This week in Mexico – Mar 1, 2020

This Week in Mexico

March 1, 2020 to March 6, 2020

Recruiters in Mexico feel the arrival of the Coronavirus

The Coronavirus continues to spread globally and the impact is now being felt. This week we began to see the cancellation of events such as the South by Southwest (SXSW) in Austin and the 2020 AMEXCAP Summit was postponed until June. The Mexican Venture Capital and Private Equity Association  (AMEXCAP) announced last Friday that the annual event held in Mexico City was going to be pushed out until the end of June.

Despite the Coronavirus impact and the continued pressure on the stock market, the manufacturing activity continues to remain solid as supply chains are impacted by China and Northamerican companies continue to look towards Mexico for support.

Source

Mexico’s Economic Slump Might Last Years. Here’s Why.

Summary

This year has already brought a wave of bad news for Mexico. We recently learned our economy did not grow at all in 2019. In fact, GDP actually decreased 0.5% on an annual basis during the final quarter of the year. Meanwhile, economists are racing to calculate the economic impact of the Covid-19 epidemic, which is spreading globally and produced its first confirmed cases on Mexican soil last week. But there is reason to be even more worried about Mexico in the longer term: Our “potential GDP” – a term used by economists to calculate how fast an economy can grow over time without producing unhealthy distortions – seems to be falling as well. That’s highly disconcerting in an economy that has already been notorious for slow growth over the last 20-plus years. The uninspiring short-term outlook for Mexico is nearly unanimous among forecasters. The OECD has just presented its forecasts, cutting the expectation for global growth from 2.9% to 2.4% and that of Mexico from 1.2% to 0.7% for this year and to 1.4% for 2021, from a previous estimate of 1.6%. These would obviously be huge disappointments for President Andrés Manuel López Obrador, who prior to taking office predicted that Mexico would average 4% growth on his watch.

WADA fails to keep Mexico laboratory open

Summary

The World Anti-Doping Agency (WADA) said on Friday that it had failed in its bid to convince Mexican authorities to keep open the country’s accredited anti-doping laboratory. The global anti-doping body said the Laboratorio Nacional de Prevencion y Control del Dopaje ceased operations on Nov. 15 last year. “This announcement follows weeks of sustained efforts by the agency to inform the Mexican public authorities of the benefits of maintaining an accredited lab in Mexico,” WADA said in a statement. WADA said the laboratory would no longer conduct anti-doping analyses of urine and blood and that the existing samples stored there had been transferred to other accredited facilities where necessary. There are around 30 laboratories around the world which are accredited by WADA to carry out the scientific analysis for doping control. The Mexico City lab ran into trouble in 2016 when it had its accreditation revoked by WADA and was prohibited from carrying out any anti-doping activities after failing to comply with international standards. It was reinstated the following year with WADA satisfied that the lab had addressed issues.

‘Unsustainable’: Mexico’s Pemex buckling under crushing pension debt

Summary

MEXICO CITY (Reuters) – Straining under a massive debt load and at risk of a ratings downgrade, Mexican state oil company Petroleos Mexicanos (Pemex) was hit with a record jump in its pension liabilities last year as more workers retired on generous benefits. Pemex [PEMX.UL] is fighting to avoid having its bonds cut to “junk” or speculative grade, which would put pressure on Mexico’s sovereign rating and deal a heavy blow to populist President Andres Manuel Lopez Obrador, who has vowed to revive it. Unfunded pension liabilities at Pemex rose 34.8% last year to almost 1.5 trillion pesos ($77.3 billion), the company’s accounts show. It also has $105.2 billion in financial debt. “No company in the world, whether private or public, can sustain these,” said Jorge Sanchez, director at financial think tank FUNDEF. “What has brought Pemex to bankruptcy is, amid other things, its terrible pension system.” Pemex negotiated most of its pensions with Mexico’s oil workers’ union years ago, when oil prices were higher and life expectancy was lower. But over the past decade and a half, crude output has fallen while the company’s obligations mounted. Backed by an implicit government guarantee, Pemex is one of Mexico’s largest employers, as well as the world’s most indebted oil company. It had 159,400 active workers and 130,444 pensioners in 2018. Some retirees received up to 300% of their former salary in pension payments, a recent audit shows.

