Moving Mexico Forward: The Double Bottom Line

Transcription

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2 Moving Mexico Forward: The Double Bottom Line

3 Mexico

4 Size of Countries Based on Population

5 Population Comparison Millions China India Indonesia Mexico Argentina Venezuela USA Brazil Colombia Peru Chile

6 Proportion of Population under $1 a Day Percent India Laos Peru Vietnam China Venezuela Philippines Pakistan Mexico Colombia Brazil Indonesia Chile Korea Malaysia Thailand

7 Mexico Gross Domestic Product US$ Billions Gross Domestic Product GDP Growth Percent Change, Year Ago

8 US$ Mexico GDP Per Capita Per Capita GDP Growth Rate Percent Change, Year Ago

9 Mexico - Real GDP Growth Percent 8 6 Real GDP Growth Note: Close to zero Note: Tequila Crisis in

10 US$ 6000 GDP Per Capita Rank Based on Constant 1995 US$ Brazil Chile China India Mexico Venezuela

11 Mexico - Import and Export US$ Trillions Exports Imports Note: 2004 Imports N/A

12 Mexico - Import and Export Growth of Exports and Imports (%, Annualized) Exports Imports

13 Percent Mexico Role of Trade As Percent of GDP Exports Imports

14 Mexico - Structure of Exports 2002 Exports: US$ billion Fuels 9% Food 5% Ores and Metals 1% Agricultural Raw Materials 1% Manufactures 84%

15 Mexico - Structure of Exports Food 8% 1982 Exports: US$ 24.1 billion Ores and Metals 4% Agricultural Raw Materials 1% Manufactures 9% Fuels 78%

16 Mexico - Structure of Imports 2002 Imports: US$ billion Fuels 3% Ores and Metals Food 2% 6% Agricultural Raw Materials 1% Manufactures 88%

17 Mexico - Structure of Imports 1982 Imports: US$ 17.7 billion Fuels 3% Food 11% Ores and Metals 4% Agricultural Raw Materials 3% Manufactures 79%

18 Mexico Top Trade Partners Rank 2004 Country 2004 (US$ Billions) % Change Rank United States China Japan Germany Canada South Korea Brazil Spain Taiwan Malaysia

19 Mexico - Trade with US Trade Balance Export/Import US$ Trillions US$ Trillions, Seasonally Adjusted 5 Mexico's Trade Balance with US Export to US 14 4 Import from US

20 Mexico - Trade with US Trade Balance Export/Import US$ Trillions US$ Trillions, Seasonally Adjusted 50 Mexico's Trade Balance with US Export to US Import from US

21 USA Mexico s Largest Trade Partner US$ Trillions Total Exports Exports to US

22 Top Recipients of Remittances 2001 US$ Billions India Mexico Philippines Morocco Egypt Turkey Lebanon Bangladesh Jordan Dom. Rep. El Salvador Colombia Yemen Pakistan Brazil Ecuador Yugoslavia Thailand China Sri Lanka

23 Percent 30 Remittance Receivers As Percent of Population El Salvador Guatemala Mexico Honduras Ecuador

24 Percent 80 Mexico Remittance Uses As Percent of Remittances Received Savings Household Exp. Education Other Investment Real Estate

25 Growth of Output and Investment Growth of Output and Investment (%) GDP Gross Fixed Capital Formation

26 And half of the economy is controlled by one family The Slim family owns or controls publicly traded companies with a market capitalization of $49.69 billion in 2002, equivalent to 45% of total market value of the country s 15 largest listed companies Slim s stakes: $5 billion Telmex 13.7% MCI 11.6% Saks 14.1% CompUSA

27 Budget Problems Billions of Pesos Government Deficit

28 Budget Deficit Mexico needs to spend $20 billion annually over the next ten years in order to overcome its infrastructure deficit World Bank

29 Mexico - Current Account Balance Percent Current Account Balance as % of GDP

30 Percent 15 Mexico External Debt As a Percent of GDP

31 FDI Confidence Index For the first time since the late 1990s, Mexico is not among the 10 most attractive markets in the world Unfulfilled reforms in telecom, infrastructure and energy led to diminishing investor interest Ranking Change

32 Short- and Medium-Term Attractiveness to FDI Percent Years 10 Years China India Poland Brazil Mexico

33 Top Recipients of FDI Inflows US$ Billions Mexico Brazil Chile Venezuela Colombia Ecuador

34 ICRG Overall Country Risk Singapore Japan Hong Kong Korea Malaysia Chile China Mexico Thailand India Vietnam Brazil Philippines Peru Argentina Colombia Indonesia Pakistan Venezuela

