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• Mexico increases business links with US as Bolsa quotes US shares

  05 May 2011 Hits: 570

  The business links between Mexico and the US are becoming ever closer. It is noticeable that Latin American and international organisations have now started to put Mexico in a category of its own: it is neither North American nor Latin American. The country would like to remain at this halfway point, but fears that it will be drawn into an ever closer union with the US. 
  
  One of the most tangible signs of Mexico's recovery from the crisis of 1995 is the decision by the Mexican stockmarket, the Bolsa Mexicana de Valores (BMV), to list the 26 US stocks which make up the Dow Jones Industrials Index. The idea behind this is to generate more business for the stockmarket. These shares will be quoted in pesos and will thus be easier for (smaller) Mexican investors to buy. 
  
  The move has already had an effect on turnover, traders say. It also shows that there is a growing pool of savings in Mexico which needs a home. Investing in the stockmarket, where both capital gains and dividends are tax-free, is an attractive option for savers. 
  
  The listing of the US shares shows that this pool of Mexican capital is of interest to some of the biggest companies in the world. It was only 15 years ago that big Latin American companies had to go to the US to tap into a worthwhile pool of capital. 
  
  The BMV's decision to offer US shares also points to anther problem for the region's stockmarkets: the dearth of new local companies coming to the market. To be fair, Latin America is not alone in having this problem. The world's developed markets hail each of the rare new issues they have as the start of the recovery. 
  
  Bigger scale. The other point worth noting about Mexican business is that Mexican companies are becoming ever larger players, rather than just suppliers, in the US markets. One sign of this was the decision by Latin America's richest man, Carlos Slim Helú, to sanction a US$1.7bn investment by Teléfonos de México (Telmex) in WorldCom bonds. 
  
  WorldCom is a troubled US telecoms company which has a major stake in Avantel, one of the main competitors to Telmex in Mexico. 
  
  Telmex claims that the move is a financial investment, but few in the financial market believe this. The bondholders will be in a strong position in the bankruptcy of WorldCom. Analysts say that other companies in the Slim empire have also been buying WorldCom bonds. They reckon that Slim may in fact hold about US$3bn worth of WorldCom bonds. 
  
  Slim has a record in the US as an astute investor. One of his major coups was in buying Apple shares in 1997, just before the launch of the i-Mac and return of Steve Jobs. He is supposed to have paid US$17 a share and to have sold out a year later at US$100 a share. Apple shares are now back in the netherworld of US$20 a share. 
  
  Coca-Cola. Traditional linkages between the two economies are also getting stronger. Coca-Cola's 15 bottlers in Mexico say that they will invest US$600m in improving their distribution network and modernising plants. It is one of the biggest direct investments in the country this year. The government is nervous about the fall-off in foreign investment. It had hopes for about US$12bn in foreign direct investment. 
  
  The Industrial Mexicana de Coca Cola has 1.1m customers in Mexico, 22,000 vehicles, 465 depots and 79 bottling plants. 
  
  La Prensa. The US's oldest Hispanic newspaper, El Diario/La Prensa, was sold for US$20m at the beginning of July to a group of private investors, led by Clarity Partners. The newspaper is the leading Hispanic paper in New York. Clarity's principal, Stephen Rader, played a major role in the creation of Univision, now the biggest Hispanic broadcaster in the US.

• Agribusiness: Tomatoes and shrimps to the rescue

  05 May 2011 Hits: 464

  Mexican farmers' fears that the local market would be overwhelmed by imports from the US seem to have been overdone. In the first quarter of the year, Mexico actually managed to increase its trade surplus with the US in agricultural products. The economy ministry was also quick to point out that the steps it took to protect sensitive Mexican crops, such as beans and maize, from imports have paid off.  
  
  The widespread fear that Mexico would be overwhelmed by cheap agricultural products from the US, seems to have been overdone. In the first quarter of 2003 Mexico ran a surplus of US$427m on agricultural trade with the US. This was US$258m more than it managed in the first quarter of 2002.  
  
