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GENERAL SITUATION IN MEXICO

Weekly Review #91 I February 9, 2022

MANUFACTURING INDUSTRY DIGITALIZATION: KEY FOR MEXICO TO REMAIN A MANUFACTURING CHAMPION By 2022, it is estimated that manufacturing companies will invest US$3.5 billion in technology in the country. Digital transformation is being driven by COVID-19. Manufacturing is one of the most important sectors for Mexico’s economic growth; COVID-19 has driven its digitalization and smart automation in recent years due to labor absenteeism, but the country is still late in the race of this 4.0 revolution. If it wants to remain a destination for industries, it must speed up the pace. For this year, the Association of Manufacturing Technology (AMT) estimates investment in Mexico of 3,500 million dollars, returning to pre-pandemic levels, but it needs to bet more on digital transformation, mainly SMEs, to move from traditional to 4.0 and thus increase their productivity. “We have to accelerate without a doubt the pace, we started a little late in the process of digital transformation in the country, according to the World Economic Forum we are considered a champion of legacy manufacturing, that is, today we are very competitive using traditional technologies, but the future of production is based on all the new digital smart technologies,” says David Carlos Romero Diaz, member of the Advisory Council of Expo Manufactura in an interview with Forbes Mexico. But Mexico must not only accelerate the adoption of digitization in manufacturing, but it also has to develop its own technology, as well as the workforce required in the new digital skills. This opportunity opened with the pandemic and will continue in the postcovid era. “Price Waterhouse Cooper is estimating that digitization and intelligent automation in the manufacturing

industry will contribute 14% ($15 billion) of global GDP by 3030,” refers Romero Diaz, who is also a professor and researcher in Smart Manufacturing at Tecnologico de Monterrey. In Mexico, in order to achieve a more aggressive digital transformation, it is necessary to promote investment accompanied by public, industrial, education, science, and technology policies.

MANUFACTURING INDUSTRY THE ROLE OF COVID-19 AND ITS THREE STAGES The specialist indicates that in what has been this fourth industrial revolution 4.0 and the process of digital transformation of manufacturing companies in the context of COVID-19, we can speak of three major stages: Pre-Covid, where the digital transformation focused on achieving much more productive workspaces. Covid, in which all the collaborative and wearable technologies called ‘wearables’ (clothing, devices, accessories, and smart implants) are being used to transform work environments from high touch to low or no touch environments. “During Covid, it was like a revolution in the whole area of the famous OHS, occupational health and safety hand in hand with productivity,” explains Romero Diaz. Finally, the post-covid stage will be very oriented to maintain those standards of industrial health and safety for the workforce with the digital transformation and continue with the trend brought from Covid to continue exploring new operating models that allow manufacturing companies to increase their productivity levels. IT IS NECESSARY TO KNOW HOW TO IMPLEMENT TECHNOLOGY Romero Diaz points out that there is a misconception that technology ends jobs, “we cannot say that the robot or artificial intelligence took away your job, on the contrary, it changed the nature of your job from being an individual one to a collaborative one, where that percentage that the robot or artificial intelligence is assisting you, were repetitive, tedious or dangerous tasks.” He stresses that at the end of the day, everything for digital transformation has been developed and

SOURCE: Forbes Mexico

implemented by humans, and it depends on the strategy selected to use these tools. It can go from yes, replace the human being, and here it is very important to question: “why am I going to do it? If the tasks within those jobs are dangerous, it is certainly worth automating them 100%,” says the researcher. “There are other tasks that require more flexibility, which it is better to keep them in a collaborative way, but there are others that are not ideal for automating or being collaborative, then what we have to do is to improve the physical and cognitive abilities of operators with the help of technology, particularly wearable technology,” he says. A BOOMING DIGITAL TRANSFORMATION The adoption of technological tools has been on the rise for a decade with the fourth industrial revolution. The academic gives some data that digitization in manufacturing is booming. The international robotics federation reports that, for example, the stock of robots, including industrial, collaborative, and mobile robots, has tripled in the last decade, from just over one million robots in use in 2010 to 3 million in 2020. In the manufacturing sector, the main industries using collaborative and wearable digital tools are: metalmechanical, plastics, automotive, aerospace, and slightly medical devices. To give an idea, in the 2021 global robot report, 126 robots are said to be employed for every 10,000 employees, a figure that has doubled in the last five years, as in 2015, the figure was 66 units. “We have to accelerate the pace in Mexico undoubtedly; we started a little late in the process of digitization in manufacturing,” reflects Romero Diaz.

