INTERNATIONAL

• Water Crisis: President Andres Manuel Lopez Obrador announced the signing of the decree of the “Plan to reinforce actions in Nuevo Leon for the need of water supply”, which will be published today at noon, to solve the issue in the medium and long term, as well as reinforcing short term actions.

The President indicated that CONAGUA and the state governments will be more careful in granting permits, particularly in areas where water is scarce or where there is a large population. He referred to the case of Mexicali, Baja California, with the Constellation Brands company, where drinking water for the population was compromised; for this reason, a consultation was carried out and the project was rejected. Fortunately, the company conscientiously agreed and was able to establish itself in Veracruz. A reform to the Water Law, promoted by the social and business sectors, is being analyzed to update permits and concessions.

• Supervision of works of the Mayan Train: Lopez Obrador confirmed for this weekend’s trips to Villahermosa, Palenque, Escarcega, Merida, Cancun, and Tulum, to supervise the works of the Mayan Train project, and announced the beginning of the construction of a bridge for the tourist connection in Cancun with an investment of 8 billion pesos, in addition to the paving of Colosio Avenue.

• Foreign Relations: A reporter asked about the possibility of Mexico joining BRICS (Brazil, Russia, India, China, and South Africa), to which the President responded that he does not consider it an option. He also mentioned that what is convenient for Mexico is to maintain cooperation with the U.S. and Canada, describing them as the most important market in the world • Donald Trump: Lopez Obrador acknowledged that, despite having a good relationship with Trump during his term, before, during the campaign that brought the American to the presidency, he acted disrespectfully towards Mexico.

• USMCA Consultations: He also pointed out that “even if it is the most important market in the world if having access to that market implies ceding sovereignty, it is not going to be accepted; we are not going to surrender our independence to any foreign government, because besides, they are not right, even if they have many country-selling lambasters applauding them in our country.” He insisted that surely President Biden does not know the details of how the negotiation and the final text took place, so he may send a letter to explain it to him. Regarding the possibility of abandoning the USMCA, he affirmed that this proposal will not be included in the letter. He affirmed that there

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KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S will be no rupture in the Treaty because Mexico is right, and this would not be convenient for either country.

POLITICAL AGENDA • Morena Elections: The Federal Executive considered that the democratic day was positive because more than 2.5 million citizens participated, taking into consideration that it was an election to elect delegates.

• Salaries of public officials: The President stated that he is aware of the existence of public officials who receive higher salaries than his own.

He emphasized that more research is needed in this regard and decisions must be made since the original initiative that he presented was modified.

Furthermore, there is a Republican Austerity Law that is not being complied with. For this reason, he announced that he will seek to present a new initiative to reform the Republican Austerity Law or the Constitution, to clearly regulate this aspect.

ECONOMY: • Package against inflation and high cost: The Secretary of Finance and Public Credit (SHCP), Rogelio Ramirez de la O, gave a report on the Plan Against Inflation and High Cost (PACIC), voluntarily signed by several companies and distributors.

He emphasized that the Plan has had very good results since prices have stabilized. He mentioned that, according to estimates, without the implementation of these measures, inflation would be 2.6% higher than at present, which would have serious implications for the national economy.

• Dinner with businesspeople and the country’s

economic situation: There will be 8 large lots in Playa Espiritu, Sinaloa, with an average of 100 hectares, as well as cash. It is estimated to obtain around 1,000 million pesos to be used in the continuity of the construction of the Santa Maria Dam in Sinaloa. The president of the Business Coordinating Council, the president of COPARMEX, national and Sinaloa businesspeople, as well as the governor of Sinaloa, were present.

• Moody’s publication and inflation: President Lopez Obrador pointed out that they are measurement models in frank decline, just like the neoliberal model worldwide. He affirmed that in Mexico there will be no recession and there will be no problems in this regard. The idea that inflation can only be fought by slowing down the economy (by raising interest rates) does not consider the secondary effects such as slowing down growth, affecting welfare, and reducing employment. Inflation is also a consequence of the lack of domestic production

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KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S tax remissions to the private sector between 2007 and 2018 and projected a table in which companies such as Grupo Televisa, CEMEX, Grupo Carso, ICA, Grupo Inbursa, or Grupo Ternium appear.

CORRUPTION:

and dependence on foreign countries. Even with the high inflation worldwide, Mexico maintains advantages such as 1. Maintaining proximity to the most important market in the world, whose commercial relationship with the United States and Canada guarantees employment and commercial competitiveness, pointing out the increase in Mexico’s exports to the United States, mainly. 2. Honesty of the Mexican people. 3. Justice. The President reminded that it is not only about measuring growth, but also about the equitable distribution of wealth.

