Topic Category: World

As part of its new economic program to promote investment and raise capital, the Mexican Government is undertaking its third major round of privatization since the 1980s. And in a clear demonstration to the world that Mexico is not wavering from the path of economic liberalization, President Ernesto Zedillo is also further opening up sectors to foreign investment that have already been privatized over the last few years. This is presenting a number of significant opportunities to U.S. investors.

Two sectors, petroleum and radioactive materials, will remain under the exclusive control of the government. Ownership of broadcast television, radio and credit unions will continue to be reserved for Mexican private investment. However, Mexican law has recently been changed to make it possible to sell strategic resources that had previously been considered off limits.

The railroads can now be sold to domestic and foreign investors. Natural gas is still considered a strategic resource, but its transmission, distribution and storage is not -- and may now also be sold to the highest bidder. Other businesses open to new foreign investment include satellite operations, telecommunications, secondary petrochemicals, power generation, financial services, ports and airports.

Since the 1980s, nearly 1,000 of the 1,155 state-owned businesses have already been sold to private entrepreneurs, merged or closed. This generated $14 billion in revenue and savings. These businesses included hotel chains, steel producers, mining companies, insurance providers, airlines, banks and telecommunications companies. With an additional $14 billion expected to be generated from the new round of openings, Mexico's ability to raise capital appears undaunted by the recent financial crisis.

Under current foreign investment laws, two-thirds of the Mexican private sector is open to foreign ownership. Cumulative foreign direct investment totaled $50 billion by the end of 1994. The United States and Canada have invested 62% of this; the European Economic Community, 25%; Latin America, 7%; and Asia, 5%. The manufacturing sector has continually attracted the most foreign direct investment, 40.5%; followed by the service sector, 31%; transportation and telecommunications, 8.5%; and financial services, 8.5%.

The new round of privatization and further investment openings will not only raise much needed capital, but will also help Mexico, to a greater extent than in the past, modernize its infrastructure and economy.

Over the years, privatization of companies has not always benefited Mexico to the degree anticipated. For example, in the past many state-owned enterprises were sold to domestic investors only, not allowing sometimes more qualified and cash-strong foreign investors to bid. Many analysts believe that this policy restricted competition, and did not always push new owners to become as efficient as they may have under more competitive, open market conditions.

For example, in 1991 the Mexican Government began selling the 18 largest banks it had seized back in 1982 -- but restricted experienced foreign banks from bidding. The sale of the telephone company and two airlines, Mexicana and Aeromexico, was no exception. As time progressed, some of the newly owned and managed companies seemed to be in little better position than when controlled by the government. Under the new round, open bidding to both domestic and foreign investors and greater scrutiny to ensure an ability to meet financial requirements is likely to minimize, if not eliminate, the problems caused by past practices.

Instead of simply selling the railroads to the highest Mexican bidder, the Mexican Government studied various options for their sale. The first option considered a 50 year concession for the entire railroad system to one qualified owner. Other options split the system into competing private railroads.

Reportedly, in June more than 500 potential domestic and foreign investors attended a meeting in which Mexican transportation officials explained their privatization plans. With the publishing of bidding rules and actual bidding to commence as early as this fall, final plans call for the division of the railroads into three concessions.

Several large U.S. and European lines are considering making offers for the Mexican railroads. Union Pacific and others appear interested in the routes running north to the border and serving automobile plants. Before some companies bid, however, they are requesting answers from the Mexican Government as to the new owners' degree of flexibility on work force and passenger services issues.

Under the North American Free Trade Agreement, Pemex, the Mexican state-owned oil company, was not opened to investment as many U.S. companies had hoped. However, while the production of natural gas remains the domain of Pemex, several activities related to getting the product to market are for the first time open to foreign investment. These new opportunities reportedly attracted about 120 U.S. companies to a series of three day meetings recently held in Mexico City sponsored by the U.S. Department of Energy and Mexico's Secretaria de Energia.

Continued privatization and further opening of Mexican sectors to foreign investment will continue to substantially enhance economic progress and speed recovery in Mexico. Just as important, as the short-term economic crisis abates, U.S. investors in Mexico will have the chance to establish a strong new foothold in Mexico that benefit them well into the future.

This article appeared in The Exporter, September 1995.
Topic: World
Comment (0) Hits: 7419

The People's Republic of China has one of the fastest growing economies in the world. Its gross national product (GNP) increased 13.4% in 1993 and 11.5% last year. Its growth is projected to increase by 9% next year and about 8-9% annually through the end of the century -- one of the highest in the world.