35 ICRG Political Risk Japan USA Dev d Asia Chile Mexico China Brazil Latin Amer. Argentina India Dev ing Asia

36 ICRG Economic Risk Dev d Asia Chile Argentina Japan USA Brazil China Mexico Dev ing Asia Venezuela India

37 ICRG Financial Risk Japan China India Dev d Asia Mexico Chile Dev ing Asia Venezuela Latin Amer. Brazil USA

38 Mexico s Financial System World Total Percent of Total Accounted for by: China Japan United States Mexico Population 6.2 billion GDP $32.3 trillion Bank Assets $50.6 trillion <1 Equity Market Capitalization $31.9 trillion <1 Bonds Outstanding $52.7 trillion <1

39 Government Bonds Outstanding 23% Mexico Financial System Size and Composition Total = $680 Billion Corporate Bonds Outstanding 4% Bank Assets 55% Stock Market Capitalization 18%

40 United States Financial System Size and Composition Total = $28.8 Trillion Government Bonds Outstanding 16% Corporate Bonds Outstanding 11% Bank Assets 24% Stock Market Capitalization 50%

41 Capital Access Index Gauging Entrepreneurial Access to Capital Max = USA Chile Mexico Brazil

42 Capital Access Would Accelerate EMC Growth Mexico Russia Argentina Pakistan India Foregone GDP Growth %

43 Capital Access Would Add Billions to EMC Economies Mexico India Czech Republic Russia Philippines Foregone GDP US$ Billions

44 Opacity Score Card Max = USA Chile Brazil Mexico

45 Opacity Score Card Developing Countries Max = Brazil Russia India China Mexico Legal Structure Accouting Corruption Economic Policies Regulation

46 World Equity Market Performance Top US$ Adjusted Returns Percent Change, Year Ago Colombia Czech Rep. Jordan Egypt Hungary Austria Peru Poland Norway Mexico

47 Mexico Equity Index Jan 1990 = Bolsa Index DJIA Tequila Crisis Asian Crisis Russian Crisis

48 Mexico Institutional Investors US$ Billions 35 Mexican Mutual Funds Mexican Pension Funds

49 Banking Concentration Share of Total Bank Assets Held by Top Three Banks Percent China Mexico Developed Asia Latin America Japan USA

50 Banking Stability MI Banking Crisis Likelihood, February 2005 Scale 1-10 (1=Best) Argentina Brazil Colombia Mexico Venezuela Macroeconomics Capital Asset Quality Mgmt. Quality Solvency Liquidity Sensitivity Total Stability

51 2.5 Control of Corruption World Bank Index Singapore USA Chile Hong Kong Japan Taiwan Malaysia Korea Brazil Thailand Mexico Peru India China Colombia Philippines Pakistan Argentina Venezuela

52 Mexico - Interest Rate Percent Month T-Bill

53 Mexico - Inflation Rate Percent Change, Year Ago Consumer Price Index

54 Mexico - Exchange Rate MXN/USD 5 6 Peso Against the Dollar Tequila Crisis

55 Mexico - Unemployment Rate Percent, Seasonally Adjusted 7 6 Unemployment

56 Mexico Immigration In 2003, 115,864 Mexican immigrants were admitted to the US, which accounted for 16.4% of total US immigration Official estimates in 2003 put the total US Mexican population at 25 million Mexican immigration is a signal that the Mexican economy is experiencing structural changes

57 UN Human Development Indicator Index Mexico China India

58 Energy (1) Mexico has the largest proved oil reserves in North America Unexplored reserves in the Gulf of Mexico are as large as the ones currently identified Oil and gas investors rank Mexico their 7 th most attractive market in 2004, up from 22 nd in 2003 The Mexican Constitution prohibits private investment in the sector

59 Energy (2) Mexico has become the top source of oil imported by the US 90% of Mexico s oil exports go to the US Mexican oil exports to the US can be doubled over the next five years However, further investment is disincentivized by the heavy taxation of Mexican oil revenues PEMEX paid US$40 billion in 2004

60 Top Oil Reserves: 2003 Thousand Million Barrels Iran UAE Ven. Libya USA Canada Qatar Brazil S. Arabia Iraq Kuwait Rus. Nigeria China Algeria Mex.

