This week in Mexico – Feb 21, 2020

This Week in Mexico

February 15, 2020 to February 21, 2020

Recruiting in Mexico

The economy in Mexico continues to be robust, with a surprise boost from the ongoing consequences of the Corona Virus in China as manufacturers continue to fear shortages in their supply chain. Suppliers to the manufacturing industry have shifted as much production as possible to North America production sites, and that has created an uptick in output from Mexico. Recruiters in Alder Koten’s manufacturing practice continue to see strong demand for talent in both the executive search and the professional search practices.

Recruiters are also continuing to see, and above-average demand for talent in venture-funded startups in Guadalajara, Mexico’s Silicon Valley. Micro-lending fintech’s continue to be hot and are expected to continue their growth even if a downturn occurs.

Source

Mexico’s 2020 Tax Reform Focuses on Income

Summary

The new tax reform for the tax year 2020 was published in the Federal Official Gazette of Mexico, amending provisions of the Income Tax Law, the Value-added Tax (VAT) Law and the Federal Tax Code, among other laws, on December 9, 2019. The tax legislation already contains measures against hybrid mechanisms or mismatches (i.e. cases where an expense deduction is authorized by the Mexican tax legislation and the correlative income is tax exempted or not subject to tax abroad), the Mexican government has acknowledged that these measures have not been effective and that the most recent recommendations of the OECD to combat this practice need to be included in our tax legislation. Based on the above, the reform considers as a non-deductible expense, payments made by a Mexican tax resident to a related party directly or through a structured agreement (under which the consideration to be paid involves payments to entities subject to preferential tax regimes which benefit the Mexican taxpayer or its related parties). Measures that limit the deduction of interests between related parties, such as thin capitalization rules, the Mexican government deemed it necessary to include new rules regarding interest payments made not only to related parties but also to independent parties. Under the new rule, any amounts exceeding 30% of the adjusted tax EBITDA (earnings before interest, taxes, depreciation, and amortization) of a legal entity will not be deductible for tax purposes. This limitation is only applicable when the amount of the interest payments made by a Mexican resident entity and its Mexican-resident related parties exceeds in the aggregate 20 million pesos ($1 million). Carryforward of non-deductible interest is permitted for the following 10 fiscal years taking into consideration the limit established by the rule. It is worth noting that certain interest payments are excluded from the deduction limit rule, such as interest on loans obtained to finance public infrastructure works and real estate developments located in Mexico, as well as interest paid on loans taken to finance projects in the extractive industries, and those derived from public debt instruments. Corporate groups are allowed to calculate the adjusted tax profit on a consolidated basis, in the terms that will be later established in the Miscellaneous Tax Regulations.

Mexico will probably miss 3% inflation target this year

Summary

The private sector of renewable energies in Mexico could face a new regulatory obstacle with the proposal proposed by the Energy Regulatory Commission (CRE), which in essence would force the elimination of self-supply and cogeneration contracts. As detailed in the regulation proposed to the regulatory oversight entity of Mexico, Conamer, the validity of the current self-supply and cogeneration permits will be respected; however, future modifications to these agreements will not be allowed; for example, by expanding or reducing generation or by incorporating new partners or customers into energy purchase agreements. The measure is consistent with what happens in other areas of energy policy development, for example, is aligned with recent statements that allow continued participation of already operational companies such as Talos and ENI in the oil and gas sector, but the administration of AMLO has made it clear that it will not enter into new contracts for deepwater or exploration and production. This CRE play could have serious implications for companies that have already invested heavily in self-supply, such as the Mexican subsidiary of Sempra Energy, IEnova. However, you must still pass the final CRE approval process before it goes into effect. The text specifically states: “Applies to requests for modification of persons authorized as beneficiaries of electricity in self-supply permits or establishments associated with cogeneration permits, as well as those that were expressly included in the expansion plans upon approval. the permit title or in the last modification approved by the CRE “.

US Threatens Mexican Agribusiness Sector

Summary

New threat against the Mexican agribusiness sector emerged after the US Trade Representative Office (USTR) reported that it will request the International Trade Commission to monitor unfair commercial practices in seasonal and perishable products imports. In a letter to senators and congressmen, US Trade Representative Robert Lighthizer said that within 60 days of the USMCAís effective trade date, he will offer a ìcorrective action planî that could lead to anti-dumping investigations, Reforma has reported.The USTR, the Department of Commerce and the Department of Agriculture will hold hearings in Florida and Georgia with US producers. According to Bosco de la Vega, President of the National Agricultural Council (CNA), this decision is an internal US affair but it is also a breach of the USMCA trade treaty and goes against Word Trade Organization (WTO) regulations. ìWe already went through this with the tomatoes,î De la Vega warned, saying that Mexico will not give additional concessions. Deputy Minister of Foreign Trade Luz MarÌa de la Mora said Mexico will not allow ìthis seasonal issue to enter through the back doorî. De la Mora explained that Mexico is working with the US and Canada on methodology and formulas to be implemented in the USMCAís standardized rules. For agribusiness, this means compliance with sanitary and phytosanitary regulation. he agribusiness sector has a great opportunity to open new markets in the face of the Comprehensive and Progressive Trans-Pacific Association Treaty (CPTPP), said the Director of Food and Fishery Goods at the Ministry of Economy (SE) Arturo Juarez.