Certain regions in China -- especially those along the coast -- are booming, as many of the residents are becoming more prosperous. Political and economic decentralization has allowed each region to pursue its own interests as local governments and enterprises gain greater autonomy on a daily basis. Some 8,000 companies now have import and export rights. This trend will likely continue.

U.S. Exports to China Rising -- Faster

Foreign trade as a percentage of China's GNP now accounts for nearly 40 percent. From 1991 to 1994, U.S.-Chinese bilateral trade almost doubled -- reaching more than $48 billion. From 1993 to 1994, the United States edged up 18.4% to achieve 12.2% of Chinese import market share. And for the first two months of this year, U.S. exports to China rose 28.6% faster than the same period last year -- a considerable jump when compared to the much smaller 5.7% increase in exports from 1993 to 1994. Although more recent data is not yet available, this trend appears to be continuing.

Principal exports to China include boilers and machinery; aircraft; fertilizers; electrical machinery; and cotton, including yarn and woven fabric.

Last year U.S. imports from China rose considerably faster than exports, as the country moved up two notches to become our second largest supplier of goods. Principal U.S. imports include electric machinery; footwear; toys; games and sports equipment; apparel (unknit); and leather art, saddlery and handbags.

Last year, the U.S. trade deficit with China reached almost $30 billion. In the past, access to China's market of 1.2 billion consumers has been hampered. Recent trade agreements, however, will positively affect this.

Market Access Agreement Reached in March

In February of this year, China signed an agreement to protect U.S. intellectual property. During U.S. Trade Representative Kantor's visit there on March 12-13, he reached an eight point agreement with Minister Wu Yi on market access, bilateral services, and China's accession to the World Trade Organization. As part of the agreement, China also agreed to fully implement the October 1992 Memorandum of Understanding (MOU) which was suspended some time ago. The MOU committed China to make sweeping changes in its import regime, including the elimination of 90% of all non-tariff barriers.

At the March 29-30 market access consultations in Washington, D.C., China additionally agreed to lift quotas and licensing requirements on a wide range of agricultural goods, textile machinery, textile and apparel, computers and heavy machinery. As a result of these developments, U.S. exports will likely increase at an accelerated rate.

Best Export Prospects

U.S. products anticipated to do well in China include aircraft and parts; electric power systems; computers and peripherals; telecommunications equipment; automotive parts and service equipment; agricultural chemicals; industrial chemicals; plastic material and resins; chemical production machinery; building products; pumps, valves and compressors; electronics components; machine tool equipment; oil & gas field machinery; medical equipment; laboratory scientific instruments; and electronics production and test equipment. The list doesn't stop here.

Agricultural products in demand include wheat, cotton, logs, hides and skins, poultry, tree nuts (pistachios), dried fruits, especially raisins, and snack foods .

Obstacles Remain

Although political and economic structures are becoming decentralized, Communism remains intact in China. As a result, the system continues to erect roadblocks that are difficult to overcome. In addition to quotas and high tariffs (50%-250%), many of which will be reduced or eliminated, China inconsistently applies a 17% value-added tax on most imports, limits access to its retail sector, maintains foreign exchange controls, operates under an inefficient banking system, and sometimes applies unreasonable standards and quality control requirements.

Additionally, it is important to become familiar with changing logistical demands and penalties for nonconformance. For example, in order to ship over-sized packages to China, approval must be given from the airlines before delivery. This is especially important for inland shipments.

Plans for Development

The Chinese Government has embarked on an ambitious schedule to improve the country's infrastructure. Many of these improvements will not only help to better facilitate trade, but will also provide U.S. companies with opportunities to supply materials and products needed to complete the projects.

Two of these projects involve electric power generation and transportation improvements, as discussed below.

Electric Power, thermal and hydro: The Ministry of Electric Powers plans to add 15,000 MW per year to China's power generation capacity over the next ten years. Central and provincial expansion plans include the construction of over 35 power stations between 1992 and 1996. Hydro-power projects involve the construction of four huge structures, including the building of the largest hydro-power dam in the world.

Railways: China is receiving loans from the World Bank, the Asian Development Bank and the OECF to build and expand six rail lines and to import communications networks, intermodal container transportation and loading systems, computer and signaling systems, software and track maintenance equipment.

This article appeared in Global Shipper, a publication of Emery Worldwide, June 1995.
Topic: World
Comment (0) Hits: 3820

Page 17 of 17

Quick Search

Stock Watch

FREE Impact Analysis

Get an inside perspective and stay on top of the most important issues in today's Global Economic Arena. Subscribe to The Manzella Report's FREE Impact Analysis Newsletter today!