61 Mexico - Oil Reserve Billion Barrels 60 Oil: Proved Reserve

62 Mexico - Oil Reserve Billion Barrels Percent 10 Mexico Percent of World Reserve

63 Mexico - Oil Reserve Billion Barrels 200 Mexico Latin America Percent of Latin America Reserve Percent

64 Barrels per day, Millions 10 Top Oil Producing Nations Russia Iran China Ven. UAE Kuwait Algeria Libya S. Arabia USA Mex Norway Canada UK Nigeria Brazil

65 Mexico - Oil Production Million Barrels Daily 3.8 Oil Production

66 Mexico - Oil Production Million Barrels Daily 4.0 Mexico Percent of World Production Percent

67 Mexico - Oil Production Billion Barrels 200 Mexico Latin America Percent of Latin America Reserve Percent

68 Million Barrels Daily 2.5 Oil Exports 2.0 Mexico - Oil Exports

69 Mexico - Oil Exports by Destination Million Tons USA Other Latin America Europe Other Asia Canada Others

70 Million Tons 140 Middle East USA Oil Imports by Source Other Latin America Canada Africa Mexico 60 Europe Former Soviet Union Asia Pacific Others 0

71 Oil Prices Real and Nominal US$ per barrel 100 Oil nominal price Oil real price

72 PEMEX Organizational Structure Petróleos Mexicanos (PEMEX) PEMEX Exploration & Production PEMEX Refining PEMEX Gas & Basic Petrochemicals PEMEX Petrochemicals

73 PEMEX Corporate Debt Debt (US$ Billions) Sales (US$ Billions) Debt as a Percent of Sales 39% 56% 60% 65%

74 North American Energy Fund Possible Deal Structure General Productivity Projects Fund Cash Cash Cash SPV Cash Investors Pemex Future Revenues Bonds

75 Mexico s Arrested Development Per capita GDP grew 5.3% between 1986 and 2000 Growth has stagnated since No significant per capita growth unless productivity increases Tradable goods sector saddled with anticompetitive bias. Self inflicted wounds: Uncertain regulatory and judicial environment Inflexible labor markets Low levels of human capital High industrial energy prices High infrastructure costs Public investment constrained by weak government finances

76 Hydrocarbon Assets Growth needed for: Job creation Poverty alleviation Slowing down undocumented migration Strengthening the middle class Consolidating democracy Legal framework prohibits private investment in exploration and production Active rent seekers during political transition Political compact prevents radical changes

77 Growing US Needs for Imported Oil By 2020 Oil deficit: 20 million barrels a day Natural gas deficit: 23 trillion cubic feet per year Volatility in Middle East Increasing thirst by Chinese and Indian economies Mexico has not light or heavy crude but reliable crude Strengthen North American energy security

78 Double Bottom Line Proposal Strong returns to investors + Broaden economic opportunities in Mexico + Reinforce US economy (1/2) + Strengthen North American energy security (1/2)

79 Two-Step Strategy Create a North American Energy Fund (NAEF) 75 billion dollars to be disbursed over a 5 to 7 year period Backed by oil revenues (NOT oil reserves) Ideally, with US government guarantees Finance ONLY NEW exploration and production Create Mexican Development Fund (MDF) with net revenues MDF invests to increase productivity Rule of law Human and physical capital: education, health, technology Net revenues do NOT go into general revenue

80 Financing NAEF Oil production in Mexico Net revenues MDF Investment in human and physical capital

81 It Has Been Done Before Collateralizing with future oil revenues: 1977 Cactus-Reynosa 1,000 mile pipeline After 1982 debt moratorium 1986 when oil prices collapsed 1995 after the Tequila crisis Being proactive instead of reactive would be ground-breaking

82 Potential Reserves in the Gulf Are Significant Potential Reserves 82

83 The U.S. Has Explored

84 If Mexico Explored Reserves Would Increase Dramatically Now Could Be

85 Mexico s Oil Resource Base (1) Largest conventional proved crude oil reserves in North America Poor reserve replacement record 2 billion dollars annual spending in exploration since 2002: Exploratory wells have increased 40% Development wells 90% 38 new fields have been discovered PEMEX now replaces 75% of reserves used

86 Mexico s Oil Resource Base (2) Newly identified reserves in Gulf: 54 billion barrels (twice as much as current) Nab1, the first well in more than 2,000 feet of water, started producing 1,200 barrels a day in November 2004

87 2004: 3.4 million barrels a day, fourth largest in the world Half exported 90% to the US Mexican Oil Production Top source of oil imported by the US 2004 gas production 4.6 Bcfd Imports of 760 mmcfd of natural gas

