Special Edition 2023

GENERAL SITUATION IN MEXICO Special Edition

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RELEVANT ISSUES FOR THE INDUSTRY IN MEXICO 2023 The Prodensa Institutional Relations team presents a review of the significant events in 2023. As we stand at the cusp of 2024, these identified red flags that may impact Mexico’s economy and industries.

MEXICO’S 2024 ELECTIONS The upcoming Mexican presidential elections on June 2nd, 2024, will be the largest elections ever held in Mexico. Recent polls, conducted in November 2023, indicate a strong lead for MORENA’s candidate, Claudia Sheinbaum, with 48% of the voting intention, while the opposition candidate, Xochitl Galvez, has 24% of the voting intention.

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MEXICAN ECONOMY Fitch has revised its expectations for Mexico’s GDP in 2023 and 2024, projecting a 2.4% growth. However, Fitch notes a slowdown in non-automotive manufacturing growth and predicts an inflation rate of 4.4% for this year and 4% for 2024, reflecting a detailed analysis of the Mexican economy, anticipating robust growth but also highlighting potential risks such as consumption dependency and remittance flow volatility.

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RELEVANT ISSUES FOR THE INDUSTRY IN MEXICO 2023

NEARSHORING Nearshoring presents a historic opportunity for Mexico’s development, with the potential to boost the country’s GDP by up to 8% over the next six years, according to Santander’s “Nearshoring Data Monitor.”

The relocation of investments could increase Mexico’s share of U.S. imports from 14% to 20% by 2030. To fully exploit this opportunity, the Mexican authorities will have to solve a number of issues including land, energy, and water infrastructure.

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SECURITY Insecurity is the primary concern for Mexicans, with a slight increase in the perception of insecurity to 62.3% in the second quarter of 2023, as reported by the INEGI. Moreover, 27.4% of households in Mexico experienced at least one member as a victim of a crime, affecting 21.1 million people. Furthermore, the security strategy of President Andres Manuel Lopez Obrador has been weak and unable to deal with the issue.

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LABOR UPDATES This year 5 major labor reforms were introduced: • Vacation days: vacation day reform became effective January 1, 2023, doubled the minimum paid vacation period for workers from six to 12 days in their first year of service.

• Minimum wage: new daily minimum wage in Mexico will be $248.93 pesos, except for northern border cities where it will be $374.89 pesos.

• Workweek: A proposed amendment to reduce the maximum workweek to 40 hours with two days of rest for every five worked. The refrom is still pending in Congress.

• “Ley Silla”: prohibits employers from making employees stand all day, it remains pending on Congress.

• List of diseases: The list of diseases was updated to include several diseases to work-related sicknesses.

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RELEVANT ISSUES FOR THE INDUSTRY IN MEXICO 2023

HEALTH REFORMS

MIGRATION According to data presented by the CBP, Between FY 2022 and FY 2023, arrivals at ports of entry of migrants without prior authorization to enter the United States more than doubled, from 173,000 to 430,000.

These arrivals represented 17 percent of overall border encounters during FY 2023, compared to 7 percent the prior year. Despite the closure of three border crossings by the U.S., Lopez Obrador expects a resolution, but the situation could have economic repercussions, particularly affecting the manufacturing industry due to potential disruptions in cross-border trade and commerce.

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President Lopez Obrador is reforming Mexico’s public health system, centralizing it under the IMSS-Bienestar model with 23 state governors on board. The initiative aims to provide free healthcare for the majority of the population without Social Security, eliminating medication shortages and ensuring access to medical services, with full implementation expected by March 2024 and plans for a dedicated warehouse to address shortages. However, the system has been highly critized and the perception is that the public health system in Mexico continues to fail its beneficiaries.

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INFRAESTRUCTURE PROJECTS President Andres Manuel Lopez Obrador, nearing the end of his six-year term, has delivered on key infrastructure projects: 1) the partially operational Isthmus of Tehuantepec development, 2) the Tren Maya which has began its pre-operations, 3) the under-construction Dos Bocas oil refinery for Juky 2024, 4) and the operational Mexico-Toluca high-speed rail line’s first section that started operating on September 15.

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RELEVANT ISSUES FOR THE INDUSTRY IN MEXICO 2023

HURRICANE OTIS

USMCA The three-year anniversary of the United States-Mexico-Canada Agreement (USMCA) on July 1, 2023, marked significant progress in trade, investment, and job expansion across North America, with strengthened cooperation among officials, industry, and civil society.