MANUFACTURING INDUSTRY EU LAUNCHES $48 BILLION PLAN TO DOUBLE CHIP PRODUCTION BY 2030 On Tuesday, the European Commission proposed a huge plan for some 43 billion euros ($48 billion) to double semiconductor production in the European Union (EU) by 2030 and reach 20% of the global market. The ambitious plan was motivated by the EU’s obvious shortcomings in this segment and is an attempt to reduce its current dependence on Asian producers. “We have set ourselves the goal of having 20% of the global semiconductor market by 2030,” said European Commission President Ursula von der Leyen, who added that the current market share is 9%.

“As global demand will double in that period, this means quadrupling” the production of semiconductors in Europe,” she added. The decline of the semiconductor production segment in the European Union, as a result of factory closures, had a visible impact, especially on the automotive industry in the last three years, a scenario that led to greater dependence on Asian producers. The picture worsened with the outbreak of the coronavirus pandemic. Currently, the European semiconductor segment is dependent on imports from Taiwan and South Korea.

MANUFACTURING INDUSTRY Introducing the so-called “Chips Act” legislation, Von der Leyen recalled that semiconductors constitute “the foundation of the modern economy.” “They are essential in the goods we use every day. They are in our phones, in the ventilators used to treat pandemic patients. Semiconductors are crucial in all devices,” he said. BREAKING FREE FROM DEPENDENCE The ambitious plan envisages some 11 billion euros in subsidies for the implementation of large production lines. In addition, it considers some €30 billion in public aid and another €2 billion that would come from private investments. The European Union’s decision to increase its semiconductor production capacity coincides with a similar initiative launched by the United States. Last Friday, the U.S. House of Representatives adopted a bill providing for a $52 billion package to boost this very sector. Emilie Jolivet, director of the semiconductor division of the French c onsulting firm Yole Developpement, told AFP that “Europe is currently lagging far behind in terms of means of production.” For the expert, the European Commission’s announcement “a step forward, but it must be put in perspective in relation to what is being done in other parts of the world, especially in Asia.” Jolivet recalled that the Taiwanese group TSMC alone had planned investments of about 36 billion euros (more than 41 billion dollars) in 2022.

SOURCE: El Economista

According to Jolivet, Europe suffers from “a double dependency” on semiconductors. On the one hand, it depends on the United States, which designs these devices, with players such as Intel, Micron, Nvidia, and AMD. On the other hand, it depends on Asia, where most of the manufacturing occurs in Taiwan, South Korea, and - increasingly China. Currently, more than half of Europe’s need for semiconductors is met by Taiwan.

KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S Morning Press Conference Feb 2-8, 2022

COVID-19 The Undersecretary for Prevention and Health Promotion, Hugo Lopez-Gatell, commented that the fourth wave of the COVID-19 pandemic is going down, and there is a 72% reduction in mortality. REVOCATION OF MANDATE Regarding the ruling issued by the Supreme Court for the Electoral National Institute (INE) to carry out the revocation of the mandate, the President mentioned that the exercise is already a fact, there should be no doubt as it will be carried out to fulfill the constitutional mandate. It is contemplated to take place on Sunday, April 10. The President added that revocation helps a lot because certain rulers are elected for six years. However, if in the middle of the administration, the performance of the rulers has not been good, citizens can decide if that person should be removed. SOCIOECONOMIC REPORT OF MEXICO President Lopez Obrador mentioned that on the first Thursday of each month during the morning conferences, a detailed report will be given on socioeconomic matters and progress in welfare programs at a general level. Carlos Torres Rosas, the General Coordinator of Comprehensive Development Programs, mentioned that concerning GDP growth during 2021, there was a 5% growth, concerning jobs registered in social security, pre-pandemic levels have already been exceeded

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

with more than 20 millions of labor records before this institution. The average monthly salary in Mexico as of December 2020 closed at $13,339 pesos. The minimum wage in 2022 is capped at $172.2 pesos, which, compared to the previous six-year terms, had an approximate increase of 70%. JOHN KERRY VISIT, SPECIAL ENVOY FOR THE US CLIMATE To an express question about the visit, the President emphasized that Mexico is a sovereign country and that the United States has been respectful of this sovereignty. He stressed that it is believed that the CFE produces dirty energy when in reality, we have many options to produce clean energy, and there are facilities for investment. The only thing that is sought is to strengthen the Commission to avoid price increases. He announced that investments will be made in different solar energy generation plants, turbines, among others. Regarding Ken Salazar’s statements, the President indicated that he agrees that the laws must be updated and brought into line with the new reality.

