1 Investing Opportunities in Mexico: the Automotive example Eduardo J Solís March 17, 2006

2 Mexico has been doing its homework…. We have negotiated preferential market access throughout the world; so far with …43 countries We have followed very disciplined fiscal and monetary policies We have maintained a very responsible policy towards government spending

3 Current Economic Indicators

4 Inflation Annual growth Current Economic Indicators Country Risk EMBI Interest Rate CETES 28 days Exchange Rate Pesos per dollar Source: BANXICO. ** January 19th 7.89% *** February 3th

5 Mexico: Job Creation 2005 vs 2000 New Jobs *Source: Mexican Institute of Social Security (IMSS) Current Economic Indicators ∆% 8.9 Permanent Workers registered at IMSS* Millions of Workers and Annual Growth

6 Mexico: Total Exports Amount and Annual Growth Billions Dollars ∆%∆% Total Exports 2004 vs 2005 Billions Dollars ∆% 24.8 USD $ Current Economic Indicators No Oil Exports ∆% Manufactures10.6 Extractive29.6 Agriculture 7.8 Source: BANXICO.

7 Mexican Automotive Industry Positive results in the Automotive, OEM’s and Auto Parts Industries.

8 Three major clusters: Norte Centro Bajío AUTOMOTIVE LOCATION

9 Permanent Workers registered at IMSS* Thousands of Workers and Annual Growth AAGR = Annual Averange Growth Rate. * Source: Mexican Institute of Social Security (IMSS). ** Ministry of Economy based BANXICO Information. Industry AAGR Manufacturing3.3 Automotive4.2 A supply of highly qualified labor in the industry… Productivity Index Automotive Industry in Mexico

10 Domestic Sales Thousands of Units and Annual Growth e) Estimate Source: Ministry of Economy based on AMIA information. Automotive Industry in Mexico

11 Foreign Direct Investment in Mexico Automotive and Auto Parts Sector Million dollars Total USD $10,312 e. Estimate. Source: Ministry of Economy. Automotive Industry in Mexico

12 Automotive Industry Performace The new Automotive Investment Policy in Mexico is aimed to provide different kind of incentives to the Automotive Sector and other related key Industries.

13 AAGR = Annual Averange Growth Rate. Source: Ministry of Economy based on AMIA information. Vehicles Total Production Millon of Units Projections 3 m Outlook Current Production ,290 Potential Production Total ∆% 16.9 AAGR Development Policy to provide incentives to the Automotive Sector Current production Potential Projects Automotive Industry Performance

Vehicles Exports Millon of Units ∆% 15.8 AAGR Outlook Currents Exports Potential Exports Total Projections Automotive Industry Performance Current Projects Potential Projects AAGR = Annual Averange Growth Rate. Source: Ministry of Economy based on AMIA information. Development Policy to provide incentives to the Automotive Sector

15 Auto Parts Production Billions Dollars Projections Outlook Current Production Potential Production Total ∆% 16.7 AAGR Automotive Industry Performance Current Projects Potential Projects AAGR = Annual Averange Growth Rate. Source: Ministry of Economy based on AMIA information. Development Policy to provide incentives to the Automotive Sector

16 New Investment Projects in the last two years New Investment Projects in the last two years

17 CompanyProject Investment (Millions dollar)* New Jobs Sonora Plant1,6006,800 Bora model Golf model Heavy trucks assembly , ,190 Tacoma pick-up and Box productions for these pick-ups Production of "QR“ engine, "KH" engine assembly "CVT" manufacturing. 1,0001,100 Pick Up Mega Cab Production250n.a Sub Total3,34411,640 New Investment Projects in the last two years Recent Capital Investments in the Automotive and Auto Parts Industry Source: Ministry of Economy * Note: Include Suppliers

18 CompanyProject Investment (Millions dollar)* New Jobs New world-class vehicle4502,500 American Axle & Manufacturing Silao Facility extension 4001,200 Jatco expansion for transmissions production Kenworth expansion and modernization of Mexicali Assembly Plant Aassembly plant, it is expected to more than double the current production of pickups. 37n.a. Others384n.a. Sub Total1,6415,000 Total4,98516,640 New Investment Projects in the last two years Source: Ministry of Economy Recent Capital Investments in the Automotive and Auto Parts Industry

19 Incentives for Investing in Mexico Improvied competitiveness, technology development, suppliers development programs, expansion and infraestructure of the Automotive and Auto Parts Industry in Mexico.

20 Suppliers Development Program. 1 Design and Innovation Laboratories. 2 Centers of supply chain development 3 Research & Development Fund. 4 Incubators of technology based New Business. 5 Joint Ventures with Foreign SME´s 6 SME’s Suppliers Support Instruments Source: Staff of the Minister of Economy of Mexico.

21 Programs Fostering R&D: Tax credit on projects involving Research & Development of New Technologies. Science and Technology Fund for the Economic Development. Support Program for the Development of New Enterprises Based on Scientific and Technological Advances (AVANCE). Government Grants for Strategic Projects: Ministry of Economy. Tax Incentives: Immediate Capital Investment Deduction. Reduced income tax for Maquiladoras (Presidential decree) Labor Training: Labor Training System (SICAT). State and Local Incentives: Infrastructure. Land reserves. Property tax of payroll tax credits. Training program. Incentives for Investing in Mexico Source: Ministry of the Economy of Mexico.

22  Look for products with preferential market access and aim towards higher value added products.  Look for products where geographic advantage gives an edge (i.e closeness to clients)  Mexico’s strategy to open new markets represent tremendous opportunities for trade and investment.  Mexico is scaling up in the value chain, rising opportunities on engineering, R/D, design and the sort.  Mexico represent on itself huge opportunities within its major sectors´ supply chains. Final Remarks

23 Investing Opportunities of the Mexican Automotive Industry: a win-win proposition Eduardo J Solís Head of the Unit for Investment Promotion Ministry of the Economy (52-55) to 08