Weekly Report 94

GENERAL SITUATION IN MEXICO

Weekly Review #94 I March 2, 2022

2

MANUFACTURING INDUSTRY U.S. MANUFACTURING ACTIVITY REBOUNDS MORE THAN EXPECTED IN FEBRUARY; SUPPLY CHAINS REMAIN STRAINED

U.S. manufacturing activity rebounded more than expected in February as COVID-19 infections receded, although factory hiring slowed, helping to keep supply chains tight and input prices elevated.

The Institute for Supply Management (ISM) said Tuesday that the manufacturing sector’s outlook for the next two months was favorable, noting that last month’s backlog of orders rose to an 11-year high.

Factories also reported strong growth in orders.

“This report points to solid business conditions for the manufacturing sector in a very supply-constrained environment with continued strong increases in input costs,” said Conrad DeQuadros, a senior economic advisor at Brean Capital in New York.

The ISM’s index of national manufacturing activity rose to a reading of 58.6 last month from 57.6 in January, which was the lowest since November 2020.

A reading above 50 indicates expansion in the manufacturing sector, accounting for 11.9% of the U.S. economy. Economists polled by Reuters had expected the index to rise to 58.0.

The survey was conducted ahead of Russia’s invasion of Ukraine on Thursday, which some economists say could further choke supply chains. The conflict has sent oil and wheat prices, among other commodities, soaring.

“The U.S. has limited direct trade ties with Russia, but the conflict will raise global energy and other commodity prices,” said Will Compernolle, senior economist at FHN Financial in New York.

SOURCE: El Economista

3

MANUFACTURING INDUSTRY The manufacturing sector is regaining momentum in line with the broader economy after a blip caused by a surge in coronavirus infections across the country, driven by the omicron variant. The U.S. records an average of 69,704 new COVID-19 infections per day, a fraction of the more than 700,000 in mid-January, according to a Reuters analysis of official data.

The ISM survey’s new sub-index orders rose to 61.7 last month from 57.9 in January, the lowest reading since June 2020.

Spending on goods increased as the pandemic curbed demand for services such as travel. Although spending will refocus on services as the health situation improves, economists expect demand for goods to remain strong.

HIRING SLOWS The factory employment survey fell to a reading of 52.9 last month from a 10-month high of 54.5. It had risen for five consecutive months. According to Timothy Fiore, chairman of the ISM’s Manufacturing Business Survey Committee, “a higher-than-normal rate of resignations and early retirements continued.”

SOURCE: El Economista

Manufacturers reported difficulties in filling vacant jobs. At the end of December, there were a record 10.9 million job openings across the U.S. economy.

Inflation at the factory gate remained elevated. The survey’s measure of prices paid by manufacturers fell to a still-high reading of 75.6 from 76.1 in January, pointing to sustained inflationary pressure.

Inflation could accelerate in the coming months due to the conflict between Russia and Ukraine. Brent crude oil has soared above $100 a barrel. Russia faces severe disruption to its exports of all commodities, from oil and metals to grain, after Western countries imposed tough sanctions on it.

A separate Commerce Department report showed Tuesday that construction spending rose 1.3% in January, driven by strong outlays on the construction of single-family homes and private nonresidential structures.

The rise followed a 0.8% increase in December. Economists had expected construction spending to rise 0.2 percent. Construction spending rose 8.2 percent year-over-year in January.

4

MANUFACTURING INDUSTRY 200,000 CARS WOULD NO LONGER BE SOLD AS A RESULT OF THE NEW DECREE: AMDA

The automotive industry complained to the government of Andres Manuel Lopez Obrador (AMLO) for the greater facilities and the inclusion of states to regularize illegally imported used cars, which will represent a new blow to the sector, which could cause a negative impact by stopping the commercialization of 200,000 units, that is, close to 20% of the annual sales made by the companies installed in the country.

In a virtual press conference convened by representatives of AMDA, AMIA, ANPACT, and INA, they regretted that President AMLO broke the commitment made only to regularize illegal units circulating in Mexican territory, and now proceeds to open the border for the entry of more units, in addition to facilitating the procedures, eliminating mandatory requirements.

On Sunday afternoon, the Chief Executive issued a decree in the Official Gazette of the Federation. He added two entities to the 10 that were allowed to regulate these units and extended the effective term from July 20 to September 20, 2022.

The first decree is effective in the states of Baja California, Baja California Sur, Chihuahua, Coahuila de Zaragoza, Durango, Michoacan de Ocampo, Nayarit, Nuevo Leon, Sonora and Tamaulipas. Sinaloa and Zacatecas have now joined.

Guillermo Rosales, president of the AMDA, commented that this action will cause the government to stop collecting resources from selling new cars and that an average of 40,000 pesos will reach the treasury for each sale.

