Weekly Report 88

GENERAL SITUATION IN MEXICO

Weekly Review # 88 I January 19, 2022

2

MANUFACTURING INDUSTRY MEXICO CONSOLIDATES ITS POSITION AS THE LEADING AUTO PARTS MARKET FOR THE U.S. According to the Department of Commerce, Mexico consolidated its position in 2021 as the leading market for auto parts originating in the United States, with a record share. From January to November 2021, U.S. exports of automotive parts to the Mexican market totaled 26,081 million dollars, representing a 40% share as a destination of total U.S. sales of those products.

“The size of Mexico’s passenger vehicle market and the shared U.S.-Mexico border provides a robust market for U.S. original equipment manufacturers (OEMs) and automotive parts,” noted a Commerce Department report. A decade ago, in all of 2011, Mexico accounted for only 31.7% of these total U.S. exports. Mexico has remained the leading destination market for the past three years, with its share going from 39% in 2019 to 37.3% in 2020.

According to the Department of Commerce, the most effective way for U.S. auto parts and equipment suppliers to enter the Mexican market is through local representation or regional distribution. Assembly plants prefer suppliers located nearby to minimize inventory volumes and facilitate just-in-time or just-in-sequence deliveries.

It is easier to serve OEMs in Mexico if the U.S. exporter already supplies them in the U.S. and has a supplier number. Notwithstanding all of the above, both U.S. auto parts exports to the world and specifically to Mexico have shrunk in recent years. The all-time high for these sales to the world occurred in 2018 when they totaled $88.466 billion, while the record for Mexico occurred in 2019 when they were $33.192 billion.

Mexico is the fifth-largest producer of automotive parts worldwide, with annual revenues of 78 billion dollars.

SOURCE: El Economista

Automotive parts related to components for Tier 2 suppliers represent the most exported items from the United States. The Commerce Department highlights opportunities for production machinery and equipment, materials, pre-assembled components, molds and tooling, cutting tools, automation process equipment, raw materials, engineering and design, finished parts, and accessories sold through local representatives or distributors.

From January to November 2021, U.S. auto parts exports to Canada (second destination) were $19.129 billion, while the rest of the destinations are less relevant, with subsequent positions for China ($2.749 billion), Germany ($1.842 billion), and Japan ($1.307 billion).

3

CLIENTS GOOD NEWS MONTERREY PLANT IMPLEMENTS UPDATES TO CONTINUE TO MEET SURGING CASKET DEMAND

The Monterrey Casket Facility continues to maximize production to meet the ongoing high demand for caskets from our funeral home customers. Throughout the pandemic, casket demand has increased significantly across most product segments. However, some segments have experienced an even greater increase in demand, including oversize caskets.

Oversize metal caskets are produced at both the Aurora, Indiana, and Monterrey, Mexico, plants. To meet the surging demand for this product line, the Monterrey facility recently implemented process improvements that allow the team to maintain a higher level of production across the plant in total, and to increase production of its portion of oversize metal casket orders. Improvements included adding another production line in the metal assembly area and incorporating that flow into the main assembly line.

In addition, the team implemented process improvements in the Press Department, including developing a visual scheduling system that allows the team to quickly react to changes in production requirements. As these changes were being implemented, Monterrey continued to meet the high customer order rates for these products and all products produced there.

Monterrey is currently producing even more caskets than at its 2021 peak, and the entire Matthews Aurora manufacturing network is also producing more caskets now than at previous peak levels.

Congratulations to the Monterrey team on a successful process implementation, and congratulations to all the Matthews Aurora production teams on your achievements!

4

KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S Morning Press Conference January 12-18, 2022 RETURN OF THE PRESIDENT TO THE CONFERENCES President Andres Manuel Lopez Obrador returned to morning press conferences on Monday, January 17, 2022, after a period of incapacity due to COVID-19 infection.

VACCINATION REINFORCEMENT FOR TEACHING STAFF The Secretary of Public Education, Delfina Gomez, explained the vaccination process of the teaching staff of public and private schools and administrative with more than 2 million doses of the Moderna vaccine.