MEASURES TAKEN BY STATES IN MEXICO

BAJA CALIFORNIA The State of Baja California remains a high-risk or orange light with decreased active cases, reporting 2,139 in the past 14 days. The vaccination plan continues daily in different municipalities. The Scientific Committee indicated that from February 7 to 20, the capacity will be maintained at 50 percent in nonessential activities and the educational model implemented in the new normality. It is necessary to continue applying preventive measures, such as the mandatory use of face masks in public places, constant hand washing, using gel with 70% alcohol, maintaining social distancing, and ventilating closed spaces.

SONORA The State of Sonora remains as high-risk or orange light. Official reports confirm 331 new cases in the last 24 hours. The vaccination plan continues this week in different municipalities. In February, the construction of the Solar Park in Puerto Peñasco begins, which will become the largest in Latin America and the 7th largest in the world. This project will reduce production costs, benefit 1.6 million consumers and prevent the generation of more than 1 million tons of CO2.

MEASURES TAKEN BY STATES IN MEXICO

COAHUILA The vaccination of minors against coronavirus who turn 15 in this 2022 began past Thursday, February 3. TAMAULIPAS The basic level curriculum is going to be cut from the next school year in Tamaulipas to avoid educational lag and make the teaching-learning process more efficient. NUEVO LEON The governor of Nuevo Leon, Samuel Garcia Sepulveda, announced that due to the reduction in positive cases for COVID-19, only an extraordinary event would prevent the state from returning to the original scheme of face-to-face classes next Monday in basic education.

MEASURES TAKEN BY STATES IN MEXICO

AGUASCALIENTES Although the risk level has been lowered in the traffic light, in fact, the pandemic is far from being over, “We are seeing the results of the reduction in the number of infections due to the restrictions on mobility, but this does not mean that we are already on the other side when the pandemic is still active,” warned Dr. Miguel Angel Piza, after pointing out that the Omicron variant is having an impact especially on people with risk factors and even on minors, to the extent that most of the deaths that have occurred recently are related to this strain.” At this moment, we are seeing that the curve of positives is starting to decrease, but even so, we cannot say that it is totally decreasing; we need a little more time. I believe that in about two more weeks, we will be able to see the results of the measures better”, he mentioned. He said that although there is indeed a deceleration in the number of positive cases and even in demand for hospital beds, however, it cannot yet be said that this drop is definitive, so all the preventive measures must be maintained by the population, since only in this way will it be possible to advance in the control of the pandemic. On the other hand, and after pointing out that most of the infections and deaths that have occurred in the last

weeks are related to the Omicron variant, the State Health Minister explained that he is surprised to see that most of the deaths registered in Aguascalientes correspond mainly to people between 50 and 70 years of age who even had the vaccine, but whose health condition was complicated by suffering from some chronic degenerative diseases. QUERETARO Queretaro’s state responsible for the International Sanitary Regulation of the State Health Secretariat, Jose Hernandez Puga, affirmed that Queretaro is not in the conditions to achieve herd immunity against COVID-19 since there is high transmissibility of the virus. In this sense, he explained that there had been a high propagation of the virus among the people of Queretaro in this fourth wave. However, Hernandez Puga admitted that the consequences on the health of those infected have not been serious due to the knowledge and application of sanitary measures, timely attention, and the high percentage of the vaccinated population. The State Responsible for International Health Regulations admitted a considerable increase in positive cases of COVID-19 with mild symptomatology. However, he emphasized that serious cases, with or without intubation, have not increased as in the first and second waves in Queretaro.

MEASURES TAKEN BY STATES IN MEXICO

GUANAJUATO In its latest update, the state of Guanajuato registered 13 more deaths, totaling 14,566; the municipality of Leon has reported the most cases of this type, with a total of 4,745 so far. After it was announced that last February 4, the number of confirmed cases in the state had reached an excessive increase, even more than at the beginning of last year or other years of the pandemic, reaching 43,085 during January and 5,856 up to that day of the month; as of February 7, this number has reached a total of 257,503, of which 7,835 are active as of today. On the other hand, some others are under investigation within the state, giving a total of 871; while, on the contrary, those that have been discarded have given a total of 298,071. Concerning this type of cases, it should be recalled that it was recently made known that 48 out of 49 cases studied were positive, and to a great extent, cases of omicron had been detected. Deaths have increased, totaling 14,566 in the entire entity. In contrast, it was recently announced that a total of 8 million 213 thousand 726 doses had been applied to different sectors of the population. In this regard, it is worth mentioning that adults 18 years of age and older have received the most vaccines, with a total of 2 million 142 thousand 428 doses. Likewise,