Mexico Economic Outlook

Summary

Preliminary figures revealed that GDP declined yet again on an annual basis in the final quarter of 2019 leading to the first full-year economic slump since the 2009 crisis. Industrial-sector output contracted for the fifth quarter running, primarily due to the hammered construction and mining sectors, dragging down overall activity. Moreover, agricultural production cooled in the quarter and although activity in the services sector quickened, the increase was underwhelming, which alludes to softer-than-expected growth in household spending. Turning to 2020, available data suggest a gradually improving scenario. The manufacturing PMI rose in January, albeit remained in contractionary territory. Meanwhile, the services PMI returned to growth for the first time in nine months, which, coupled with strengthening consumer confidence, bodes well for consumption gaining traction The economy is expected to recover this year on the back of stronger consumer spending, buttressed by rising real wages and upbeat remittances. Increased effectiveness in executing public spending and investment should also support growth. Depressed business confidence, an uncertain global trade environment and the finances of debt-laden Pemex weigh on the outlook, however. FocusEconomics panelists estimate the growth of 0.9% in 2020, which is down 0.1 percentage points from last monthís forecast, and 1.7% in 2021.

Infra, 5G, startups: How would net neutrality change Mexico’s ICT sector?

Summary

Far from achieving full net neutrality in Mexico, supporters of this principle say it will boost investment in telecommunications infrastructure, give rise to new companies and contribute to the deployment of 5G networks. The Mexican telecommunications regulator, IFT, was required to publish a new set of regulatory guidelines to establish net neutrality, in a market dominated by few internet providers, shortly after the Federal Telecommunications Law was published in 2014. However, The IFT ignored this requirement until August 2019, when a court ruled in favor of Network in Defense of Digital Rights (R3D), a Mexican non-profit organization that defends digital rights, and forced the regulator to publish a draft of regulation in November.The transit to net neutrality is in the second stage of five, which corresponds to the reception of opinions from experts, academics and the general public. The public consultation opened in December and will close on March 6. However, the first draft of regulatory guidelines has been much criticized in the consultation, as it seems to create gaps for internet providers to favor certain platforms, according to R3D . Even more worrying, the NGO says that the current draft does not require service providers to invest in infrastructure. To learn more about the pros and cons of this principle, BNamericas talks with the director of R3D, Luis Fernando GarcÌa, who led the team that forced IFT to open the debate on net neutrality.

Why Mexico? 10 reasons to invest in Mexico

Summary

According to a recent World Investment Report of the United Nations Conference on Trade and Development (UNCTAD), Mexico is one of the top developing nations in which to invest. If your firm is currently analyzing new markets in which to commit production resources, consider the following 10 reasons why investing in Mexico is a good option for executives seeking to grow their businesses. Mexico is in the backyard of the largest consumer market in the world. The two countries share a common border of more than 2,000 miles. The countryís proximity to the United States means that a truck carrying manufactured goods can drive from Mexico and deliver its cargo to any location in the continental US in less than 48 hours. Because of this Mexico is highly cost-competitive in terms of shipping when compared to that of its competitors. In addition to its advantageous position in North America, Mexico is the bridge between the US and Canada and the rest of Latin America. According to government data, Mexico is the tenth most populous country in the world. It is projected that the nationís ìeconomically active populationî will continue to expand. The economically active population comprises all persons of either sex who furnish the labor for the production of goods and services. In recent times, Mexico has done much to enhance the skill sets of its workforce. Mexico participates in a total of 12 FTAs that encompass commercial relations with a total of 45 countries throughout the world. To invest in Mexico is to access the ability to ship goods duty-free to most of the worldís major markets. Four of Mexicoís most significant trade agreements include the United States-Mexico-Canada Free Trade Agreement, The Trans-Pacific Partnership (TPP), The Mexico-EU Free Trade Agreement, and the Pacific Alliance, which is an agreement between Chile, Colombia, Peru, and Mexico.