MANDATE REVOCATION Adan Augusto, Government Secretary, commented that the signature validation stage for the Request for Consultation of Revocation of Mandate and the legal requirement to carry out the consultation is fulfilled. The INE will be expected to comply with the mandate of the Electoral Tribunal to make the adjustments and budget provisions to comply with the consultation process, and where appropriate, raise the request to the Ministry of Finance for additional resources.

CHANGES IN CABINET The Government Secretary explained that Javier May will have an important job as the head of FONATUR in order to be able to coordinate the work of the Mayan train and recognized his honesty and efficiency as a collaborator of the 4T.

SOURCE: https://www.youtube.com/channel/UCxEgOKuI-n-WOJaNcisHvSg

COMPLIANCE WITH LABOR COMMITMENTS IN THE USMCA Regarding the progress in the 4 commitments, the Secretary Mayor reported the following: 1. In terms of establishing an independent body responsible for union registration and process verification, this was already created and became operational throughout the country in November last year. In relation to the commitment to legitimizing collective contracts within a period of 4 years, that is, to consult the workers to define if they agree with the content of their contracts, at the moment, 2,556 collective contracts have been legitimized. The country has until May 1, 2023, to finish this legitimation.

2. Regarding the commitment to establish impartial labor courts, the Secretary pointed out that the new labor model is already being implemented in 21 entities.

3. It has been reduced from 4 years to 4 months the resolution time, and 75% of conflicts are resolved by conciliation.

4. Regarding the commitment to put in place rapid response mechanisms to denounce the violation of freedom of association, two complaints have been received from the United States to Mexico: General Motors in Silao and Tridonex in Matamoros; both have been properly processed.

GROWTH EXPECTATIONS Lopez Obrador commented that we must wait to have the GDP growth figure of last year.

5

MEASURES TAKEN

BY STATES IN MEXICO

BAJA CALIFORNIA Baja California remains a high-risk or orange light for the state government and medium-risk or yellow light for the Federal government. Official reports confirm 8,420 active cases in the past 14 days. To stop the transmission of the new variant, Baja California’s Health Secretary mentioned the following health measures: Reduce capacity to 50 percent in non-essential activities, correct use of face mask, healthy distance, gel with 70% alcohol. The vaccination plan continues with daily vaccination points in different municipalities.

Through “INEGI Informa,” it was reported that Baja California is among the five states with the highest export value, ranked number three with an export value of 12,964 million dollars.

Third quarter of 2021.

On February 24, 2022, the Mexicali Supply Expo will be held, which seeks to attract and strengthen supply networks at the local, regional and international levels that support the Strategic Industrial Sectors in Mexicali, Baja California.

SONORA Sonora is considered a medium-risk or yellow light with only one municipality in high-risk or orange light. Official reports confirm 345 new cases in the last 24 hours. “Salud Sonora” has 19 COVID-19 centers located in each corresponding municipality, where you can receive medical attention and COVID tests are carried out free of charge.

Last week, the Secretariat of Labor and Social Welfare reported that it is illegal to force workers to pay for COVID-19 tests as a requirement to enter the workplace. Remember the importance of not going to work centers or social gatherings if symptoms compatible with COVID-19 are present so as not to be a risk of potential contagion for other people.

6

MEASURES TAKEN

BY STATES IN MEXICO

COAHUILA Coahuila postponed the return to faceto-face classes for the second week due to the rise in COVID-19 infections after the entity returned to an orange traffic light. State authorities argued that one of the reasons for delaying the return to school is due to teacher training. The Operational Table for the Reactivation of the Educational Sector reported that the return to face-to-face classes at the basic level will begin on January 24.

TAMAULIPAS With more than 1,400 daily coronavirus infections, the Health Committee in Tamaulipas sent its 43 municipalities to phase 1, so mobility will be allowed from 6:00 a.m. to 12:00 p.m.

Restaurants that must have the Secure Establishment Badge will be able to operate at 70% of their full service.

NUEVO LEON The governor of Nuevo Leon, Samuel Garcia Sepulveda, announced that as of Tuesday, January 18, the second part of the Cross-Border Vaccination Program began for Elementary and Jr. High School students who have already received the first dose against COVID-19 in Texas, United States.

