The Mexican Economy and Investment Opportunities: Why Mexico? Why Now?

Transcription

1 The Mexican Economy and Investment Opportunities: Why Mexico? Why Now? Mexican Private Equity / Venture Capital Industry: Success stories and investment opportunities New York City January 28th, 2011

2 Why Mexico? Why now? 1. Solid economic fundamentals 2. Strong manufacturing platform for exports 3. Attractive domestic market 4. Industrial development policy

3 Expected growth for the Mexican economy for 2010 and 2011 has been adjusted upwards GDP Forecast, 2010 (% annual growth rate) GDP Forecast, 2011 (% annual growth rate) Oct 10 Jan 11 Nov 10 Jan 11 Source: Consensus Forecast and Banxico Source: IMF and Blue Chip

4 Aggregate demand components show strong signals of recovery Jan-Dec-10 Private Consumption (Seasonally adjusted data; % annual variation; real) Gross Fixed Capital Formation (Seasonally adjusted data; % annual variation; real) Total Exports (Seasonally adjusted data; % annual variation; real) 30% Source: INEGI

5 Employment has recovered faster than expected Permanent and Eventual Workers (IMSS) (Seasonally adjusted data; million of workers) Employment Response (Seasonally adjusted data; monthly, 94:11=100, 08:09=100) Source: SHCP Source: Based on data from SHCP

6 Why Mexico? Why now? 1. Solid economic fundamentals 2. Strong manufacturing platform for exports 3. Attractive domestic market 4. Industrial policy agenda 5. Concluding remarks

7 Mexico enjoys great advantages to compete in the global market Competitiveness Advantages Relevant to Mexico 1. Geographic Location Large U.S. border and coast to the Pacific and Atlantic Oceans 2. Preferential access to foreign markets 3. Skilled and competitive labour force 11 FTAs with 43 countries and an approved legal framework with major trading partners Skilled workforce at relatively low cost, managerial skills and cultural affinity 4. Demographic window In the next three decades, the number of economic dependents will reach a record minimum (2025)

8 Mexico s geographical location provides easy access to all markets in the Americas Asia Northamerica Europe Central America Africa South America

9 Through 11 free trade agreements, Mexico enjoys preferential access to 43 countries with a population of over 1 billion people, and 75% of world GDP 27 APPRI s 11 FTA s 6 ACE s

10 Mexico exhibits improvements in the diversification of export markets and products 88.7% Evolution of export destinations 1.7% 3.3% 1.2% 2.1% 0.2% 80.3% Composition of Mexican exports to the U.S. and China, vs 2010 difference: 8.5% Source: Banxico Source: UN COMTRADE

11 Besides China, Mexico is the only country that has gained market share in the US market (since 3Q 2010 Mexico 2 nd exporter to USA) Jan-05 jun-05 nov-05 Apr-06 sep-06 feb-07 jul-07 Dec-07 may-08 oct-08 mar-09 Aug-09 Jan-10 sep-10 Share of U.S. Imports by top 5 countries (%, ) 160 Mexico-China Index of real exchange rate (2005=100) % Source: U.S. Census Bureau

12 Mexico is consolidating its competitive advantages in the automotive industry Position in automotive parts assembly by city (Position of 102 cities considered) Top 10: Engine production (Hours per produced engine) Top 10: Stamping process (Parts per hour) Source: KPMG. Guide to international business location, Source: Oliver Wyman Automotive Consulting Services. The Harbor Report, June Note: Considers 61 Plants in North America, Europe y South America in 36 cities.

13 Mexico is increasing the number of engineering graduates Engineering Graduate Students (Per thousand inhabitants) 0,7 0,6 0,5 México Mexico EUA USA * 0,45 0,47 0,50 0,58 0,57 0,57 0,62 0,64 0,61 0,4 0,39 0,3 0,2 0,30 0,29 0,27 0,25 0,24 0,23 0,22 0,20 0,20 0,21 0,23 0,23 0,23 0,23 0,22 0,22 0,1 - Source: UNESCO Statistics (2011)

14 TDCOM TDCOM was a company that provided services design and testing of integrated circuits used in telecommunications systems. TDCOM was acquired by Intel in Benefits: Intellectual property development in engineering and testing integrated circuits. ASCI ASCI is a company located in Guadalajara that created a patented platform of development to manage printing and copying in order to improve business systems. HP Global granted exclusivity to ASCI on the road of offer its product globally. Benefits: A potential market of about $22MUSD and 4 patents. HDS designs a comprehensive system of health information through a service delivery model, where clients pay what they use. HDS obtained resources from "WAMEX Private Equity. Benefits: HDS increased its sales from 0.3MUSD (2009) to 8MUSD in Hydra Technologies is a company dedicated to develop and manufacture unmanned aerial systems. Hydra managed to obtain funds from Impulsora de Investigaciones Nacionales. Benefits: System Acceptance by the Mexican navy, Mexican Air Force and the Ministry of Public security in Jalisco. 14

15 Why Mexico? Why now? 1. Solid economic fundamentals 2. Strong manufacturing platform for exports 3. Attractive domestic market 4. Industrial policy agenda 5. Concluding remarks

16 Mexico s improvement in GDP and its demographics are contributing to a fast expansion of the domestic market % 65 Medium and high income population as share of population in Mexico 1 (Million people) Number of Credit Cards (Millions) 72.1 (e) Source: Banco de México Source: Estimation based on data from National Council for the Evaluation of Social Development Policy and National Council of Population, Mexico (2011) 1/ People living over the level of income necessary to satisfy all basic needs.