SOURCE: El Economista

“The risks that will be facing not only the automotive market but also the legality of the procedures established by the federal government, such as article 6 that inserts a modification in the regularization where the owner of the used vehicle of foreign origin must present to the Public Vehicle Registry, through electronic means, the manifestation under oath of truth with the corresponding documents, as well as the proof for the use of 2,500 pesos and once it is received, it will be sent to the National Customs Agency of Mexico and the stay in the country will be accredited,” he said.

5

KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S Morning Press Conference February 23- March 1, 2022

COVID-19

POSITION OF MEXICO IN THE CONFLICT

Undersecretary Hugo Lopez Gatell indicated that it

BETWEEN RUSSIA AND UKRAINE

is the fifth consecutive week in the reduction of ac-

The Ministry of Foreign Affairs is pending of defining

tive cases of COVID with an occupancy of general

a position. Mexico has already established its posi-

beds of 18 percent, in addition to a reduction in the

tion in the UN Security Council; the country favors

percentage of mortality derived from COVID.

the policy of non-intervention and self-determination of peoples. This was what the representative of

Regarding the vaccination strategy, more than 180

Mexico to the UN raised: In the event of a worsening

million doses have been applied, with a total of more

of the conflict, there will be no gas shortage problem

than 85 million vaccinated people over 18 years of

since the Mexican government has contracts to ob-

age. Of these, the application of reinforcements has

tain energy from other sources. Even in the face of

been of more than 70% of people aged 60 years and

an increase in the international gas price, the country

over; 46% corresponding to people in the range of

has fuel oil and coal for emergencies.

40 to 59 years and; 39% in people between 30 and 39 years old. He indicated that on February 28, the

ARMED FORCES IN PORTS AND AIRPORTS

largest shipment of Astra Zeneca vaccines against

To an express question about the arrival of the Navy

COVID arrived in Mexico.

at the International Airport of Mexico City, the President commented that he is relying on the Secretar-

LEVEL OF GOVERNMENT ACCEPTANCE

iats of the Navy and National Defense to attend the

The President highlighted that his level of acceptance

ports and customs to avoid smuggling, drug traffick-

at the international level is second to his counterpart

ing, ensuring that with these actions progress will be

in India. He specified that he will continue asking the

made in solving the problem.

US not to give money to Claudio X Gonzalez.

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

6

MEASURES TAKEN

BY STATES IN MEXICO

BAJA CALIFORNIA The State of Baja California is considered a low-risk or green light with 482 active cases in the past 14 days. The vaccination plan continues with the booster application against COVID-19 to young people aged 18 and over. The Health Secretary asks the population to continue with the sanitary protocols and preventive measures such as using face masks, healthy distance, ventilation of spaces, and hand washing. On Monday, February 28, Baja California schools returned to face-toface classes at all levels, following the necessary health protocols to guarantee the safety of students.

SONORA The State of Sonora is considered a medium-risk or yellow light with 6 municipalities in low-risk or green light. Official reports confirm 307 new cases in the last 24 hours. The vaccination plan continues this week with the booster application for young people over 18 years old and the complete vaccination schedule for the adult population.

7

MEASURES TAKEN

BY STATES IN MEXICO

COAHUILA Coahuila authorities will take advantage of the drop in indicators due to COVID-19 last month, seeking to promote various activities related to economic reactivation and in an effort to trigger social activity in all regions of the entity.

TAMAULIPAS Tamaulipas seeks to move to the endemic phase of the COVID-19 pandemic, for which health authorities have reduced social restrictions allowing massive events to be held.

NUEVO LEON After the decrease in infections and hospitalizations by COVID-19, the Ministry of Health announced the increase in capacity in commercial orders to 100%. The Governor, Samuel Garcia, announced some of the establishments that will have a full capacity: restaurants, hotels, graduations, cinemas, supermarkets, casinos, bars, and canteens, among other businesses.

8

MEASURES TAKEN

BY STATES IN MEXICO

AGUASCALIENTES The backlog of the population that has not received any dose of the anti-COVID-19 vaccine is lower, given that the entity exceeds the national average of biologicals applied since 93% of the population has received at least one dose.

This was announced by federal authorities in the state, who also stated that 383,716 booster doses had been applied among health and educational personnel, and to age groups of 60, 50, 40, and 30 years old and older, the latter being residents of the capital municipality.

Likewise, the Roadrunner Brigades coordinator pointed out that the biological booster for 18 to 30 year-olds has already been requested, so vaccination campaigns are expected to be carried out in the next few days.

