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THE AFFECTATIONS ON THE BORDER TO THE ECONOMY

Faced with failures in the negotiation between both governments, President Trump threatened to close the border with Mexico to combat undocumented immigration to the United States. Several Mexican analysts argue that it is a Trump tactic to pressure the federal government to comply with its terms in the bilateral migration agenda.
Trump announced on Twitter that he would call on the armed forces to stop the flow of Central American migrants. A few days later, the threat became less drastic and, therefore, more feasible, saying that if the Mexican government failed to stop the passage of migrants and drugs to the United States, it would impose tariffs on Mexico. According to Felicia Sonmez of The Washington Post, Trump diminished the tone of his threat thanks to the pressure exerted by leaders of the most influential companies in the United States. UU
However, decisions such as these affect companies of all sizes and across several sectors in both countries. At the end of the day, EE. UU is the first commercial partner of Mexico (Mexico is the third largest in the US) and exchanges a total of goods and services valued at more than 600 MMD, according to estimates from the Office of the US Trade Representative. UU
What happens with export companies that are not “heavy hands” or “influential” in their respective countries? The Economist published an article explaining that many companies in Queretaro and Jalisco are suffering losses from delays of seven to nine hours at the border, due to the lack of customs agents who are dealing with migration issues instead of speeding up trade.
Similar to what happened in the ports of California in 2014, there is a congestion of trailers at the border, causing delays in deliveries and cancellation of orders. These delays announce how catastrophic it would be for the exporting companies to have a total closure of the border, which would mean accumulated losses of more than 1,000 MDD per day, according to Landeros Volquarts, president of the Mexican Council of Foreign Trade of the West.
The Economist reported that, for several states on our side of the border, EE. UU It is the main destination of its export products, of which between 65 and 70% moves through the highway. It is also important to note that the trade of several American states -such as Texas, California and Michigan- also have Mexico as their main destination. Only Texas had a commercial exchange with our country of more than 18 MMD in July 2018.
These figures are evidence of how a policy emanated from high spheres of government can contaminate other political agendas – in this case, the commercial one – and have repercussions on the daily activity of companies, both in Mexico and the US. UU., Of all sizes and of different sectors.

Do you need your company to prepare for the uncertainty generated by US border policies? Write to info@riesgospoliticos.com.mx to provide you with the advice you need.

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BOEING AIRCRAFT ACCIDENTS , CAN MEXICO BE AFFECTED?

Boeing is in the international spotlight due to the accidents of B737 Max type aircraft in Indonesia and Ethiopia. What has caused commotion among users, regulators and the aviation industry in general.
The international press has begun to speculate if Boeing hastened to bring this plane to market, pressured by competition in the sector. The company decided to take an existing aircraft, the B737, and update all its engineering, instead of designing a new airplane, which would take at least ten years, instead of the six years it took them to get the model renewed. This is part of a new and aggressive strategy to take control of the aeronautical market in the United States.
The B737 Max software has been blamed for the accidents; however, it could be an easy way out. In this sense, investigations have been initiated regarding the consequences that the pressure to deliver orders in very short periods of time has brought to the industry due to the temptations to take “shortcuts”, and the lack of care so that aeronautical programs do not have failures
While the investigations continue, the Indonesia Garuda company has been the first to cancel an order of 49 aircraft of this type to Boeing, transaction valued at 6,000 million dollars and, although this cancellation is not definitive, the signals point to an uncertain future for the company. In addition to this, China has announced to international markets the arrival of COMCAC 919, a medium-range passenger plane that competes directly with the 737 Max, although it has yet to improve its efficiency in the use of fuels.
It is important to bear in mind that, in recent years, Mexico has captured important investments in the aeronautical industry. Thus, any impact on international markets will impact the sector in our country. The Boeing crisis will generate pressure on the production chains and all the companies that supply components for the manufacture of their aircraft. Especially the Boeing 737 Max, which can be said to be an emblem of the advance of aeronautics in Querétaro, which has been developing for 20 years.
In short, the loss of confidence of the users in the 737 Max, the suspension of flights of these aircraft, the possible cancellation of orders, the arrival of new Chinese competitors to the market and the economic slowdown in Europe, China and the United States are some of the factors that the Mexican aviation industry should take into consideration when making decisions in their business plans. The massive cancellation of orders of the 737 Max could generate big losses for the industry and for the economy of Mexico, especially for the aeronautical sector of Querétaro.

