AN OPEN ECONOMY AS A DRIVER OF GROWTH AND DEVELOPMENT: THE MEXICO CASE August 2 nd, 2012

Mexico is in the right place, at the right time. A window of opportunity following the reconfiguration of the global economy. -Optimization of cost structures. -Focus on emerging economies. Some of Mexico’s main advantages are: -Geographical location. -Friendly regulatory and legal framework. -Skillful and talented labor force. -Competitive costs. Current status is product of a 25 years long evolution. Mexico is living one of its greatest economic moments 2

Solid macroeconomic environment Source: INEGI and Central Bank. Inflation International reserves Exports 1. GATT 2. IFE 3..Privatizations 4. APEC 5. NAFTA 6. OECD 7. Floating Ex. Rate 8. Banxico’s Autono. 9. FTA with EU 10. Democratic Alter. 11. Investment grade 12. EAA with Japan 13. Prepayment debt 14. Deregulation 15. Budget Reg. 16. Pacific Alliance 17. FTA Central.Am. 18. TPP Application 19. FTA Peru 1 9/ /6 International reserves 3 215

A well evaluated country México ranks as a low-risk country in the Market Overheating Index, published by The Economist, which grades 27 countries. Source:The Economist, Hungary Malaysia Taiwan Pakistan Mexico Czech Republic South Africa Russia Venezuela South Korea Saudi Arabia Poland Colombia China Chile Philippines Peru Egypt Thailand Singapore Vietnam Turkey Indonesia India Hong Kong Brazil Argentina 4

Competitiveness indicators For sixth consecutive year, Mexico improved its position. Beyond BRIC’s. Reforms that enhanced our ranking: –Construction permits (+6). –Getting credit (+5). –Trading across borders (+3). –Paying taxes (+1). Source: World Bank, 2011;, World Economic Forum 2011; IMD, Mexico’s position GLOBAL COMPETITIVENESS REPORT 2011 DOING BUSINESS 2012 Mexico registered the largest improvement in the American continent. –Our country advanced in 10 of the 12 pillars analyzed by the Index. –Above Brazil, Russia and India in macroeconomic environment Mexico was the only country in Latin America that climbed positions in this ranking. –We are one of the most competitive countries of America. –We are above Brazil, Russia and Turkey. WORLD COMPETITIVENESS YEARBOOK Mexico’s position

With 12 trade agreements, Mexico has access to 44 countries (1.2 billion people). We are committed to free trade SOURCE: IMF, OMC, Sea Rates. *Doesn’t consider Economic Complementation Agreements. Number of FTAs and countries with privileged access* Our FTAs give privileged access to 2/3 of the world’s GDP # Countries # FTAs Lázaro Cárdenas Manzanillo Veracruz Tampico Altamira Guanajuato Monterrey Guadalajara SLP Mexico is part of the world’s largest economic block (NAFTA). NAFTA = 18 trillion USD Mexico invests close to 5% of its GDP in infrastructure (OCDE is close to 3.5%). 6

Source: Competitive Alternatives 2012, KPMG; Global Benchmark Report 2011, of the Danish Industry Confederation; Manufacturing Outsourcing Cost Index 2010, Alix Partners. Most competitive total costs According to KPMG, in 2011 Mexico had an average cost advantage of 21% (over 19 industries), compared to the US. Baseline The Alix Partners Manufacturing Outsourcing Cost Index ranks Mexico as the best country (better than BRIC’s). The most competitive country in terms of costs and taxes, according to Global Benchmark Report

Demographics are on our side Source: US Census Bureau: ; INEGI, 2011; Population Projections for Mexico , CONAPO. *Population (in millions) by age group.  112 million inhabitants with a median of 26 years.  47 million in the labor force.  According to forecasts, there will be more than 60 million people of productive age by China’s population pyramid (2030)* Mexico’s population pyramid (2030)* MaleFemale MaleFemale 8 Mexico’s demographic bonus

Mexico ranks in the top 20 of Harvard and MIT’s Atlas of Economic Complexity Recognizes that our country holds vast amounts of productive knowledge We manufacture and export a large number of sophisticated goods 80% of Mexican exports in 2011 were manufactured goods. Our exports have grown 28 times in the last 25 years. The Index of Technological Sophistication of Mexican export products (3.25) is the highest in Latin America and above India and Brazil. (OECD) 115,000 engineers graduate every year from science and technology programs. A high degree of economic complexity Source: INEGI, Presidency and Harvard/MIT, Atlas of Economic Complexity. 9