QUERETARO In Queretaro, with data until Monday, February 28, there have been 324 cases of the disease in the state (38 on Saturday, 21 on Sunday, and 265 on Monday), involving 160 women and 164 men. The accumulated record is 136 thousand 52 cases; 52% are women, and 48% are men. A total of 946 patients were discharged from the hospital, resulting in 128,692 discharges (94.59%). There are 741 patients with mild symptoms, isolated and managed at home and 88 hospitalized, 34 seriously ill. Six thousand 531 deaths have been recorded. Concerning the availability of general hospital beds and beds with ventilators, with information as of February 27, there is an occupancy rate of 26 percent, based on the Negative Network of Acute Respiratory Infections (IRAG).

9

MEASURES TAKEN

BY STATES IN MEXICO

GUANAJUATO This week, eight municipalities detected new coronavirus infections, a total of 393 more. The city of Leon accounted for 82% of the new cases with a total of 324 new infections, followed by Irapuato with 45 new patients, San Miguel de Allende with 10, Salamanca with eight more, while Guanajuato capital and San Jose Iturbide registered two each and finally Apaseo el Alto and Silao with one each. With these new cases, the state remains in the green light during this week and concentrates a total of 275,201 accumulated cases 23 months into the pandemic, of which 258,466 are people who have already recovered. There are currently 1,763 people in Guanajuato who have the active virus and can continue to spread it. With this number of patients currently ill, the state is in 17th place nationally. Both private and public health institutions reported two deaths.

JALISCO The Ministry of Health of Jalisco registered 849 new coronavirus infections, bringing the total number of confirmed cases to 565,935 in the state. Nine more deaths were recorded, bringing the total number of deaths in the state to 18,873.

Adding up the negative results reported by all laboratories, 1 million 978 thousand 176 cases have been ruled out in Jalisco to date, and 26 thousand 595 cases are suspected.

SAN LUIS POTOSI The State Committee for Health Safety reported that in the last 24 hours, 10 new deaths due to COVID-19 were recorded, six of which were adults over 60 years of age. Meanwhile, 629 new positive cases of COVID-19 were registered. Health authorities indicated that they were divided into 367 infections in women and 262 in men, of which 192 people with complete vaccination and one child under two years of age stand out. A considerable decrease in hospital occupancy was also reported, as on February 28, general beds for COVID-19 remained at 11 percent and those for intubation at seven percent in use. As of February 28 cut-off, 58 men and women remain in hospital, 17 in stable condition, 30 in serious condition, and 11 under mechanical ventilation.

10

MEASURES TAKEN

BY STATES IN MEXICO

STATE OF MEXICO After identifying a solid budgetary performance and strengthening liquidity, S&P Global Ratings upgraded the State of Mexico’s long-term issuer credit rating on a national scale. Given that the outlook is stable, the rating agency informed that the rating changes from ‘mxA+’ to ‘mxAA-.’ The expectation is that in the next 12 to 18 months, the State of Mexico will maintain a solid budgetary performance, amid fiscal challenges and gradual economic recovery. The rating also considers the commitment of the entity’s financial management to the implementation of prudent fiscal policies, which the rating agency expects to continue despite political cycles, as well as a very low level of debt.

CDMX Mexico City closed 2021 as the entity that received the highest Foreign Direct Investment (FDI). According to figures from the Secretariat of Economic Development, headed by Fadlala Akabani, more than 5 billion dollars were invested in the capital in sectors such as trade, financial services, and business support. This is particularly relevant in a post-pandemic context, after the severe economic restrictions imposed by measures to contain contagion worldwide, and where competition for investment has increased with the need to supplement local resources, with a view to global economic recovery.

11

ECONOMIC RECOVERY THE MANUFACTURING INDUSTRY ACCOUNTS FOR THE LARGEST SHARE OF FOREIGN INVESTMENT. Manufacturing companies are the most attractive in terms of FDI (Foreign Direct Investment); almost 40% of total FDI inflows are in this sector. Mining and financial services are second and third on the list.

THE MANUFACTURING INDUSTRY ACCOUNTS FOR THE LARGEST SHARE OF FOREIGN INVESTMENT. FDI inflows by economic sector:

Manufacturing

39.7

Mining

15.2

Financial Services

15.0

Transportation

8.8

Commerce

8.5

Temporary housing

7.6

Other

5.2

In 2021, Mexico captured 31,621 million dollars of Foreign Direct Investment (FDI), which represented 8.7% more in relation to the previous year.

According to the Ministry of Economics figures, the manufacturing sector accounted for 39.7% of these investments, while mining and financial services attracted 15.2% and 15.0%, respectively.

The main investment issuing countries were the United States, Spain, Canada, the United Kingdom, and Japan.

SOURCE: El Economista

12

TOWARDS THE “NEW NORMAL”

DISTRIBUTION OF DEATHS PER STATE DUE TO THE PANDEMIC

INFORMATION UPDATED ON FEBRUARY 28, 2022 AT 19:00 HRS LOCAL TIME.