Do you know if your company is in danger? Are you a Boeing provider and do not know how this crisis can affect you? Write to info@riesgospoliticos.com.mx to provide you with the advice you require.

 

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WHAT IS THE FORECAST OF THE MEXICAN ECONOMY?

A couple of weeks ago, Fitch reduced PEMEX’s debt rating, which gave the first signs of how economic forecasts would be announced in the following days. Fitch downgraded PEMEX’s rating due to the debt problems faced by the oil company and because a feasible plan by the government to rescue it was not in sight.
On March 1, Standard & Poor’s downgraded Mexico’s sovereign debt from ‘stable’ to ‘negative’ because of the decline in the outlook for growth and the change in public policies in the energy sector. “The negative outlook of PEMEX’s global scale rating reflects that of the sovereign and our opinion that the close relationship between the company and the federal government will remain unchanged during the following years,” they said in their statement.
In addition, the Organization for Economic Cooperation and Development (OECD) reduced growth expectations for the Mexican economy to 2% by 2019 and 2.2% by 2020, 0.5 percentage points less than previously expected for both years. “The great political uncertainty, the current commercial tensions and a greater erosion of business and consumer confidence are contributing to the slowdown,” the OECD said in its report.
The International Monetary Fund (IMF) -for its part- lowered the growth prospects in Mexico for both 2019 and 2020 due to the decrease in the expectations of attracting foreign investment in the country. Finally, the Bank of Mexico also reduced, for the third consecutive time, the expectations of economic growth in the country, leaving it in a range of between 1.1% and 2.1%. placing it .0.6 percentage points less than the range of the previous perspective that ranged between 1.6% and 2.7%
The decision on the oil debt rating by Moody’s is still pending, which is expected to be similar to that of the other rating agencies. Moody’s has questioned PEMEX’s current direction: “Despite the higher capital expenditure in 2019, we believe that it is unlikely that Pemex will achieve the government’s production goals without an improvement in capital efficiency,” the ratings agency said. release.
These reductions in the rating of the debt by different rating agencies and international and national organizations indicate that Mexico, with the current economic model, will not grow at rates higher than 2%. These perspectives contrast with the numbers given by the current administration, whose prospects have reached a growth of 4%.
Although members of the party in power in the Congress were pronounced to regulate the work of the rating agencies in the country, President Andrés Manuel López Obrador clarified that it will not limit the work of these agencies. However, the government has not yet announced measures that could cause rating agencies and financial organizations to correct the economic outlook of PEMEX and Mexico. PEMEX’s recent financial restructuring plan was described as insufficient by the rating agencies, giving another blow to government policies to clean up the oil company’s finances.
The effects of this decline in ratings and growth expectations are already manifesting. The Mexican Stock Exchange had the longest period of decline since 2015. Financial institutions have indicated that, if they do not act with public policies that provide certainty, consumption could be affected, further impacting economic growth.

Do you need advice so that your company navigates within this complicated economic climate? Write to info@riesgospoliticos.com.mx to provide the support you require.

 

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WHAT DOES IT MEAN TO CANCEL THE ENERGY REFORM?

In 2013, the energy reform took place, which meant the opening of the sector to national and foreign investment, generating competitive markets throughout the hydrocarbons and electricity value chain. Although its main objective was the development of the oil industry – seeking a development in required exploration and extraction infrastructure – it also promoted the generation of clean energy and electric power, promoting development with social responsibility and environmental protection.