While the dispute resolution mechanisms were utilized, challenges remain, emphasizing the importance of government compliance, deeper cooperation, and addressing issues such as regulatory alignment, digital trade, worker training, and opportunities for small and medium enterprises to maximize the benefits of USMCA in achieving secure and resilient supply chains and expanding manufacturing in the region. It is important to keep in mind that the treaty will be revised in 2026.

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With 10% of the assessment still pending, Hurricane Otis is identified as the second most catastrophic hurricane in Mexico. The government has reported 39 deaths, and the United Nations (ONU) highlights that 848,647 people in Acapulco have been affected, emphasizing the extensive impact on the local population. The Mexican Association of Insurance Institutions (AMIS) estimated Otis’s cost at $1.745 billion, positioning it as the third most expensive disaster in history.

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US 2024 PRESIDENTIAL ELECTION In the lead-up to the 2024 U.S. elections, a diverse field of candidates is competing, with President Biden and former President Trump as prominent figures, the latter enjoying a lead in polls. However, Trump faces significant legal challenges, being the first president in U.S. history to confront criminal charges in multiple cases. The outcomes of these cases hold high stakes for both Trump and the nation.

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RELEVANT ISSUES FOR THE INDUSTRY IN MEXICO 2023

ATTACKS ON DEMOCRACY

POLITICAL LANDSCAPE IN LATIN AMERICA

President Andres Manuel Lopez Obrador plans to present an initiative by the end of his six-year term to eliminate certain autonomous entities, citing their high cost to the government and minimal functionality, marking a consistent five-year attack on these institutions and eroding checks and balances in his administration. The targeted autonomous entities include the National Electoral Institute (INE), the Federal Audit Office (ASF), INAI, COFECE, and others. facing not only media attacks but also budget cuts and political interference, with an overall reduction of 14% in their budgets since 2018.

Besides the President has consistently attack the Supreme Court of Justice as it has been one of the strongest couter balance of power to his government.

In 2023, elections were held in Argentina, Guatemala, Paraguay, and Ecuador. There is a strong populist trend in the region, with right-wing candidates winning in Argentina, extreme progressive candidate winning in Guatemala, and the ruling party candidate prevailing in Paraguay. Moreover, Ecuador saw the victory of businessman Daniel Noboa. Key challenges across these nations include addressing the economic fallout, tackling security issues, and promoting new public policy agendas. Looking ahead to 2024, upcoming elections in Mexico and Colombia will focus on countering populist policies, while Chile faces a constitutional process, aiming to secure significant victories that may reshape the political landscape in the region.

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INTERNATIONAL ISSUES

6 ISSUES TO KEEP IN MIND FOR 2024 • • •

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2024 ELECTIONS IN MEXICO 2024 US ELECTIONS ATTACKS TO AUTONOMOS INSTITUTIONS AND NEW SUPREME COURT OF JUSTICE USMCA DISPUTES AND PROGRESS LABOR REFORMS REGULATORY CHANGES IN MEXICO

In 2023, the U.S.-China trade dynamics, marked by a history of tariffs and unresolved issues, alongside the prolonged Ukraine-Russia war and the Israel-Hamas conflict, are significant global events with potential indirect implications for Mexico. These developments may impact international relations, trade, energy prices, and geopolitical stability, potentially influencing Mexico’s economy and industries. Additionally, the United Auto Workers’ approval of a historic contract with major automakers and its ongoing ramifications could further shape the automotive sector in Mexico.

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KEYPOINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S MORNING PRESS CONFERENCE December 13-19, 2023

• Autonomous institutions: Elizabeth Vilchis highlighted that this year, the Instituto Nacional de Transparencia (INAI) will have a budget of 1,097 million pesos. She mentioned that the three commissioners who sought the presidency have been accused of using public funds for foreign trips, meals, snacks, and purchases at convenience stores like Oxxo, using public money for items such as Sabritas and Coca Colas. The newly appointed president, Adrian Alcala, is accused by colleagues of irregular expenses, with pending accusations that need clarification.

President Lopez Obrador followed to criticize autonomous institutions, claiming they serve the oligarchy and business monopolies, citing the case of the Instituto Federal de Telecomunicaciones (IFT).

He argued that these bodies, created to prevent monopolies, now cater to minorities’ interests. He expressed dissatisfaction with public funds being allocated to these institutions and claimed the INAI has been used by the Junco family and journalists like Carmen Aristegui to undermine his government.