  The growing surplus sits oddly with the protests made by farmers at the beginning of the year over the lowering of Mexican agricultural tariffs. Then, they said that inefficient Mexican farmers would be wiped out by more efficient and better capitalised US competitors. These fears have yet to be realised.  
  
  The main reason for the increase in the Mexican surplus was a surge in exports of tomatoes, chillies, peppers and shellfish to the US.  
  
  Tomato exports to the US in the first quarter were up by 72% year-on-year; chilli exports were up by 51%; pepper exports by 30%, and shrimp exports by 20%.  
  
  To be fair, the economy ministry did note that there was also an 11.4% increase in imports of agricultural products in the first four months of the year. The main reason for this was an increase in maize and soya imports. These products will have gone to provide chicken feed; the chicken industry was one of those to enjoy heftier protection after the protests at the beginning of the year. Total agricultural imports in the first four months of the year were US$1.77bn  
  
  Protection. The economy ministry claimed that its policy of targeted protection for particularly vulnerable products was paying off. It said that imports of some products, notably beans, had fallen substantially. Bean imports were down by 78% in the first four months.  
  
  The other big falls in agricultural imports were in fruit and sorghum. There were also significant falls in livestock and fish imports. The biggest single fall was in beef imports, down by two-thirds.  
  
  Unlike beans, the other Mexican staple, maize, has seen a nasty surge in imports. These were up by 50% in both cash and volume terms, totalling US$315m.  
  
  Other so-called sensitive products showed an equally patchy performance. But Mexican farmers' fears about egg imports also seem to have been borne out. They were up by 8% in the first four months of the year.  
  
  The biggest increase, however was in soya imports. These were up from US$260m to US$331m.  
  
  Exports. The economy ministry noted that agricultural exports to North America were up by 22.7%, to US$2.225bn. The main increases (in percentage terms) were in brussel sprouts, raspberries, blackberries and mulberries, avocadoes, papayas and tomatoes.  
  
  There were also significant increases in shipments from Mexico of fish and shellfish (up 132%) and honey (up 22%).The big increase in shellfish was in shrimp exports.  
  
  Better to come? Gerardo López Noriega, the Coordinador General de Promoción Comercial y Fomento a las Exportaciones at the agricultural trade promotion agency, Aserca, said that the challenge was now to broaden the range of exports.  
  
  He pointed out that almost 80% of the country's exports to the US fell into only four categories: fruit and vegetables, drinks, vinegar and live animals.  
  
  López Noriega said that the immediate problem was to broaden the scope of avocado exports. He said that the goal was to ensure that Mexican avocadoes could be sold right across the country for the whole year. Currently, sales are restricted by season and state. López Noriega also wants to see fewer barriers to the export of Mexican melons.  
  
  According to López Noriega, Mexican agricultural and food exports to the US came to US$2bn in the first quarter. This was 11.5% up on the same period of 2002.  
  
  He also claimed that Mexico's imports of food from the US fell from US$1.64bn in the first quarter of 2002 to US$1.58bn in the same period of 2003.  
  
  Canada. López Noriega noted that Mexico's food exports to Canada are also rising. They were up by 22%, at Can$199m, in the first quarter. The rise was led by vegetables and tomatoes, which increased from Can$108m to Can$132m. Fruit exports were virtually unchanged.  
  
  Drink exports were up by 81%, from Can$12m to Can$23m. Coffee exports were also up substantially in percentage terms (by 20%), at Can$2.5m.

  
  

• China: Agricultural threat?

  05 May 2011 Hits: 605

  Alejandro Moisés Ceja, vice-president responsible for international trade at the Consejo Nacional Agropecuario (CNA), claimed that China posed as great a threat to Mexico's agricultural exports to the US as to its manufactured exports, despite China's distance from US markets.  
  
  To meet the potential threat from China, the Mexican government must, he said, provide incentives to help farmers improve their production quality.  
  