The most visible change brought by the Energy Reform was the arrival of more than 50 new brands of gas stations that today compete with PEMEX, among which we can mention Eni , Total, Shell, and DEA Deutsche Erdoel . Likewise, there are more than a hundred companies that try to participate in the different links of the oil chain: exploration, extraction, transport, and logistics. In collaboration with these companies, the first crude oil finds have been obtained in shallow waters of the Gulf of Mexico. And as for the electricity industry, 42 companies are looking to build new plants in 19 entities in the country that, it is estimated, will have a capacity to generate up to 7.6 megawatts  . Likewise, 213 projects focused on clean energies have been contemplated. These include solar, wind, hydroelectric, geothermal and biomass projects. It is expected that by 2024 43% of electricity in the country will come from clean sources.

According to data from the Energy Secretariat (SENER), as of March 2018, the energy reform had triggered public and private investments of more than 200,000 million dollars. If this degree of investment continues, it is expected that in the next 5 years the energy industry in Mexico will demand more than 200,000 jobs specialized in digitization, advances in the use of machinery, equipment and industrial processes, according to Pedro Borda’s data. , former executive president of the Mexican Association in Human Resources Management. In order to meet this demand, Mexico should emphasize that universities provide trained professionals in these areas.

However, with the entry of the new government, the so-called energy reform has been one of the most exposed to facing changes. President Andrés Manuel López Obrador mentioned in recent days that those who promoted the energy reform made an error, which has generated speculation about its future and, although the reform has not been halted, the tenders for the exploration of fields were halted petroleum Also, the federal administration reported that it is reviewing projects for alleged corruption practices. The policies implemented by the current government suggest a possible cancellation of the energy reform, which could have significant consequences because, according to experts, it is difficult for Mexico to continue to have the level of investment that it has maintained without it.

On the other hand, the cancellation of the New Mexico International Airport and the downgrade of PEMEX’s credit rating by Fitch alert investors to the conditions prevailing in Mexico for the private sector. As mentioned by José Enoch Castellanos, next president of the National Chamber of the Transformation Industry (CANCINTRA), Mexico can not afford to turn back the energy reform since there is a latent risk of falling into shortage of gasoline, gas natural, LP gas and even electric power. Thus, Mexico would not have the viability in the short term to provide the demand for energy without the support of private initiative.

Added to this, a plan to rescue PEMEX was announced, which consists of an injection of resources to the oil company for 107 MMDP and a fiscal incentive for 15 MMDP. This plan was considered “insufficient” by banks and rating agencies such as BBVA Bancomer, Citi Banamex, Fitch Ratings and JP Morgan, who concluded that the measures taken by the president will help the company not to increase its debt, but will not It will help to increase the company’s production or to make it efficient or profitable.

Internationally, the picture is complicated since the World Trade Organization pointed out that world trade in goods has been at its lowest level in nine years , representing a slowdown in the global economy;    the  trade war between the USA and China has hit expectations of global economic growth, shaken financial markets and disrupted manufacturing supply chains. Added to this persists, the uncertainty surrounding the departure of the United Kingdom from the European Union; the British economy is the fifth largest in the world and the damage to international finances of the Brexit is still unclear. That is, the economic environment is extremely uncertain in the medium term, which leads us to the question: How can Mexico face this global uncertainty if we block investment in the key sectors for our growth, such as energy?

We are facing a scenario where investment looks weak and the slowdown of the global economy will impact the Mexican economy. In order to face this situation, it is necessary for the government to consider the financial realities of the oil company, the world economic system and the international conditions of the sector. Otherwise, where will the energy companies come from to maintain the industrial sector and encourage investment?

 

Political Risks can help your company is better prepared for legal or regulatory changes that mean the cancellation of structural reforms, write to info@riesgospoliticos.com.mx .