7

MEASURES TAKEN

BY STATES IN MEXICO

AGUASCALIENTES Francisco Marquez, a member of the Medical Association of Aguascalientes, endorsed the data provided by researcher Laurie Ann Ximenez-Fyvie, head of the Molecular Genetics Laboratory of the UNAM. “It is impressive the number of people who have symptoms or already have positive tests.” The specialist agreed that the data provided by the head of the Molecular Genetics Laboratory of the UNAM are applicable and entirely feasible so that a simple mathematical operation leads to the conclusion that at least one hundred thousand Aguascalentenses could not only be already infected at this moment with COVID-19, but they could also be actively carrying it so that the potential for dissemination to the rest of the population will have an exponential effect on the number of infections in the following days.

GUANAJUATO On Saturday, January 15, the Guanajuato Ministry of Health (SSG) reported 50 deaths due to COVID-19, representing a sharp increase over the previous day’s figure, as only 16 deaths were reported on Friday. Of these fifty deaths, 39 belong to the city of Leon, followed by Silao, Salamanca, Irapuato, and Purisima del Rincon, while Celaya, San Diego de la Union, and San Jose Iturbide complete the list with one death each. Thus, with today’s fifty deaths, the total amounts to 13,985 deaths due to coronavirus in Guanajuato. In addition, the number of active cases continues to set new daily records, with 11,480 active cases reported on Saturday, an increase of 966 cases from one day to the next. Also, 1,742 new confirmed positives were reported, for a total of 218,505 confirmed cases in the state since the beginning of the pandemic.

8

MEASURES TAKEN

BY STATES IN MEXICO

QUERETARO The state will remain in the modified Scenario A at least until January 23, according to the determination of the Technical Committee for the Attention of COVID-19 in the state, a decision made given the indicators of the permanence of the virus and the low hospital occupancy that has a stable behavior, stated the committee.

There are 6,658 active cases in the state as of January 15. According to the Federal Ministry of Health records, these are the active cases reported from January 2 to January 15. The number of active cases in this period represents an 11-fold increase (a 1.002% increase) compared to the 604 reported in the period from December 18 to December 31, 2021. Since then, Queretaro has shown increases in the number of active infections.

JALISCO With the increase in the number of cases of COVID-19 in the last week, the number of people hospitalized for the virus in the state has also increased. This week’s figure is at least twice as high. According to the Ministry of Health of Jalisco statistics, while week 1 of the epidemiological week of this year 2022 closed with 203 hospitalizations due to COVID-19, week 2 ends with at least 411 people. According to the figures presented this Sunday, most of the hospitalizations were in IMSS hospitals (1,100), followed by hospitals of the Jalisco Health Secretariat, which reported 226 hospitalized patients.

9

MEASURES TAKEN

BY STATES IN MEXICO

STATE OF MEXICO So far this year, the restaurant sector in the State of Mexico has registered a 20 percent drop in sales due to the fourth wave of COVID-19 infection by the Omicron variant, said the president of the National Chamber of the Restaurant Industry (Canirac) in the Valley of Mexico, Gabriel Mancilla. The business representative pointed out that during January, the sector traditionally registers a reduction in its sales in restaurants, but with the decrease in the affluence of diners due to the rebound of the pandemic, for this beginning of 2022, such decrease is greater than other years.

CDMX Mexico’s economy reportedly contracted in December, pointing to a slowdown in the recovery of productive activities after the impact of the pandemic, figures from the National Institute of Statistics and Geography (Inegi) showed on Tuesday.

The Timely Indicator of Economic Activity (IOAE) estimated a year-onyear decline of 0.2% in Latin America’s second-largest economy during the last month of 2021. In November, the IOAE showed a 1.2% growth compared to the same month of 2020.

10

ECONOMIC RECOVERY FAVORABLE OUTLOOK FOR MANUFACTURING IN 2022 ANTICIPATED

Manufacturing in Mexico has stagnated in recent months, but the outlook for 2022 looks better due to less disruption in global supply chains, better epidemiological conditions, and the expected boost to the industry in the United States, which is expected to be one of the main drivers of the economy.

Between January and November last year, manufacturing accumulated a 9.0 percent growth, after a 9.6 percent drop in 2020, due to the crisis caused by the coronavirus.

“We had a partial recovery of the manufacturing industry in 2021, due to the bottlenecks that occurred in the production chain, and that circumstance will still prevail in the first part of this year,” said Ernesto O’Farrill, president of Grupo Bursametrica.