Valued at $10B, Nubank launches it’s Nu credit card in Mexico

Summary

Nubank believes that Mexicans are ready to take back control of their money with financial services that are transparent, human and simple. A predominately cash-based society and lack of digital savings and lending products makes it harder for people to achieve financial freedom in Mexico. The company hopes its no-annual-fee credit card will help to free Mexicans from the complexity and bureaucracy beleaguering their banking experience. The problem is this big and bad: Personal finance tools in both Brazil and Mexico are so limited that Nubank has not had to spend a dollar on customer acquisition. Half of Mexico’s population is under 24 years old and is digitally engaged, but due to legacy banking oligopolies, only 10% of Mexican adults have credit cards. With an unbanked population of 36 million, startups and investors have been grappling for a piece of the Mexico fintech opportunity for years. Vélez predicts that Nubank’s biggest customer acquisition channel in Mexico will be word of mouth just as it was in Brazil. 80% of Nubank’s Brazilian customers were sourced from unpaid referrals, and the company has spent $0 on customer acquisition, he says. European digital banks N26 and Revolut have reportedly had their eye on the Mexican market. Albo, a Mexico-based challenger bank recently raised a $19 million Series A. However, Albo issues a Mastercard debit card and a personal finance app for underbanked people — different from Nubank’s credit card product. While competition is great for customers, an increasingly saturated market may raise customer acquisition costs, and make recruitment and growth-stage fundraising harder for players across the board.

Mexico’s Peso Hits Five-Month Low as President Lauds Resilience

Summary

The Mexican peso fell for an eighth consecutive day Monday, its longest losing streak since 2011, taking it to the lowest since October as the coronavirus infected more people. The peso weakened 0.7% as of 8:49 a.m. local time, bringing its decline in the past month to 4.8%, the worst performance in emerging markets after Brazil’s real. The Latin American nation has now reported five confirmed cases of coronavirus. In a morning press conference, President Andres Manuel Lopez Obrador preferred to highlight the rally in the peso since he took office in late 2018. While he agreed that the peso has taken a hit, he said that the starting point as one of the world’s best performing currencies meant it had further to fall. “Our economy has resisted, especially the peso,” Lopez Obrador told reporters. “It endured this first stage of coronavirus spread. There has been a depreciation, but it was already very strong.” The spread of the virus has potential to hurt Mexico’s already moribund economy, which registered a 0.1% contraction in gross domestic product last year. Since Lopez Obrador’s election, the peso remains the third-best performing major currency, but the sixth worst year to date. Recent declines are “a reflection of the market anticipating the virus situation in Mexico,” said Danny Fang, a New York-based strategist at BBVA. Global coronavirus cases reached 89,000 on Monday, with the death toll rising to 3,044. Mexico reported its first case on Thursday last week. Source

Bank of Mexico expected to cut rates to 6.5% after Fed move: survey

Summary

MEXICO CITY (Reuters) – Mexico’s central bank is seen cutting its key interest rate by 50 basis points at its monetary policy meeting in late March, 25 basis points more than a forecast two weeks ago following the U.S. Federal Reserve’s surprise rate cut, a Citibanamex survey showed on Thursday. The Fed cut interest rates on Tuesday by a half percentage point to a target range of 1.00% to 1.25% in a bid to shield the world’s largest economy from the impact of the coronavirus, but the emergency move failed to comfort U.S. financial markets roiled by worries about a deeper, lasting slowdown. “Considering the emergency cut to the Fed’s target rate … the consensus of our Citibanamex Expectations Survey anticipates that Banxico will respond accordingly,” the survey said. The Bank of Mexico, or Banxico as it is known locally, cut the key rate for a fifth straight meeting on Feb. 13, lowering it 25 basis points to 7.0%, amid a backdrop of a stagnating economy and slightly above-target headline inflation. The survey, which was conducted by the Mexican subsidiary of U.S. bank Citigroup among 25 analysts, now forecasts the benchmark interest rate in Mexico will be at 6% at the end of 2020 and at 5.75% at the end of 2021, down from previous estimates of 6.38% and 6%, respectively. Banxico will hold its next monetary policy meeting on March 26.