BMW increases automation at Mexico plant

Summary

BMW has introduced automated storage and buffer systems at its new plant in San Luis Potosi, Mexico, for more efficient, demand-based production. Supplier Lˆdige Industries said the additions, which include three stacker cranes and racking, are necessary because the body shop, paint shop, and final assembly line are in separate buildings. They are fed from a central high-bay warehouse, connected to the production plants by bridges equipped with conveyors from Lˆdige. ìThis allows for accurate in-sequence and in-time delivery of car bodies for painting and assembly despite differences in throughput rates,î said the supplier, which is based in Warburg, Germany. The fully automated central car body storage unit can retrieve 180 cars an hour, with total space for close to 500, and contributes to sustainable production at San Luis Potosi, added Lˆdige, which has been providing material handling services to BMW for more than 30 years. The carmaker had a strong supplier base established in Mexico before construction of the $1 billion-plus factory began; even then every BMW vehicle contained at least apart from one of the group’s 220 Mexican suppliers. ìOur new plant will benefit from short supply routes and the high level of flexibility this gives our supply chain,î said Andreas Wendt, management board member responsible for purchasing and supplier network, at the opening ceremony held in 2016. The future of the automotive market in Mexico will be discussed in detail at the forthcoming Automotive Logistics Mexico conference, taking place in Mexico City this month.

IMF cuts Mexico growth forecasts for this year and next

Summary

The IMF said the weak economic performance expected in Mexico was a factor in its decision to cut its growth forecasts for the wider region. In Latin America, growth is projected to recover from an estimated 0.1% in 2019 to 1.6% in 2020 and 2.3% in 2021 (0.2 and 0.1 percentage points weaker respectively than in the October WEO). The revisions are due to a downgrade to Mexicoís growth prospects in 2020-21, continued weak investment and a sizable markdown in the growth forecast for Chile, affected by social unrest. The IMFís revised outlook comes after the Mexican economy stagnated in 2019, the first full year of the new federal government. The national statistics agency Inegi reported in November that revised data showed that the economy contracted in both the first and second quarters of last year, meaning that Mexico entered a light recession. Growth of just 0.01% followed in the third quarter (fourth quarter data has not yet been published.) The figures are a far cry from President LÛpez Obradorís stated goal of an average 4% annual growth during his six-year term. The leaders of two business groups blamed the government last week for the weak growth, stating its ìhostile discourseî and policy changes were scaring away foreign investment. However, Mexicoís richest man, Carlos Slim, expressed a different view in late November, claiming that the government has laid the foundations for greater investment and growth. United Nations statistics show that foreign direct investment (FDI) in Mexico did in fact grow by 3% last year to reach US $35 billion.

Energy firm forays into electric auto manufacturing

Summary

The IMF said the weak economic performance expected in Mexico was a factor in its decision to cut its growth forecasts for the wider region. In Latin America, growth is projected to recover from an estimated 0.1% in 2019 to 1.6% in 2020 and 2.3% in 2021 (0.2 and 0.1 percentage points weaker respectively than in the October WEO). The revisions are due to a downgrade to Mexicoís growth prospects in 2020-21, continued weak investment and a sizable markdown in the growth forecast for Chile, affected by social unrest. The IMFís revised outlook comes after the Mexican economy stagnated in 2019, the first full year of the new federal government. The national statistics agency Inegi reported in November that revised data showed that the economy contracted in both the first and second quarters of last year, meaning that Mexico entered a light recession. Growth of just 0.01% followed in the third quarter (fourth quarter data has not yet been published.) The figures are a far cry from President LÛpez Obradorís stated goal of an average 4% annual growth during his six-year term. The leaders of two business groups blamed the government last week for the weak growth, stating its ìhostile discourseî and policy changes were scaring away foreign investment. However, Mexicoís richest man, Carlos Slim, expressed a different view in late November, claiming that the government has laid the foundations for greater investment and growth. United Nations statistics show that foreign direct investment (FDI) in Mexico did in fact grow by 3% last year to reach US $35 billion.

Mexico falls off list of 10 most attractive countries for investment

Summary

Mexico is no longer among the 10 most attractive countries in the world for investment, according to the 23rd annual Global CEO Survey conducted by PricewaterhouseCoopers (PwC). Presented Monday at the World Economic Forumís annual meeting in Davos, Switzerland, the survey asked 1,581 CEOs in 83 different countries the question: ìWhich three territories, excluding the territory in which you are based, do you consider most important for your organizationís overall growth prospects over the next 12 months?î The United States was the most commonly cited country followed by China, Germany, India, the United Kingdom, Australia, Japan, France, Brazil, and Canada. Unlike 2019, when Mexico ranked as the ninth most attractive country for investment, there was no spot in this yearís top 10 for the nation. The newspaper El Economista reported that it is only the second time that Mexico has been absent from the top 10 in the PwC survey after appearing on the list the previous year. The same happened in 2018 after global CEOs rated Mexico the eighth most attractive country in which to invest in 2017. Clues to Mexicoís absence this year may lie in the main economic threats identified by CEOs in the regions of North America and Latin America. Cyber threats, policy uncertainty, and trade conflicts were identified as the top three threats in the former region, while populism, uncertain economic growth, and policy uncertainty were the top three in the latter.