88 Mexican Oil Costs and Profits Cantarell production declining Chicontepec, Lankahuasa will take over Average production cost: 6.75 dollar/barrel Cantarell, 4.30 Samaria-Luna, Abkatún-Pol-Chuc, 7.50 Pre-tax rates of return: from 25%-70%

89 Exchange rate risk Oil sector dollar denominated (Standard&Poor's and Moody ratings for PEMEX are currency independent) Contractual/judicial risk: Acknowledge the authority of US courts Credit risk: Three Manageable Risks US government guarantees

90 Risk: Design and Execution PEMEX is very weak internally: Weak internal accounting practices Weak internal budgeting practices Weak reporting practices NO independent board members Opaque relationship with the union Refining and petrochemicals loose 5 billions a year NAEF and MDF are independent, parallel organizations Strong governance, experts

91 Mexico What If Nothing Happens? Per capita GDP will stagnate Poverty and emigration Political Stalemate with rent seekers Contrast between those accessing the digital world and those that compete with low wages will provide fertile ground for populist backlashes

92 USA What If Nothing Happens? Reliance on uncertain oil Ripples of erratic neighbor-weak democracy Politics of immigration Unequal burden by State

93 Percent Highest Savings Rate in Mexican History Financial savings/ GDP Percent Interest rates: Cetes 28 d

94 Composition of Financial Savings 76% Bank deposits 40% Securities & repos Pension funds 5% Mutual funds 8% 25% 2% 3% 7% Dec 96 12% Insurance 22% Sep 04 2,237 71% 3,821 MM of constant pesos to Sep 04 Fuente: Banco de México y ABM

95 Financial Intermediation Billions of Pesos Bank Deposits Pension Funds Mutual Funds Insurance Securities

96 Private Sector Financing Direct Outstanding Credit, Feb 04 Feb 05 Real Annual Growth, Percent Consumer Mortgage Total Commercial

97 Credit and Interest Rates Real annual growth, Percent 32 Percent Credit Interest rates -19 J 00 M S J 01 M S J 02 M S J 03 M S E 04 M S J 05 3

98 Local Debt Issues 2004 US$ Billions 8 6 Public Private

99 International Debt Issues 2004 US$ Billions Public Private

100 US$ Billions 16 Public Private Syndicated Loan Issues

101 Equity Issues 2004 US$ Billions

102 Billions of Pesos, Constant 12/04 Pesos 4100 Total Financing 3500 Public sector Private sector

103 Percent Total Financing As a Percent of GDP Public sector Private sector

104 Billions of Pesos, Constant 12/04 Pesos 3550 Domestic Financing 2450 Private sector 1350 Public sector

105 Percent Domestic Financing As a Percent of GDP Private sector Public sector

106 Public Sector Financing Billions of Pesos, Constant 12/04 Pesos Domestic International

107 Outstanding Balance, Billions of US$ 120 Debt and Reserves Debt Reserves Feb

108 PEMEX's Per Barrel Economics How Will Additional Debt Service Costs of the North American Energy Fund Be Financed? Per 2004 Barrel Produced Comment Revenue Taxes & Transfer Payments Lifting & Transport Overhead, including Pension Liability Finding & Development Interest MARGIN PER BARREL $31 (19) (4) (4) (5) (1) ($2) Average realized 2004 export price 60% of 2004 revenue transferred to Mexican government Avg. of major int l oil companies PEMEX Filings Avg. of major int l oil companies PEMEX Filings

109 International Oil Company Net Debt Comparison US$ Billions US$ Billions BG BP ChevronTexaco ConocoPhillips ExxonMobile Lukoil Marathon Occidental PEMEX Petrobras PetroChina Repsol Shell Statoil YPF

110 PEMEX Already Is Highly Indebted Compared To Its Peers Net Debt per BOE, US$ BG BP ChevronTexaco ConocoPhillips ExxonMobile Lukoil Marathon Occidental PEMEX Petrobras PetroChina Repsol Shell Statoil YPF

111 Selected State-Controlled Oil Companies Partnerships With International Oil Companies Have Brought in Capital and Expertise for These State Owned Oil Companies Company Country State Ownership China National Offshore Oil Gazprom Lukoil Petrobras China Russia Russia Brazil 71.0% 38.0% 0%* 57.0% Petronas Malaysia 100.0% Sinopec China 68.0% Statoil Norway 71.0% *Government sold final stake to ConocoPhillips in September 2004

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