Mexican private sector pitches US$92 billion in energy investment document

Summary

MEXICO CITY ( Reuters) – Mexico’s private sector has drawn up a broad package of proposed energy investments for the government worth almost $92 billion US dollars, according to a document seen by Reuters on Wednesday March 4th, providing a potential lift to the country’s misfiring economy. With 275 projects from 2020 to 2024 encompassing everything from power generation, storage and transportation to exploration and production of natural gas, the 1.787 trillion peso ($91.5 billion USD) package could significantly influence the government’s national energy plan, which is due to be presented soon. The projects sketched out were the product of discussions between Mexico’s business coordinating council (CCE) and dozens of energy companies, including Royal Dutch Shell PLC , Mexico’s IEnova , a unit of U.S. firm Sempra Energy , France’s Engie SA and Italy’s Enel SpA , the document showed. Under President Andres Manuel Lopez Obrador, Mexico has pursued a more statist approach to the energy sector, but some members of his administration believe attracting more private capital is vital for lifting growth. The private sector energy pitch foresees the creation of well over 400,000 direct and indirect jobs. Under the proposals, the bulk of the work on the projects should be front-loaded into the early years of the 2020-2024 time frame. Three of the states with the biggest concentration of proposed energy projects were Veracruz, Oaxaca and Yucatan, poorer regions in the south and east of the country that the president has pledged to transform economically.

Mercado Libre To Invest $420 Million In Mexico Targeting Rival Amazon

Summary

Latin American e-commerce giant Mercado Libre will invest $420 million in Mexico in 2020, as part of its continuing battle with Amazon.com, Inc. (NASDAQ: AMZN) to gain a larger slice of the country’s lucrative online retailing market. The online retailer, which is based in Buenos Aires, Argentina, has invested more than $1 billion in expansion efforts in Mexico since 2017 to compete with other online retailers. “The [$420 million] investment is going to be in three elements: expand the supply we have of more products and brands; expand the logistics network with new warehouses; and increase consumer awareness of the brand,” David Geisen, Mercado Libre’s Mexico chief executive, said. Geisen was speaking during a press conference at MELIXP, a technology and innovation event hosted recently by Mercado Libre in Mexico City. Mercado Libre operates in more than a dozen countries. Its three largest markets are Brazil, Argentina and Mexico, which accounted for 63%, 19% and 13% of its gross billings, respectively, last quarter. However, Mexico is the company’s fastest growing market, with e-commerce traffic up 35% in 2019, compared to the previous year, Geisen said. “Mexico keeps growing far above Latin America as a whole, and it’s a key market for Mercado Libre this year,” Geisen added. Geisen said the company intends to build more distribution centers throughout Mexico, which would benefit small- and medium-sized enterprises with storage and shipping In Mexico, Mercado Libre relies on transportation service providers DHL, UPS and FedEx. “[In 2019] we opened our second warehouse in Mexico,” Geisen said. “There will be more store openings in the coming years, because they add a lot of value to the companies that market their products through our platform. Ninety percent of the companies that sell on Mercado Libre are small and medium enterprises that do not have the infrastructure or technology to operate their own warehouses.” Online shopping in Mexico comprised just 3% of total sales last year, according to market research firm Euromonitor International. But it is projected to more than double by 2022, reaching $14 billion. Amazon launched in Mexico in 2015 at Amazon.com.mx, and is now one of Mexico’s largest online retailers.