• Judicial Power of the Federation: President Lopez Obrador reiterated the need for Judicial Branch reform, proposing the election of Supreme Court Justices by democratic vote. He outlined the initial considerations for reforms to the Judicial Branch, including salary reductions for judicial authorities,

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KEYPOINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S MORNING PRESS CONFERENCE

the elimination of trusts, and the creation of an auditing entity to oversee the Judicial Branch, potentially replacing the Federal Judicial Council. Lopez Obrador also criticized Justice Javier Laynez for actions he perceives as contrary to the people’s interests, including seeking legal protection against the cancellation of a lucrative trust fund, ruling against a specific candidacy in Nuevo Leon, and canceling a decree prohibiting the sale of vaporizers.

• Designations: President Lopez Obrador addressed the issue of unsuccessful appointments to the Supreme Court of Justice (SCJN) and the Superior Electoral Court, attributing the occurrence of such events to the presence of freedom and democracy. He explained the process of appointing a Minister to the SCJN, highlighting the President’s role in proposing candidates and the Senate’s role in approving them. Due to the lack of a qualified majority, Lopez Obrador had to directly choose the new minister, that was Lenia Batres. According to the President, Bertha Lujan, another of the candidates, acknowledged the voting results favoring Batres.

He assured that Lujan would continue to contribute and assist in alternative roles.

NATURAL DISASTERS • Droughts: A reporter discussed the severe drought situation in Sonora and the nation, highlighting CONAGUA’s report of 53 municipalities experiencing extreme drought, including 17 in Sonora. She also mentioned a significant reduction in water levels in reservoirs compared to the previous year. The president assured that they are monitoring the situation and emphasized that there will be an ade-

quate water supply for domestic and agricultural needs, cautioning against premature conclusions.

• Natural reserve in Calakmul: President Lopez Obrador addressed concerns about the alleged impact on the Calakmul natural reserve due to the construction of a hotel linked to the Tren Maya project.

He asserted that there is no negative impact on the ecosystem, and instead, more land is being designated for the reserve. The President indicated that additional details would be provided by the Secretary of Environment and Natural Resources, Luisa Maria Albores.

INTERNATIONAL RELATIONS • Border Closure Between Arizona and Sonora: President Lopez Obrador acknowledged the migration problem and economic impacts caused by the border closure between Arizona and Sonora.

He reassured that the issue is being addressed. He expressed optimism that the situation will soon normalize, emphasizing it as a temporary challenge.

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KEYPOINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S MORNING PRESS CONFERENCE

• Migration in Texas: President Lopez Obrador addressed the recent law approved by Texas Governor Greg Abbott, authorizing police to detain migrants and granting local judges the authority to order their removal from the country, stating that the Mexican government is in the process of challenging it through the Ministry of Foreign Affairs.

He expressed his belief that the law is politically motivated.

• Elections in Guatemala: President Lopez Obrador affirmed that Bernardo Arevalo won the elections in Guatemala. However, he noted that obstacles are being created to prevent Arevalo from assuming the presidency, attributing it to a lack of respect for the Guatemalan people’s will and resistance to change.

Lopez Obrador expressed concern that disregarding the popular will could lead to conflicts and emphasized Mexico’s interest in preventing instability in its neighboring country.

• Argentina: President Lopez Obrador expressed his disagreement with the policies of Javier Milei, characterizing them as a regression to the past. He cautioned the Argentine people against falling into provocations and advocated for avoiding violence.

INFRASTRUCTURE AND DEVELOPMENT • Inauguration of Tren Maya, Campeche - Cancun Section: From Campeche, President Andres Manuel Lopez Obrador declared it a historic day as the Campeche-Cancun segment of the Tren Maya was inaugurated. The President expressed gratitude to the construction workers, Mexican construction companies, and partners such as Grupo Carso, Mota-Engil, INDI, and ICA. He highlighted the impor-

tance of manufacturing trains in Mexico by Alstom, a French company. Acknowledgments were extended to the military, authorities from Campeche, Tabasco, Chiapas, Yucatan, and Quintana Roo, private landowners, and the local population along the railway route. The Director of the Tren Maya, General Oscar David Lozano Avila, highlighted the 100,000 jobs generated, infrastructure accomplishments, environmental protection, and security measures in place. President Lopez Obrador addressed regional challenges, including water scarcity and the strain on the Cancun airport. He urged efforts to avoid high costs for international and national tourism, announcing a road rehabilitation program after completing the Tren Maya project.

• Internet for All: President Lopez Obrador discussed the difficulties in achieving widespread internet access and mentioned that, despite years of effort and investment, internet coverage is not as extensive as claimed. Carlos Lerma, General Director at Altan Redes, emphasized the challenge of providing af-

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KEYPOINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S MORNING PRESS CONFERENCE

fordable and accessible internet for all, introducing “Internet para el Bienestar” as a solution, which will be offered through various private mobile operators in compliance with current regulations.

