Mexico Mid-Term Election:
Results Recap

Voters went to the polls on July 5th and the results reflected the country's changing political mood. The Revolutionary Party of Mexico (PRI) reemerged as the leading political force in the House of Representatives ousting the PAN party who has held the majority for the last 12 years. Additionally, they have regained the control of two state governorships in Queretaro and San Luis Potosi.

Preliminary results and exit polls indicate that the PRI received approximately 35% of the vote, while the PAN party received 27% of the vote. As a result, the PRI gained between 238 and 244 seats, almost doubling the previous showing of 104 seats, while the PAN party now has between 141 and 149 seats, significantly below the 175 seats currently held in congress. The remaining 500 congressional seats will be divided between lesser parties, such as the Green Party. [See preliminary election results in the sidebar.]

Mexican Production Costs Are Lower than China and India

The business consulting and analysis firm AlixPartners has for several years published a study analyzing production costs for offshore manufacturing of goods conducted in different countries. The study takes into account factors such as labor costs, exchange rates, transportation costs, raw materials cost and availability, and customs procedures. In accordance with the study recently published by AlixPartners, in 2008 Mexico gained the top spot for the country with the lowest cost of production, followed by India and China respectively.

>> See AlixPartners Report.

The Potential of Mexico’s Domestic Automotive Market

Jose Gomez Baez, President of the Mexican Association of Automobile Distributors (AMDA), said that Mexico has a potential domestic market of about one million seven hundred thousand vehicles per year. “If the current economic model for the automotive industry is redesigned to provide incentives for the domestic market, Mexico could protect its plants, regardless of any adjustment that may result from any economic situation with any company,” noted Mr. Gomez Baez.

These statements came out in the midst of speculation surrounding the meeting between the White House’s Automotive Task Force and the presidents of General Motors and Chrysler to analyze the viability of both companies.

No Massive Lay Offs at Volkswagen Mexico

The German manufacturer announced that it will not lay off a massive number of workers in Mexico despite the crisis that the global automotive industry faces. The strategy of “technical suspension of operations” has helped preserve the jobs of thousands of unionized workers employed directly by such manufacturer. 

The General Secretary of the Autoworkers’ Union, Victor Cervantes, said that the facilities where popular models are built, such as the Beetle, will suspend operations for three weeks due to the reduction in demand for vehicles in the United States. Mr. Cervantes did not make any statements concerning new worker layoffs (in January 900 temporary workers were laid off).

A Telecom Revolution for Mexico

In a measure that could revolutionize the telecommunication industry in Mexico, President Felipe Calderon announced a plan to put out to bid part of the fiber optic network owned by the Commission Federal de Electricidad (CFE), the government-owned electric utilities company. The goal of this measure, scheduled to be implemented in three months, is to bring competition to the supply of voice, data and video transmission for the entire country.

With 16,500 miles of fiber optic cable, the CFE’s fiber coverage rivals that of Telefonos de Mexico, a private company owned by Carlos Slim, the second richest man in the world. With this announcement, the CFE is continuing its efforts to enable other telecommunication companies to compete more effectively. With access to CFE’s fiber optic network, these companies can extend their coverage and deliver services to more households, creating significant new benefits for consumers.

“This will change the country’s telecommunications industry. It will permit the transformation of telecommunications, expand the coverage, accelerate competition, and facilitate the convergence with large economic and social benefits for Mexicans,” stated President Calderon.

Prime Lending Rate Cut

For the sixth consecutive occasion, Banco de Mexico, the central bank of Mexico, has cut the prime lending rate in response to lessening inflationary pressures and as an additional measure to mitigate the impact of the world economic recession. This cut of 0.5 % was in line with what has been anticipated by analysts, although it was less than the previous three cuts of 0.75%. With this measure, the prime rate will remain at 4.75%, the lowest level since Banco de Mexico began using this rate as a line of demarcation of monetary policy.

Banco de Mexico anticipates an inflation rate of between 5.5% and 6.0% for second trimester of the year, decreasing to between 4.75% and 5.25% in the third trimester. The annual inflation for Mexico at the end of May was 5.98%.

Cemex Sells Australian Operations

Cemex, the world’s third largest cement producer, recently announced the sale of its Australian operations to the Holcim Group for $1.6 billion dollars, as part of its strategy to raise funds and reduce debt worldwide. The sale included a 25% ownership position that the company had with Holcim in Australian Cement, whose operations include four cement plants in Australia with an annual production capacity of 5.1 million tons.

Cemex, like other cement companies across the globe, has been impacted by the world economic recession, which has slowed the construction Industry and greatly reduced the sale of materials such as cement and concrete. According to Holcim, the purchase of Cemex’s Australia operations was made for 6.6 times the expected profit of those operations, before interest, taxes, depreciation and amortization.

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Sources of Information: In preparing this document, the following sources of information, among others, have been utilized: Mexican Automotive, Sentido Comun, CNN Mexico Report, Banco de Mexico, and Bolsa Mexicana De Valores.

July 2009
Building Potential