  Crying wolf? Ceja is not crying wolf. Figures from the US Department of Agriculture show that food exports from China to the US have been growing fast over recent years.  
  
  Ceja noted that in the first four months of the year Chinese food and agricultural exports to the US were equivalent to 17.5% of Mexican food exports to the US.  
  
  What worries the CNA is that Chinese agricultural exports to the States are growing much faster than Mexican ones. In the first four months, Chinese exports were up by 31%, while Mexican exports were up by 10%.  
  
  There is even some evidence, from the USDA, to suggest that China has pulled ahead of Mexico in markets that Mexico imagined it owned, such as fruit juices and vegetable juices.  
  
  To be fair, some of the problems Mexican producers are facing may be temporary. Last year Mexico's output of citrus fruit fell by 70% because of the drought. China stepped into the gap in the market. Mexican producers are finding it hard to claim back the market.  
  
  Figures from the USDA show that in the first four months of the year Chinese exports of fruit juices were US$16m, or double Mexico's. Compared with the first quarter of 2002, China's exports of fruit juices have risen by 94%, while Mexico's have fallen by 31%.  
  
  Meat. Another major worry for Mexican ranchers is the increase in exports of red meat from China. These were up by 146% in the first four months of the year. China's exports of red meat are now half Mexico's in value terms.  
  
  Central America: The Chinese threat to maquiladora (assembly) industries in Central America is so acute that one expert has warned that the industry in Central America could be wiped out within two years. This would have major implications, not only for the Central American economies but also for Mexico and the US, which would have to cope with more immigration.  
  
  Pedro Morazán, from a German research insitute, Southwind, argues that the Honduran maquiladora industry, which currently employs 120,000 people (mostly in textiles) could be gone by 2005. He said that the big problem was the ending of the Multifibre Agreement (MFA). The ending of this agreement, which distorts and shapes the world trade in textiles and clothes, will allow China to flood the world market. The MFA has allowed countries such as Honduras to process US cotton and cloth and to export it back to the US. Such niches will be obliterated and this could mean that China's cheap labour will be the decisive factor in the industry.  
  
  What bothers the Central Americans is that the US seems unwilling to let them use the free-trade deal it is negotiating with them, or the Free Trade Area of the Americas agreement, to offer them protection. The US line is that both those agreements must be on the principles agreed by the World Trade Organization.  
  
  Human rights workers point out that Chinese companies pay textile workers a fraction of what they earn in Central America, and Chinese workers have no rights to organise unions. These advantages have been magnified by the huge amount of foreign investment that has meant that the country has huge, efficient plants with the capacity to supply a large chunk of the world market.  
  
  Maquiladora swings... A computer monitor plant owned by Mitsubishi in Mexcali is to close in mid-July. Around 1,200 people were employed at the plant.  
  
  Mitsubishi said that computer users no longer wanted old-style monitors, preferring liquid crystal displays. These use halogen lamps to illuminate the liquid crystal and give a much sharper image. Traditional monitors use cathode tubes, which are bulkier, and mean that the monitor has to be chunkier. Mitsubishi's plant in Mexicali made the innards for 17-inch monitors.  
  
  Since the plant was set up in 1998, Mitsubishi has found the going tough. Its market is dominated by Phillips and Samsung, which handle 90% of the sales.  
  
  ...and roundabouts: The fears about the future of the television manufacturing industry in Mexico may have been misplaced. Sharp, the leading Japanese TV manufacturer, announced that it would double its production of TVs to 20,000 a month. Sharp says that Mexico's advantages mean that it expects its plant in Mexico to produce half of the flat screen TVs it sells to the US. Last year Sharp sold 400,000 flat screen TVs to the States. TVs are one of Mexico's key exports to the US. Last year TV exports were worth US$4.3bn.  
  
  Some people had been worried that Mexico's TV production lines were obsolete because they were too focused on cathode tube sets. The other problem was that flat screen TVs from Japan face only a 5% tariff in the US. Sharp's decision lays some of these fears to rest.