more than 3 million vaccinations have been completed in Guanajuato, with adults over 18 years of age also being the most favored. JALISCO According to statistics from the Ministry of Health of Jalisco (SSJ), while from Sunday, January 23 to Saturday, January 29, there were 161 deaths due to the coronavirus, from January 30 to yesterday, February 5, there were 283, which represents an increase of 76%. The number of cases accumulated in seven days also increased from one week to another. While from January 23 to 29, there were 29,127 new infections, in the last week, 39,251 new cases were reported, 35% more cases due to the contagiousness of the new Omicron strain. This, even though in the previous two days the number of infections has decreased, after Thursday was reported as the day with the highest number of confirmed cases in a single day: 5,908 infections in 24 hours, the highest figure so far in the pandemic caused by the coronavirus, according to statistics from the SSJ. Another indicator that showed an increase, although to a lesser extent, was the number of hospitalizations due to the virus: while on Saturday, January 29, 929 patients were reported hospitalized due to COVID-19, on Monday, there were six thousand.

MEASURES TAKEN BY STATES IN MEXICO

SAN LUIS POTOSI According to the State Technical Committee for Health Safety report, 1,096 laboratory-confirmed cases of COVID-19 and 11 new deaths were registered on the last day, for a total of 158,269 cases and 7,212 deaths. The new cases correspond to 559 women and 537 men, ranging from 1 to 96 years. In addition, 484 were fully vaccinated, and 57 were incomplete of the total number of cases. The report indicates that 446,862 suspected cases of COVID-19, 158,269 have been confirmed, 282,658 have been ruled out, and 5,935 cases are still under investigation. Likewise, 92,732 people have been discharged from the hospital. In hospitalization, there are 258 people, of which 77 are stable, 145 are serious, and 36 are intubated and at risk of losing their lives; of the total, 163 have a confirmed diagnosis of COVID-19, and 74 are still being studied. Hospital occupancy is 48 percent in regular beds for patients with respiratory diseases and 24 percent of beds with a ventilator for COVID-19 patients.

MEASURES TAKEN BY STATES IN MEXICO

STATE OF MEXICO The Secretary of Health of the State of Mexico reported that 120 new cases of COVID-19 were reported. During the last day, an average of 5 new cases of covid were registered every hour. In its nightly report, the agency pointed out that 107,923 Mexicans have received their health discharge after being infected by the SARS-CoV-2 virus. The government of the State of Mexico asked the population to continue implementing preventive measures at home, at work, and school.

CDMX President Andres Manuel Lopez Obrador said the pace of Mexico’s economic recovery has remained on track despite the emergence of the Omicron variant of coronavirus. While the new outbreak has impacted restaurants and other sectors, he said he was confident it was a “passing” effect. Lopez Obrador ruled out companies once again to lay off workers as they did when the Delta variant forced the partial closure of some economic sectors. Omnicron does not have the same severity as Delta, both in terms of symptoms and recovery time, he added.

ECONOMIC RECOVERY SEMPRA STARTS UP THE SECOND PHASE OF WIND FARM IN BAJA CALIFORNIA INVESTS $150 MILLION DOLLARS. The U.S. company will increase 70% the capacity of its plant, with this will deliver 263 megawatts of clean energy. Sempra Infraestructura started operations of the second phase of its wind farm Energia Sierra Juarez, located in Baja California, which required an investment of more than $150 million dollars. According to the company, this will increase the complex’s capacity by 70%, incorporating 26 new wind turbines totaling an additional 108 MW, which will deliver 263 MW of clean, renewable energy. The Energia Sierra Juarez wind farm has been operating for 6 years and was the first cross-border wind energy project between Mexico and the United States. This is not the only announcement made by the company led by Tania Ortiz Mena this year; since last January 31, it signed a non-binding Understanding Agreement with the CFE for the development of important projects, such as Vista Pacifico LNG. This will be a Natural Gas liquefaction terminal in Topolobampo, Sinaloa, a liquefied natural gas regasification terminal in La Paz, Baja California Sur, as well as the resumption of the operation of the Guaymas-El Oro gas pipeline. The development of the liquefaction terminal will allow the Comision Federal de Electricidad (CFE) to take advantage of surplus natural gas and transportation capacity from the Texas basins to Topolobampo in order to increase the supply of the fuel to generation plants in Baja California Sur.