17 The increasing access to financing is contributing to the strengthening of the domestic market Household Financing (as GDP %) Real Private Sector Financing (Monthly, Nov 2008= 100) Highest point before the crisis Source: Based on data from INEGI Source: Banxico

18 Ene Mar May Jul Sep Nov Ene Mar May Jul Sep Nov -4,3-4,7-1,5-1,2-2,4-3,6-3,3-1,7-0,7 0,8 1,6 1,4 2,8 2,7 2,7 4,7 5,0 5,6 6,8 7,5 8,5 9,6 11,2 Growth potential for domestic market: low leverage levels and dynamic credit market Domestic credit provided by banking sector, 2008 (As GDP %) 12,0 Commercial Banks Credit to Non Financial Private Sector, (% annual variation) 10,0 8,0 6,0 4,0 2,0 0,0-2,0-4,0-6, Source: WDI. The World Bank. Domestic credit provided by the banking sector includes all credit to various sectors on a gross basis, with the exception of credit to the central government. The banking sector includes monetary authorities and deposit money banks, as well as other banking institutions where data are available (i.e. savings and mortgage loan institutions and building and loan associations. Source: Banxico

19 Why Mexico? Why now? 1. Solid economic fundamentals 2. Strong manufacturing platform for exports 3. Attractive domestic market 4. Industrial policy agenda 5. Concluding remarks

20 Trade Facilitation Financing Innovation Industrial Development Policy Strategic Sectors Promotion

21 Strategy to Promote Innovation Strengthen six pillars in the innovation ecosystem in order to place Mexico within the most competitive and innovative economies in the medium term National Priority 1.Generation of knowledge Focus efforts on areas of greater impact 6. Regulatory and institutional framework 2. Innovative private firms Coordination between agents 5. Human capital 3. Domestic and international market Evaluation mechanisms 4. Fortalecimiento a la innovación empresarial 4. Strengthening of business innovation through financing

22 Trade facilitation program 1. Tariff structure simplification 2. Implementation of the Mexican Foreign Trade Single Window Year Average industrial duty Duty-free products Mexico s position in Subindex Domestic and foreign market access (WEF) Year Mexico s position in Subindex Market access (WEF) Mexico s position in Subindex Trade facilitation (WB) % % % 22 Source: Subindex Domestic and foreign market access (Component of the Goblal Enabling Trade Index) of the World Economic Forum Doing Business The World Bank.

23 Agenda to Further Develop Financial Markets 1. Policy actions to increase financing access for firms: Regulatory reforms to improve governance of private firms, facilitate the process for going public and improve transparency, protect minority rights, among others. Aggressive agenda to develop private and venture capital including the opening of the investment regime of institutional investors, the creation of a fund of funds for venture capital Development of nonbank financial intermediaries Restructure of development banks, CONACYT and the Ministry of Economy financing programs for SME s and to innovation activities 2. Policy actions to increase access to financial services to households: development of banking agents, mobile payments and POS infrastructure 3. Policy actions to maintain the integrity of the Mexican financial system: implementing recent reforms agreed by international standard setters (BCBS, IOSCO, IAIS, FSB) and implementing an effective macro prudential supervisory framework.

24 Competitiveness vs other countries Methodology to identify strategic sectors 6 Criteria to measure the competitive advantage of Mexico: Production costs Operating Costs Transportation Cost Availability / ease of resources to manage Cost / investment risk Consumption potential 31 indicators evaluated for Mexico and the 9 other countries used for comparison Mining Potential for Mexico Tourism BPO s 5 Criteria to estimate impact in Mexico (20 indicators evaluated only for Mexico): Growth Potential Generation of well-paying jobs Interaction with other sectors Long-term stay in Mexico Efforts to capture the potential Electric and Electronic Equipment Health Care Transportation equipment Machinery and equipment Processed Foods Main external sources: 1. Global Insight 2. IMCO 3. WEF 4. Doing Business 5. IMD 6. OECD 7. COLMEX 8. SE 9. ProMéxico 10. Business Monitor 11. INEGI 12. Trade Wizzard 13. ILO 14. Access Tariff 24

25 Why Mexico? Why now? 1. Solid economic fundamentals 2. Strong manufacturing platform for exports 3. Attractive domestic market 4. Industrial policy agenda 5. Concluding remarks

26 Concluding remarks 1. The Mexican economy has been recovering fast from the 2009 crisis and is expected to perform favorably during Mexico has shown responsible macroeconomic policy and has strengthen the domestic market and its growth potential. 3. The rapid growth of exports, their diversification and the increase in our market share of the US market reveal the competitiveness of the Mexican industry. 4. Mexican government is implementing actions to consolidate our industry and to further increase its productivity.

27 January 28th, 2011 The Mexican Economy and Investment Opportunities Why Mexico? Why Now? Mexican Private Equity / Venture Capital Industry: Success stories and investment opportunities Dr. Lorenza Martínez Trigueros