However, he foresees that from the second half of this year, the normalization of supply flows will allow manufacturing to grow and even become the engine of the Mexican economy, driven by the automotive sector, as well as the electronics and chemical-pharmaceutical sectors.

Likewise, it estimates that industry, in general, will grow 2.5 percent, and manufacturing is expected to grow 3.5 percent.

Citibanamex forecasts that the manufacturing industry will grow 3.8 percent this year, above the 2.5 percent expected for the industry as a whole and the 1.9 percent it estimates for services.

SOURCE: El Financiero

According to the bank’s forecasts, the greatest dynamism will be observed in transportation equipment, with 7.1 percent, where the car and truck segment will grow 9.0 percent and auto parts will advance 6.9 percent.

This will be followed by communication and electronic equipment, with 4.0 percent, textile inputs and finishes, also with 4.0 percent, and machinery and equipment, with 3.6 percent.

11

TOWARDS THE “NEW NORMAL”

DISTRIBUTION OF DEATHS PER STATE DUE TO THE PANDEMIC

INFORMATION UPDATED ON JANUARY 17, 2022 AT 19:00 HRS LOCAL TIME.

NEW CASES REPORTED: 17,101

SOURCE: https://www.gob.mx/salud/

CONFIRMED CASES: 4,385,415

NEW DEATHS REPORTED: 59

CONFIRMED DEATHS: 301,469

12

INCREASE OF CONFIRMED CASES SINCE THE FIRST REPORT MAP WITH THE DISTRIBUTION OF THE INCIDENCE RATE OF ACCUMULATED CASES OF COVID-19 BY ENTITY OF RESIDENCE.

National rate 219.58

0 to 10.0 (7 states)

40.1 to 50 (2 states)

10.1 to 20 (8 states)

50.1 to 60 (1 states)

20.1 to 30 (9 states)

60.1 to 70 (0 states)

30.1 to 40 (3 states)

>70 (2 states)

Elaborated by Prodensa with information from the Health Ministry of Mexico

PANDEMIC’S SITUATION IN THE WORLD • As of January 17, 2022, globally there have been reported 326,279,424 confirmed cases (2,669,054 new cases) of COVID-19 and 5,536,609 deaths (6,916 new deaths*). Lethal rate: 1.7%. In the last 14 days, 34,975,273 cases were reported globally.

SOURCE: https://www.gob.mx/salud/

13

TOWARDS THE “NEW NORMAL” INCIDENTS OF CONTAGIONS IN THE POPULATION

BY REGION AS OF JANUARY 18

DEATH INCIDENTS IN POPULATION

BY REGION AS OF JANUARY 18

SOURCE: https://www.gob.mx/salud/

RECRUITING & HIRING

14

RECRUITING CHALLENGES AND SOLUTIONS

2022 will be another challenging year for many companies to recruit and attract candidates. For recruiters and talent attraction teams, IT positions with specialized digital skills will continue to be on top of the most challenging positions to recruit. For direct and operative jobs, technicians and some supply chains area positions will be hard to find.

The demand for candidates with a high level of English language proficiency will increase. At the same time, candidates with experience but without English proficiency will not be able to continue the recruiting process.

For operative positions, turnover or labor instability will prevent them to find good job opportunities or career progression.

Contact us for talent attraction solutions.

GABRIELA VELARDE Operations Director Prodensa HR

LABOR

15

ALVARO GARCIA HR, Vice President

UPDATED PROTOCOLS The Mexican Social Security Institute (IMSS) has updated the guidelines for granting COVID permits to workers, modifying the requirements to obtain them. The omicron variant’s symptoms and recovery time of contagion require that the protocols be updated.

It is time for the Human Resources areas, in collaboration with the health and safety areas of the companies, to update the protocols. The reduction in days of isolation, the type of mask to be used, the maximum occupancy, among other factors, should be revised.

During this phase of the pandemic, it is also important to pay attention to disabilities and the corresponding salary payment. The IMSS only covers the payment, starting on the fourth day, at 60 percent of the worker’s salary. Many companies initially granted leave of absence permits fully paid. However, for those workers who have secured a COVID permit granted by the IMSS, the company would be exempt from paying the salary for the permit duration.

www.prodensa.com contact@prodensa.com