SOURCE: Forbes Mexico

TOWARDS THE “NEW NORMAL”

DISTRIBUTION OF DEATHS PER STATE DUE TO THE PANDEMIC

INFORMATION UPDATED ON FEBRUARY 7, 2022 AT 19:00 HRS LOCAL TIME.

NEW CASES REPORTED: 9,242

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

CONFIRMED CASES: 5,160,767

NEW DEATHS REPORTED: 206

CONFIRMED DEATHS: 309,752

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 120.59

0 to 10.0 (13 states)

40.1 to 50 (1 states)

10.1 to 20 (13 states)

50.1 to 60 (1 states)

20.1 to 30 (3 states)

60.1 to 70 (0 states)

30.1 to 40 (1 states)

>70 (0 states)

Elaborated by Prodensa with information from the Health Ministry of Mexico

PANDEMIC’S SITUATION IN THE WORLD • As of February 7, 2022, globally there have been reported 394,381,395 confirmed cases (2,235,694 new cases) of COVID-19 and 5,735,179 deaths (10,826 new deaths*). Lethal rate: 1.5%. In the last 14 days, 42,114,489 cases were reported globally.

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

TOWARDS THE “NEW NORMAL” INCIDENTS OF CONTAGIONS IN THE POPULATION BY REGION AS OF FEBRUARY 07

DEATH INCIDENTS IN POPULATION BY REGION AS OF FEBRUARY 07

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

EHS

WHEN TO STAY HOME

CALCULATING QUARANTINE

If you were exposed to COVID-19 and had confirmed COVID-19 within the past 90 days (you tested positive using a viral test) No quarantine You do not need to stay home unless you develop symptoms. Watch for symptoms Watch for symptoms until 10 days after you last had close contact with someone with COVID-19. If you develop symptoms Isolate immediately and get tested. Continue to stay home until you know the results. Wear a well-fitted mask around others. Take precautions until day 10 Wear a mask Wear a well-fitted mask for 10 full days any time you are around others inside your home or in public. Do not go to places where you are unable to wear a mask. Avoid travel Avoid being around people who are at high risk Calculating Isolation Day 0 is your first day of symptoms or a positive viral test. Day 1 is the first full day after your symptoms developed or your test specimen was collected. If you have COVID-19 or have symptoms, isolate for at least 5 days.

DAVID ANTUNEZ Environmental, Health, and Safety Director.

LABOR

ALVARO GARCIA HR, Vice President

VOLUNTARY RESIGNATIONS New criteria for voluntary resignation documents have been recently posted in the Weekly Judiciary Gazette. In the event of a labor dispute between a worker who indicates having been fired and alleged that he was forced, or even received instructions, to sign his resignation, but the employer denies the termination, and indicates that instead it was a voluntary resignation and shows written evidence with the employee signature, the judiciary authority will be required to review and analyze in detail the resignation exhibited by the employer, and hear all allegations from the workers. The criteria recently taken by the authority invites labor judges to take into consideration that there is a context of inequality and asymmetry between the employer and the worker. The authority should consider that the employer is in a privileged position, of greater power and control. HR departments must review the resignation documents, especially if companies use a generic draft, in order to make sure that those documents will show proof of conditions of independence, autonomy, and freedom from the workers to sign and express their desire to quit.

LEGAL

ANNUAL MEETINGS Mexican laws require each company to hold an annual shareholders’ meeting within four months following the close of the company’s fiscal year (that is, no later than 30 April of each year), since the fiscal year of every corporation is now required to run from 1 January to 31 December. The companies S. de R.L. (Sociedad de Responsabilidad Limitada), in accordance with article 80 of the General Law of Business Organizations (LGSM). The companies S. A. (Sociedad Anonima) in accordance with article 80 of the LGSM. While it is true that the S. de R.L. does not specify what should be seen in the annual meeting, it must be interpreted in this annual meeting what is specified in Art. 172 of LGSM is reported, which is the following: A. A report on the administration of the company’s progress in the year ended, as well as on the policies followed by the administrators and, when appropriate, on the main existing projects. B. A report stating and explaining the main accounting and information policies and criteria followed in preparing financial information. C. A statement showing the company’s financial situation at the closing date of the fiscal year. D. A statement showing the changes in the items comprising the corporate patrimony of the company and its subsidiaries during the fiscal year E. A report from the Commissioner in accordance with the following: (Note: This point only applies to companies that have a commissioner, in the case of the S. de R.L., it is not mandatory to have it).

ALEJANDRA CERDA Corporate Attorney