Crime Beginning to Deter Foreign Investment in Mexico

| Dec. 27, 2010 |

Published by Minyanville

Nearly 30 people were killed last week as an oil pipeline exploded in the central Mexican state of Puebla. Owned by state-owned oil company Pemex, the pipeline is thought to have been under attack from thieves, siphoning oil off in order to sell it on.

With "rivers of fire" reported on the streets of San Martin Texmelucan, Pemex was keen to downplay the incident and reopen the line as soon as possible. A Twitter message revealed the line was up and running on Wednesday.

The news comes after crude oil exports reached their highest level in November for more than two and a half years. Pemex exported an average of 1.62 million barrels of crude every day in November, up from 1.377 million a day in October and 1.22 million in November 2009. The average price was $76.79 a barrel, up from $74.30 in October and $72.44 in November 2009.

The week saw the price of crude oil reach its highest in a year, hitting $82.92 a barrel on Wednesday, in line with international prices.

Boeing (BA) is the winner of a Mexican government contract to build three communications satellites for approximately $1 billion. MexSat will provide secure communications for the military and government, as well as extend coverage for civil communications. The launch is scheduled for the end of 2012.

Meanwhile copper production in Mexico fell nearly 20% in October from the same period in 2009. Analysts suggest that companies may be using lower-grade deposits, accounting for the dramatic fall in output.

Grupo Mexico (GMBXF) reopened Mexico’s largest copper mine, Cananea, earlier this year, after a three-year strike. Another labour dispute hit La Caridad in September but that mine was back online a month later.

The group’s shares rose as copper prices hit a record with demand from China and reduced supply due to the closure of a Chilean copper mine.

The mining company is looking to claw back $210 million in "excess" environmental fines it paid for subsidiary Asarco’s bankruptcy proceedings. It is hoping to show that Environemental Protection Agency officials in the United States destroyed documents that could have lessened the fine.

General Electric (GE) is selling its $2 billion consumer mortgage portfolio in Mexico to Banco Santander (STD). Santander’s Mexican unit has agreed to pay $162 million for the mortgage operations of the company, making it Mexico’s second-largest home lender.

General Motors de Mexico (GM) has had to recall 329 Cadillacs for possible problems with their airbags.

Former presidential candidate Diego Fernández de Cevallos has been released by kidnappers seven months after his capture at gunpoint, reportedly having paid a ransom of $30 million dollars.

Though not thought to be connected to drug cartels, the crime highlights Mexico’s problems with kidnapping and general crime against wealthy members of society.

Swedish appliance manufacturer AB Electrolux (ELUXF) cited Mexico’s deteriorating security situation as a factor in its decision to build a $190 million factory in Memphis, rather than south of the border.

Mexico’s low wages, set to just under $4.86 per day from 1 January 2011, are just one of a number of factors that attract foreign investment. However, the security situation, which has seen just under 12,500 people killed this year alone, is pushing companies out of Mexico.

"We won't put a factory in Mexico until some of this violence gets addressed," Ron DeFeo, chief executive of Terex (TEX), maker of construction cranes and other heavy equipment, told the Wall Street Journal. "We just can't put our people at risk."

The peso has become stronger against the US dollar as stocks reach a record high, with the IPC index hitting 38,311 points. The US economy grew 2.6% in the third quarter, faster than the 1.7% in the second quarter, according to the US Commerce Department. About 80% of Mexico’s exports head across its northern border.

With such strong links to the US economy, Mexico’s GDP is predicted to grow 4.1% in 2011 with inflation at 3.6%. Bank of Mexico took advantage of the gain in the peso as it bought $340 million from holders of foreign exchange put options.

Mexico’s agriculture ministry also bought corn futures in order to stabilize prices, in an attempt to avoid an increase in tortilla prices before the third quarter of 2011.

Broadcasting giant Televisa (TV) shares rose, ending the week at $25.89, as the company closed a $1.2 billion deal to take a 35% stake in US Spanish-language broadcaster Univision.

With an optimistic government announcement that tourism revenue may rise 20% next year to $15.4 billion, airport operators’ shares rose with Grupo Aeroportuario del Centro Norte (GAERF) climbing 10 times in 11 days. Related companies saw similar gains.

Meanwhile, Mexicans have been enjoying Noche Buena beer this Christmas as the beer annually finds itself on shelves solely for the festive period. Production has increased this year—perhaps a telling sign of Mexico’s economic growth in 2010.