 

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OPPORTUNITIES ON THE FINTECH SECTOR

It is increasingly common for the financial sector to benefit from the growing development of new technologies. This has opened the door to the creation of the fintech sector , which refers to startups “that provide financial services through the use and implementation of technology and for this they use web pages, applications and social networks in order to speed up and simplify your care process “, as indicated by the CONDUSEF .

This type of emerging companies is on the rise because the financial sector is a very vertical sector and seeks to break with traditional banking structures. In other words, banks cover the majority of the market and the population demands more and better services, which makes room for the services offered by fintech companies . Today, Brazil is the Latin American country with the highest growth rate in the industry, with the creation of 380 startups in the fintech sector per year, followed by our country, with 273, according to the Inter-American Development Bank (IDB). .

From the above, the importance of the regulation that was recently approved in our country, the Law to Regulate the Financial Technology Institutions better known as the “Fintech Law” is derived. This law seeks to “regulate the financial services provided by financial technology institutions, as well as their organization, operation and operation and financial services subject to any special regulations that are offered or made by innovative means.” The interesting thing is that, although there are other countries with more regulation such as the United Arab Emirates or Singapore, the Mexican is the first in the world that covers all areas of regulation and is generally observed.

In Mexico, cash continues to be the most used means of payment; In this sense, only 14% of the population receives their salary through a bank deposit. However, 75% of the adult population of Mexico has access to smartphones and at least 50.9% of the population has an Internet connection, whether fixed or mobile ( ENDUTIH ). In this sense, the fintech sector finds important areas of opportunity in the payments and remittances market, loans, business finance management, personal finance management, crowdfunding (project financing), investment management, insurance, financial education and savings, scoring , identity and fraud solutions , and trading and financial markets, in accordance with the CONDUSEF.

  In terms of economic policy, it should be considered that many of the innovations in the fintech sector , seek to reduce the interaction with banks and – indirectly – with the government, so there are still gaps in the regulations of this sector as is the leverage that is allowed to these institutions. On the other hand, there is still no qualifying institution that has the capacity to assure consumers of the liquidity levels or risks that the providers of these services have. This can generate market conditions similar to those that led to the mortgage crisis of 2007. In the event that high optimism arose, as it was with Bitcoin and other cryptocurrencies in 2018, leverage and credit availability would increase. A drop in the prices of these financial products can cause large losses if the bubble bursts. Further,if a company fintech announces its inability to solvency, the sector may suffer losses due to the distrust that is generated in the sector.

Also, because it is a newly created sector, there are still no insurers that offer insurance policies that fully cover potential losses of their clients. In this sense, fintech companies are more at risk when dealing with losses due to economic or criminal reasons, which would have an impact on their reputation.

In terms of security, although the tendency is for cyber attacks to be directed at large financial entities, these fintech companies may also be subject to attacks because their security systems – given the difference in company sizes – are less sophisticated than the first ones However, the aforementioned law contemplates the mechanism of action in the event of a cyber attack. As mentioned, cybersecurity is an area that must be constantly improving as cases of “hackers” that take advantage of the computer vulnerabilities of private entities to extort or monetize the information of victims or users of these organizations are widely known. Thus, fintech companies    that offer better developments and innovation in the security field will have a competitive advantage in the fintech market .

Traditional banking and fintech companies can generate synergies that benefit consumers. On the one hand, traditional financial institutions enjoy a reliable reputation, which represents a constant source of customer flow. On the other hand, fintech companies have managed to create innovative tools such as fast, direct and low commission buying methods, which facilitates and increases the demand for financial products.

The Fintech industry presents great opportunities in a financial market that evolves and looks for new mechanisms to face the current needs. Good risk management undoubtedly represents an advantage when making decisions because – in a relatively new sector, formed by companies highly vulnerable to legal, security and financial issues – those that are better informed and prepared may act as the best before the challenges of developing a new market in consumers of financial products.

Do you have doubts about the sector and the risks they face? Write to info@riesgospoliticos.com.mx to provide you with the advice that your company needs.

 

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