NEW CASES REPORTED: 2,524

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

CONFIRMED CASES: 5,508,629

NEW DEATHS REPORTED: 63

CONFIRMED DEATHS: 318,149

13

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 33.66

0 to 10.0 (1 states)

40.1 to 50 (3 states)

10.1 to 20 (10 states)

50.1 to 60 (2 states)

20.1 to 30 (7 states)

60.1 to 70 (0 states)

30.1 to 40 (4 states)

>70 (5 states)

Elaborated by Prodensa with information from the Health Ministry of Mexico

PANDEMIC’S SITUATION IN THE WORLD • As of February 28, 2022, globally there have been reported 434,154,739 confirmed cases (1,015,504 new cases) of COVID-19 and 5,944,342 deaths (5,205 new deaths*). Lethal rate: 1.4%. In the last 14 days, 23,044,144 cases were reported globally.

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

14

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

BY REGION AS OF FEB 28

DEATH INCIDENTS IN POPULATION

BY REGION AS OF FEB 28

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

EHS

15

DAVID ANTUNEZ Environmental, Health, and Safety Director.

SPRING SEASON Spring is coming again, and travel will increase again. We still cannot claim victory over Omicron, so the following recommendations must be followed: BEFORE YOU TRAVEL Make sure to plan ahead: • Check the current COVID-19 situation at your destination.

• Make sure you understand and follow all state, local, and territorial travel restrictions, including proper mask wearing, proof of vaccination, testing, or quarantine requirements.

• For up-to-date information and travel guidance, check the state, local and territorial health department’s website where you are, along your route, and where you are going.

• If traveling by air, check if your airline requires any testing, vaccination, or other documents.

• Prepare to be flexible during your trip as restrictions and policies may change.

LABOR

16

ALVARO GARCIA

A NEW PHASE IS TO START IN MEXICO We are entering a new phase of the pandemic. Official information from sanitary authorities has allowed governments worldwide, especially in countries with a high level of vaccinated population, to start reducing covid measures. Mexico is not the exception.

Starting this week, various state governors in Mexico have announced the end of the 4th covid wave that the omicron variant created. Still, all basic protective measures and protocols must be observed at the workplace, including the mandatory use of masks. Yet, as the covid cases significantly reduce, we are expecting upcoming updates of the official protocols.

All economic activities are now open, and full occupancy is finally permitted in most Mexican states. Companies with global operations should continue to observe all local regulations.

HR, Vice President

LEGAL

17

BENEFICIAL OWNERSHIP IN THE MEXICAN FEDERAL TAX CODE NEW OBLIGATION FOR COMPANIES AND OTHER LEGAL FIGURES IN MEXICO On January 1st, 2022, a new tax obligation related to the beneficial ownership entered into force.

This new provision has been established in the articles 32-b ter to 32-b quinquies of the Mexican Federal Tax Code that establishes the obligation to identify the beneficial ownership of companies, trusts, and other legal figures, as well as to obtain some information from the beneficial ownership that may be required by SAT (Tax Administration Service).

WHAT IS A BENEFICIAL OWNERSHIP? For the effects of the Mexican Federal Tax Code, beneficial ownership is the natural person or group of persons that: • Directly or through another or other or any legal act, obtain or obtains the benefit derived from their participation in a company, a trust or any other legal figure, as well as from any other legal act, or is who ultimately exercises or exercises the rights of use, enjoyment, harnessing or disposal of a good or service or on whose behalf a transaction is made, even if it does so on a contingent basis.

• Directly, indirectly or contingently, exercise control of the company, trust, or any other legal figure.

It is understood that a natural person or group of persons exercises control when, through the ownership of securities, by contract or by any other legal act, they can: • Establish, directly or indirectly, decisions at the general meetings of shareholders, members, or equivalent bodies, or appoint or dismiss a majority of directors, directors, or their equivalents.

• Maintain ownership of the rights that allow, directly or indirectly, to exercise the vote with respect more than 15% of the share capital.

• Direct, directly or indirectly, the company’s administration, strategy or main policies, trust, or any other legal figure.

It is important to note that when the natural person is not identified under the established on the law, the natural person who occupies the position of a sole administrator or each member of the board of directors will be considered as beneficial ownership. Hence, all legal entities have an obligation to document beneficial ownership information and keep it updated.

If the companies have not complied with the regulations, fines ranging from $500,000.00 to $2,000,000.00 pesos are established for each beneficial ownership, and the opinion of compliance with obligations in the negative sense is issued.

ALEJANDRA CERDA Corporate Attorney

www.prodensa.com contact@prodensa.com