• Aqueduct El Cuchillo II: The Cuchillo II Aqueduct in Nuevo Leon will reach full operational capacity, supplying 5,000 liters per second, ensuring an ample water supply for Monterrey and the surrounding metropolitan area. Completed in just over a year with support from local companies and oversight from CONAGUA and military engineers, the president praised the collaborative efforts and acknowledged the work of Governor Samuel Garcia.

• Passenger Trains: President Lopez Obrador discussed the status of passenger trains, noting that they are awaiting the conclusion of the deadline in January and respecting the concession granted during Zedillo’s government. He emphasized that the use of railways for passenger trains is being considered. Additionally, the President announced the commencement of passenger train operations from Salina Cruz to Coatzacoalcos on Friday.

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NEWS BY STATE

BAJA CALIFORNIA The Governor of Baja California, Marina del Pilar Avila Olmeda, highlighted the implementation of the Datos BC platform, a tool that will provide society with access to relevant information on the state’s development and the daily results of government actions.

COPLADE’s General Director, Brigida Fernandez Rubio, detailed that more than 15 thousand people participated in a consultation forum to identify the most relevant topics for development, prioritizing those that the Government of Baja California considers essential to comply with the objectives established in the State Development Plan 20222027.

SOURCE: UNIRADIO BAJA

SONORA The manufacturing export industry grew more than it had before the Covid-19 pandemic, this was confirmed by the president of the National Council of the Maquiladora and Manufacturing Export Industry (Index) in Sonora.

Jesus Gamez said that some of the factors for this growth are due to the fact that other countries, such as the United States, do not have skilled labor in electromobility and aerospace.

SOURCE: RADIO SONORA

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NEWS BY STATE

NUEVO LEON The State Economic Development Council approved the incentives to be granted to the electric vehicle manufacturer Tesla, in accordance with the Law for the Promotion of Investment and Employment for the State of Nuevo Leon, including a reduction of the Payroll Tax (ISN) for 2,627 million pesos.

CHIHUAHUA In an effort to boost its international presence and attract foreign investment, a delegation from Chihuahua participated in a trade mission to Taipei, Taiwan. The event was organized by the Electrical and Electronics Manufacturers Association (TEEMA), bringing together representatives from several key institutions in the Mexican state.

With these incentives it will be possible to create basic infrastructure for the supply of drinking and treated water, roads and new transportation routes, which will enhance the economic development of the western zone of the metropolitan area of Monterrey.

During the mission, participants held strategic meetings with Taiwanese government officials, held business meetings and visited important corporations, especially focused on the semiconductor industry, a sector of vital importance.

SOURCE: EL ECONOMISTA

SOURCE: MEXICO INDUSTRY

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NEWS BY STATE

SAN LUIS POTOSI The Governor of San Luis Potosi, Ricardo Gallardo Cardona, announced that, in 2024, there is already a fund of 2 billion pesos, obtained from the sale of land and allocated for infrastructure projects to be defined by the Potosi Advisory Council, with which the State will continue to take off in 2024 with infrastructure works that will detonate mobility, security and generate economic and social development, after decades of backwardness and neglect due to the cursed inheritance.

GUANAJUATO By next year, the Adidas and Lacoste brands will be producing footwear in Guanajuato for the domestic market.

In addition, a U.S. producer is considering moving part of its manufacturing from Asia to Mexico.

SOURCE: AM

The State President said that the resources will allow the consolidation of important road mobility projects, such as a distributor in the west of the capital of Potosi, a bridge in Sierra Leona at the Santiago River, as well as eventually the continuity of the alternative route to Highway 57, which will be up to the Council to define.

SOURCE: EL ECONOMISTA

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NEWS BY STATE

QUERETARO During the course of this 2023, the transformation industry will close in Queretaro with an extraordinary growth of 9%, compared to other entities, mainly due to the impulse of the development that the State maintains, this was announced by the president of the National Chamber of the Transformation Industry (Canacintra), Queretaro delegation, Esau Magallanes.

He specified that this economic growth has led to the creation of some 30 thousand direct jobs, which gives formality to the sources of employment and of which 60% was managed by the chamber, mainly in the automotive industry.

AGUASCALIENTES Aguascalientes will have a space development station in an area provided by Conacyt, however the logistics will be developed by local talent promoted in universities and members of the association “Aguascalientes: Entidad Inteligente”, informed its president, David Zapata Leal.