No. Country% GDP 1 Germany28.2% 2 South Korea27.2% 3 Mexico19.3% 4 China18.3% 5 France13.1% 6 Canada11.6% 7 Japan10.6% 8 Italy10.5% 9 United Kingdom9.9% 10 Indonesia7.0% 11 United States5.5% 12 Turkey5.2% 13 India4.0% 14 Brazil3.5% 15 Russia3.0% Manufactures of Medium and HighTech Exports as a percentage of GDP (2011) A technologically sophisticated economy Source: IHS Data – Global Insight; ProMéxico’s Analysis. Data in USD Real terms, Medium Technology (MT): Specialty Chemicals Machinery, Equipment, Appliance Electrical Industrial Machinery Motor Vehicles & Parts Total Motorcycles & Transport. Equipment Railroads & Equipment High Technology (HT): Aircraft & Spacecraft Advanced materials Computers & Office Machinery Communication Equipment Medical, Precision & Optical 10

Chihuahua Tijuana Mexicali Hermosillo Ciudad Juarez Los Mochis Culiacán Zacatecas Guadalajara Leon Torreón Tampico San Luis Potosi Matamoros Monterrey Monclova Automotive Autoparts Aerospace Electric-Electronics Map of Mexico’s Advanced Manufacturing Saltillo Estado de México Ciudad Sahagún Puebla Querétaro Silao Ramos Arizpe Aguascalientes Morelos Tecate Reynosa Nuevo Laredo Tlaxcala Nogales 11

Mexico: an excellent business case for advanced manufacturing…And more Jetta Bicentenario (VW)SkyworksMabeIntel Design Center SilanesHoneywell (A350) Flexible manufacturing (Ford) Bombardier Learjet 85 SAFRAN Ericsson (Global Serv. Center) GE (GEnx turbine)Siemens 12

Where the future growth will be? Growth markets and key variables Mexico Indonesia Korea Turkey Brazil Russia India China KEY VARIABLEINDEX 1. Macroeconomic Environment WEF, The Global Competitiveness Report , Macroeconomic Environment Index 2. Open Economy World Bank, Doing Business 2012, Ease of Doing Business 3. Economic complexity Harvard University and the MIT, The Atlas of Economic Complexity 4. Total Manufacturing Cost Alix Partners, Manufacturing Outsourcing Cost Index 5. Domestic Market WEF, The Global Competitiveness Report , Domestic Market Size Index 6. Demographic Bonus United Nations, World Population Prospects, The 2010 Revision 7. Workforce quality FDI Benchmark, Labor availability and quality of the Automotive OEM’s: Skills, attitudes and productivity 8. Engineering graduates UNESCO, Institute for Statistics/ International Monetary Fund. Engineering, manufacturing and construction graduates per capita Democratic System The Economist, Democracy Index Human Development United Nations, Human Development Index

COUNTRY BrazilRussiaIndiaChinaMexicoIndonesia South Korea Turkey BRICMIST 1. Macroeconomic environment 2. Open economy 3. Economic complexity 4. Total manufacturing cost 5. Domestic market 6. Demography 7. Workforce quality 8. Engineering graduates (per capita) 9. Democratic system 10. Human Development Index Equal or above MexicoBelow Mexico, but closeClearly under Mexico Source: 1. Macroeconomic Environment: WEF The Global Competitiveness Report , Macroeconomic Environment/ 2. Open Economy: Doing Business 2012, Ease of Doing Business/ 3. Economic Sophistication: The Atlas of Economic Complexity, Harvard University/ 4. Total Manufacturing Cost, Manufacturing Outsourcing Cost Index, Alix Partners/ 5. Domestic Market: WEF The Global Competitiveness Report , Domestic Market Size Index/ 6. Demographic Bonus: UN World Population Prospects. The 2010 Revision. Forecast of total dependency rate in 2025 (population <15 & 65+ years) (15-64)/ 7. Labor availability and quality of the DFI Benchmark, Automotive OEM, Skills, attitudes and productivity/ 8. Engineering Graduates (per capita): UNESCO Institute for Statistics, International Monetary Fund. Engineering, manufacturing and construction graduates per capita 2009/ 9. Democratic System: The Economist, Democracy Index 2011/ 10. Human Development Index: UN, Human Development Index. Measuring methodology: Mexico’s position is the baseline in each index or study cited. In green are identified those countries that score higher, equal or up to 10% below Mexico. In yellow, those between 11% and 20% below Mexico. In red, those which score is more than 20% lower than Mexico’s. Mexico is a well positioned country 14

What about our future? Looking back on the past 25 years, growth prospects is a matter of the slope, not trajectory. If Mexico carries out the necessary economic reforms, the slope accelerates and economic growth is higher. 15

Source: Goldman Sachs. The N-11: More Than an Acronym. Global Economics Paper No: 153. March, 2007/ HSBC. 1/ Goldman Sachs forecast / International Monetary Fund th place 11th place 2011 Goldman Sach’s Forecast Gross Domestic Product (Billion Dollars) Mexico will be one of the top 10 economies Goldman Sachs estimates that Mexico will be the 5 th largest economy by World's largest GDP measured by PPP (Billion Dollars) According to HSBC Mexico will be the 8 th largest economy in the world by According to Accenture, Mexico will be one of the Big Six in

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