• Austerity: The head of the Executive Branch announced that he will move from the phase of “republican austerity” to that of “Franciscan poverty”, since, starting tomorrow, he will hold a meeting with the cabinet and they will agree on new spending cuts, such as, for example, restricting foreign travel or per diems. He also gave as an example the

• Holding Alejandro Moreno at the Mexico City airport: The governor indicated that the national leader of the PRI had access to the document that he was made to sign upon his arrival at the Mexico City International Airport and even agreed with its terms, however, the lawyers and later Moreno himself, acted in an unseemly manner with the airport workers who only presented him with a document to sign to comply with the diligence required by the Prosecutor’s Office of Campeche.

• Incident at the Mexico City International Airport: The head of the executive acknowledged that at the end of the conference he would hold a meeting with the work team to improve the roads leading to the Felipe Angeles airport, which is working to optimize the roads for the arrival and departure, the accesses to the facility.

ENERGY • Investment in the energy sector: The Federal Executive gave as an example that some businesspeople sought to obtain permits for the development of projects, such as liquefaction plants, and then entered a scheme of financial speculation and did not carry out the work while they obtained profits from the permit. He pointed out that his government is willing to grant permits if the works are completed and are for the benefit of the country.

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NEWS BY STATE

BAJA CALIFORNIA The Health Secretary of Baja California reports a decrease in COVID cases with 2,361 active cases in the past 14 days and 480 new active cases in the past 24 hours. The vaccination plan continues this week for children and the adult population in different municipalities.

On August 24, the 6th DIMBC Industrial Meeting will be held in Rosarito, one of the most important industrial events in the Northwest, with more than 100 exhibitors and more than 250 business meetings.

SONORA Official reports confirm 952 new cases in the past 7 days. The vaccination plan continues this week for children from 5 to 11 years old in different municipalities.

The governor of Sonora announced the investments of Grupo Mexico in the entity that will generate eleven thousand direct and indirect jobs.

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NEWS BY STATE

NUEVO LEON Governor Samuel Garcia Sepulveda assured that the incorporation of more wells, irrigation intakes, and the extraction of 1,600 liters per second from Libertad dam and 10,000 liters from El Cuchillo could provide more than the capacity required by the state.

With the construction of the El Cuchillo II aqueduct, the Libertad Dam, and the incorporation of more water from the industrial and agricultural sectors, in one year the supply network could register 23,000 liters per second, that is, five or six thousand liters per second more than the capacity required by the entity today.

COAHUILA Hisun inaugurates its plant in Coahuila, which will increase the competitiveness of the automotive industry.

After announcing an investment of 105 million dollars in Coahuila at the beginning of the year, Hisun, a Chinese company with presence in the United States, inaugurated its plant in the city of Saltillo; the manufacturing facility is in the Mencorsa Industrial Park.

TAMAULIPAS Hilti inaugurated the expansion of its operating plant located to the west of Matamoros, Tamaulipas, in Parque FINSA Matamoros Norte. The investment was US$25 million and generated 350 new jobs.

Hilti is a European company originally from Liechtenstein, that focuses its production on tools used in the construction sector.

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NEWS BY STATE

SAN LUIS POTOSI The government of San Luis Potosi informed that the governor, Ricardo Gallardo Cardona, will inaugurate this week the Circuito Potosi. This safer work seeks to streamline the mobility of the inhabitants and boost economic and social development. He pointed out that the state government rehabilitated 43 kilometers of the road in six months, replaced 900 poles, and installed more than 4,600 LED technology lights and 35 transformers, which will provide greater safety and visibility at night for motorists. In addition, new signage was installed, the vehicular bridges were redesigned and new pedestrian bridges were placed for the safety of pedestrians, complemented by the installation of buoys and traffic lights on the Coronel Romero extension, a request made by neighbors and drivers who use this important road.

JALISCO The governor of Jalisco, Enrique Alfaro, mentioned that his state recorded exports of $23.161 billion dollars (mdd), of which “a little more than half are from the electronics industry. On Wednesday, Alfaro led HP’s 40th-anniversary event in Guadalajara, where he said that “evidently the history of the electronics industry in our state is closely linked to the history of HP. It is a success story. According to Inegi, which last March reported Jalisco’s exports data in 2021 to which the governor referred, the

“manufacture of computer, communication, measurement, and other electronic equipment, components and accessories” accounted for 55.4% of the total in the fourth quarter of last year, with a value of $3,608 million dollars.

QUERETARO Marco Antonio del Prete Tercero, Secretary of Sustainable Development, mentioned that through the Secretary of Labor and the Secretary of Education, they will train citizens to access better sources of employment in the state. “It is part of the effort requested by the governor that we will coordinate with the Secretary of Labor, the Secretary of Education, and the Secretary of Social Development to train people so that they can access these sources of employment,” he said. Part of their commitments with the companies is to carry out training programs within the universities and centers.

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NEWS BY STATE

GUANAJUATO During the first five months of this year, 235 people with disabilities were evaluated for employment positions. 55 were considered for those jobs, according to information provided by the Guanajuato Institute for People with Disabilities (Ingudis).