With this and other projects, Aguascalientes will enter fully into the aerospace industry through a series of ongoing projects and others that will materialize as a result of agreements with representatives of the sector and organizations from Aguascalientes such as Ags:EI. SOURCE: LIDER EMPRESARIAL

SOURCE: MEGANOTICIAS

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NEWS BY STATE

CDMX Mexico City’s Economic Package for 2024 approved. Without changes to the project presented by the head of Government, Marti Batres Guadarrama, the Plenary of the Congress of Mexico City approved the Expenditure Budget for 2024, with a total expenditure amount of 267,965.3 million pesos, that is, 7.9% more than what was authorized in 2023.

In presenting the opinion, Valentina Valia Batres Guadarrama, president of the Budget and Public Account Commission, explained the budget’s axes, how to reduce poverty and improve housing, education, health and security.

SOURCE: EL ECONOMISTA

STATE OF MEXICO Santander signs agreement to support 2 thousand SMEs in the State of Mexico.

Banco Santander Mexico signed a collaboration agreement with the Council of Chambers and Associations of the State of Mexico (Concaem) in order to promote the growth and economic development of small and medium-sized enterprises (SMEs) belonging to the business organizations that make up the council. Through a press release, the bank informed that with this alliance it seeks to support at least 2,000 companies over the next three years and thus contribute to the growth of the small and medium-sized enterprise sector, which it pointed out is the most important in the country, generating around 50 percent of the Gross Domestic Product (GDP) and more than 70 percent of jobs in Mexico, and is the backbone of the national economy.

SOURCE: MILENIO

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INVESTMENT NEWS NORTH GT GLOBAL GT GLOBAL is investing $7 million in Altamira, Tamaulipas, for the construction of a new intermodal terminal. The region has experienced notable port growth, handling over 13.9 million tons and 555,517 TEUs. The investment aims to strengthen GT GLOBAL’s presence in southern Tamaulipas. NORTH • Prolec GE Prolec GE is investing $85 million to double the production capacity of singlephase pedestal transformers in Apodaca, Nuevo Leon. The project supports North America’s electrification goals, aiming to enhance grid resilience and efficiency. The state-of-the-art plant, set to generate 500 jobs, will commence construction in 2024 and is expected to complete by June 2025.

PROLEC GE Prolec GE is investing $85 million to double the production capacity of singlephase pedestal transformers in Apodaca, Nuevo Leon. The project supports North America’s electrification goals, aiming to enhance grid resilience and efficiency. The state-of-theart plant, set to generate 500 jobs, will commence construction in 2024 and is expected to complete by June 2025.

SINALOA GOVERNMENT Sinaloa is set to invest $2.2 billion in building the world’s largest methanol plant in Topolobampo. Owned by Pacifico Mexinol, the plant aims to produce over two billion metric tons of methanol annually, primarily for the Asian market. Utilizing natural gas with carbon capture, the project emphasizes sustainability. Governor highlighted federal support for natural gas supply and emphasized the economic benefits, anticipating over 3,000 jobs during construction and ongoing operations, fostering local suppliers.

CENTRAL MEXICO REHAU REHAU, a German tier 1 automotive supplier, commemorated its 30th year in Mexico by inaugurating its third plant in Apaseo el Grande, generating 200 new jobs. Governor highlighted Guanajuato’s appeal for investments, with over $7 billion accumulated during the current term. REHAU, known for serving major clients like Mabe and Volkswagen, has now solidified its presence in Guanajuato with a $25 million investment in the new facility.

SUMINOE TEXTILE Japanese automotive company Suminoe Textile de Mexico has launched its third expansion in Guanajuato with a $19 million investment, generating 150 jobs. The facility, set to begin operations in Q1 2024, will produce mats, carpets, and synthetic leather for Honda, Mazda, Nissan, and other automakers XINQUAN Chinese Tier 1 automotive supplier, Xinquan, has disclosed a $100 million expansion plan in Aguascalientes, Mexico, marking its third expansion in three years.

This initiative will create 700 jobs and introduce new production lines for vehicle interior components.

SOURCES: CLUSTER INDUSTRIAL, REPORTE INDIGO

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HAPPY HOLIDAYS! AS WE APPROACH THE CLOSE OF ANOTHER SUCCESSFUL YEAR, WE WANT TO EXTEND OUR HEARTFELT APPRECIATION TO OUR VALUED CLIENTS AND PARTNERS. The holiday season offers a moment to reflect on the collaborative strides we’ve made together, navigating challenges and achieving milestones. Your trust in Prodensa has been the cornerstone of our success, and we are sincerely grateful for the opportunity to work with you. May the festive spirit fill your homes with warmth, joy, and inspiration.

Wishing you a joyful holiday season and a prosperous New Year. We look forward to continuing our partnership and helping you thrive with exceptional value in the year ahead.

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