Source

Mexico to speed up spending, spur private investment to counter coronavirus shock

Summary

MEXICO CITY (Reuters) – Mexico’s government plans to speed up public spending and is urging the private sector to boost investment to help counter the economic pain caused by the global coronavirus outbreak, Finance Minister Arturo Herrera said on Tuesday. “What we have to do is take advantage of all the fiscal (tools) that we have, and all the investment opportunities at hand,” Herrera told a news conference alongside other officials. The government of President Andres Manuel Lopez Obrador said it is in close contact with the Bank of Mexico, the country’s central bank, to coordinate a suitable response to the impact of the fast-spreading virus on the economy. Herrera said he had already spoken to Bank of Mexico Governor Alejandro Diaz de Leon. The U.S. Federal Reserve cut interest rates earlier on Tuesday in a bid to shield the world’s largest economy from the impact of the coronavirus. “This is something that more or less had been expected,” Herrera said, referring to the U.S. rate cut. Herrera argued Mexico needed to be cautious about taking on new debt because of its higher real interest rates. “The Mexican government’s room for maneuver is quite different,” he said, pointing to the difference in borrowing costs between the United States and Mexico.The Fed cut rates on Tuesday by a half percentage point to a target range of 1.00% to 1.25%, while the Bank of Mexico’s benchmark interest rate stands at 7.0% after policymakers cut it by 25 basis points last month. “What (Herrera) is trying to say is that we can’t borrow because it’s very expensive given the situation,” said Jonathan Zuloaga, an analyst at financial consultancy Columbus de Mexico. “Mexico has long had the highest real interest rate of any emerging country with a significant financial market.”

FIBRA Prologis Announces Results of the Subscription Offering

Summary

IBRA Prologis (BMV:FIBRAPL 14), a leading owner and operator of Class-A industrial real estate in Mexico, today announced that, in connection with the preferential right granted to qualified existing holders of its CBFIs, it received subscriptions in excess of the offering and has allocated all of the 200,000,000 CBFIs at a price of Ps. 41.50 per CBFI. Gross proceeds for the subscription are expected to be Ps. 8.3 billion. Settlement and delivery of the CBFIs will occur on March 17, 2020, subject to the receipt of payment. Trading of these CBFIs will begin upon their delivery on March 17, 2020. Citigroup is acting as lead advisor and BBVA Bancomer is acting as adviser. FIBRA Prologis is a leading owner and operator of Class-A industrial real estate in Mexico. As of December 31, 2019, FIBRA Prologis was comprised of 191 logistics and manufacturing facilities in six industrial markets in Mexico totaling 34.9 million square feet (3.2 million square meters) of gross leasable area. The statements in this release that are not historical facts are forward-looking statements. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which FIBRA Prologis operates, management’s beliefs and assumptions made by management. Such statements involve uncertainties that could significantly impact FIBRA Prologis financial results. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to rent and occupancy growth, acquisition activity, development activity, disposition activity, general conditions in the geographic areas where we operate, our debt and financial position, are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) national, international, regional and local economic climates, (ii) changes in financial markets, interest rates and foreign currency exchange rates, (iii) increased or unanticipated competition for our properties, (iv) risks associated with acquisitions, dispositions and development of properties, (v) maintenance of real estate investment trust (“FIBRA”) status and tax structuring, (vi) availability of financing and capital, the levels of debt that we maintain and our credit ratings, (vii) risks related to our investments (viii) environmental uncertainties, including risks of natural disasters, and (ix) those additional factors discussed in reports filed with the “Comisión Nacional Bancaria y de Valores” and the Mexican Stock Exchange by FIBRA Prologis under the heading “Risk Factors.” FIBRA Prologis undertakes no duty to update any forward-looking statements appearing in this release. The securities discussed herein have not been, nor will be, registered under the United States Securities Act of 1933 or the securities laws of any state of the United States and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements under the United States Securities Act of 1933 and any applicable state securities laws.