Currently, the Guanajuato Institute for Persons with Disabilities has six labor agencies, working mainly in one operated by the DIF system of San Jose Iturbide, two by the disability institutes of Celaya and Salamanca, and another one in charge of Ingudis itself, through the Coordination of Labor Integration.

AGUASCALIENTES The 74 companies in Aguascalientes that export the manufacturing produced in Aguascalientes are not going through their best moment. However, it is worth noting that their situation is improving somewhat.

Statistics from the Manufacturing, Maquiladora, and Export Services Industry Program (IMMEX) that INEGI recently updated with data as of May of this year reveal that in that month, the value of sales abroad reached its highest level since December 2021, that is, in six months. The recovery, however, was not enough for the 8.17 billion dollars reported in May from those sales to exceed those of the same month a year earlier, as they were lower by 1%. At the national level, there was a considerable increase of 20%.

This was because, in 13 of these 17 states, the increase in sales in annual terms in the fifth month of this year fluctuated between 16% and 51%. The latter rate occurred in Sonora. In the states neighboring Aguascalientes, where sales rose in May compared to a year earlier, the increase was Queretaro (39%), Jalisco (24%), and San Luis Potosi (23%). Zacatecas does not appear in this indicator, and as mentioned above, Guanajuato had a decrease.

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NEWS BY STATE

STATE OF MEXICO During Saturday and Sunday, Morena militants participated in district assemblies to elect the party’s district coordinators.

Thus, 300 district assemblies were held throughout the country, where 345 voting centers were installed, with the purpose of initiating the process of renewing the leadership bodies of this political party at the state and national level. During this internal process, Morena’s militants denounced a series of irregularities committed before and during the voting day, such as false ballots, theft and destruction or burning of ballot boxes and electoral paperwork, ballot box pregnancy, transportation, vote buying, violence, intervention of public officials or use of public resources, distribution of papers to “guide” the vote, exclusion of scrutineers responsible for the counting of votes so that they would not witness it. Although, due to the irregularities registered during this day, some Morena militants have requested the annulment of this race, it is expected that the official results will be announced as of this Wednesday.

CDMX The Secretary of Economic Development (Sedeco), Fadlala Akabani Hneide, informed that the Photovoltaic Power Plant at the Central de Abastos is 38% complete with the installation of 600 solar panels, with an investment of 26.1 million pesos. The official explained that the end of this first part will be in September and the second part will be tendered by CFE on August 8 and the company will take on the rest of the project. The Head of Government, Claudia Sheinbaum, commented that so far, the administration has invested around 900 million pesos in the Central de Abasto. She added that most of the funds come from the Ministry of Energy, which are 400 million pesos that were deposited directly to the Federal Electricity Commission, “they make the investment, and we signed an agreement with them, they will also operate the plant.

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ECONOMIC RECOVERY ECONOMY AND INVESTMENTS IN MEXICO

NORTHEAST

CDMX

- HISUN Hisun invests 105 million dollars in Coahuila, generating 1,500 direct jobs.

- NEOLPHARMA Governor Alfredo Del Mazo Maza led the presentation of the investment project that the pharmaceutical company Neolpharma will carry out in the state of Mexico, which consists of the expansion of its plants in Ecatepec and Toluca, as well as the construction of a Distribution Center and a Vial’s Plant, by 2024.

- HILTI The European construction tools company invested 25 million dollars, generating 350 new jobs at the FINSA Matamoros Norte Park in Tamaulipas.

- VERTIV Vertiv inaugurated a thermal plant that will mainly produce large cooling systems for data centers.

CENTRAL MEXICO - FOOD DELIVERY BRANDS With an investment of 8.5 million euros, the new plant of Food Delivery Brands Mexico starts operations in Queretaro, generating more than 300 direct jobs.

NEARSHORING

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TRENDS IN NEARSHORING DRIVING NEW MANUFACTURING SOLUTIONS IN NORTH AMERICA The pace of business increased ten-fold with digital adoption. A new definition of ‘optimal’ talent mix was created with new, emerging requirements. The very nature of organizations’ value proposition was put into question.

And being closer to North America became advantageous, even strategic. Agile organizations, being intensely customer-focused, have had to adapt to rapid market changes and consumer preferences.

Consumers, now more than ever, have revolutionized their interaction with their brands and services. The pandemic created a spotlight over manufacturing supply chains, with a spike in consumer-driven e-commerce coming just as many organizations were struggling with already-weakened global logistics. It became clear quickly that complicated supply chains were not the answer to agility. Many global organizations continue to evaluate if nearshoring their manufacturing operations to North America could alleviate these complexities.

Nearshoring in North America can build resilience into supply chains, increase protections to intellectual property under the USMCA, and leverage cultural impacts to productivity, among others. And the concept of ally-shoring aligns the nearshoring trend with the growing desire to do business with like-minded democratic partners.

ROBIN CONKLEN Business Development

www.prodensa.com contact@prodensa.com