Mexico Current Business Environment and Opportunities US. Mexico Chamber of Commerce Chicago IL June11, 2009 pwc

PricewaterhouseCoopers 2 Agenda Mexico The Mexican Economy Current trends Business environment The Financial Crisis in Mexico Challenges and opportunities

PricewaterhouseCoopers 3 Mexico 106 million people Democratic Regime Hard working and highly qualified people Open economy very few restrictions to foreign investment Big advantages through NAFTA and other trade agreements Healthy Public Finances

PricewaterhouseCoopers 4 Mexico Cont… Home to many large Companies: CITIBANK- 30% of world wide profits from its Mexican Subsidiary GE- 104 years in Mexico Coca-Cola- largest consumption per capita of the world Bombardier- Initiated production of airplanes in Mexico Electrolux- Moving their production of wash machines to Mexico

PricewaterhouseCoopers 5 Mexico Cont.. Ford - Confirms investment of $3 billion in Mexico in the next few years Chrysler increasing production in Mexico 90% of the existing Companies in Mexico are small and family owned

PricewaterhouseCoopers 6 The Mexican Economy 14th. largest economy of the world 2nd. largest in Latin America Less than 1.8% fiscal deficit expected to increase in 2009 (2.6%) Undeveloped internal market big opportunity Economy largely dependent on oil revenues Will be affected by the global Financial Crisis

PricewaterhouseCoopers 7 Mexican Economy

PricewaterhouseCoopers 8 Mexican Economy After years of stability, 35% depreciation of the Mexican Peso in the last four months. Current exchange rate Ps per dollar Inflation for 2008, 6.53% Current 28 day Treasury rate 5.1% TIIE rate 5.36 % (Interbank and loan reference rate) Minimum wage Ps or $ 3.8 a day

PricewaterhouseCoopers 9 Mexican Economy Source: Mexican Central Bank

PricewaterhouseCoopers 10 Source: Ministry of Economy Mexican Economy

PricewaterhouseCoopers 11 Mexican Economy Unemployment at 4.6% Large part of the population moving to the informal economy, but still consumers Expected GDP growth in % Cash remittances from Mexicans in the USA are decreasing due to the economical situation in the USA

PricewaterhouseCoopers 12 Source: PEMEX. Mexican Economy

PricewaterhouseCoopers 13 Current Trends Election period in Mexico by Summer 09, Security continues to be the political priority, the Government is confronting organized crime, The economical situation worsening due to the recent epidemic The AH1N1 influenza crisis was a recent demonstration of the strength of Mexico’s Government and institutions Infrastructure strategy to mitigate the effects of the adverse economical environment,

PricewaterhouseCoopers 14 Current Trends Energy Reform a big step for Mexico´s future Significant steps to fight corruption

PricewaterhouseCoopers 15 Current Trends Energy Reform PEMEX - Large investment in refining plants - Deep sea exploration through service contracts - New tax regime and independence in the decision making process - Corporate Governance and transparency - Independent new Directors - Citizen bonds as a way to finance growth - Sustainable use of energy

PricewaterhouseCoopers 16 The Financial Crisis in Mexico First Crisis not caused internally A well capitalized banking system The Macro economic fundamentals better than in other Crisis Increasing unemployment a big challenge Cash remittances from the USA expected to continue with the same trend The decrease in oil prices and commodities a severe negative effect

PricewaterhouseCoopers 17 The Financial Crisis in Mexico Actions to mitigate the Crisis - Economic support to productive plants in technical shut down - Fund set up to finance small businesses - Extension of period for medical services in case of unemployment - Limited access to retirement funds - Frozen price of gasoline for the remaining of 09

PricewaterhouseCoopers 18 Taxes The Federal Income Tax Rate 28% Certain indirect local taxes, not corporate VAT 15% (10% at border) Flat tax 16.5 % increasing 0.5% per year up to 18.5% Social Security (cost/ benefit) Large number of Tax Treaties create opportunities to optimize tax costs, including one with the USA

PricewaterhouseCoopers Challenges First global crisis how well prepared is Mexico and when will it come to an end? Informal Businesses on the growth as a consequence of unemployment SECURITY Continue fight against corruption (FCPA) Quick reaction to develop the internal market and production More proactive rol of banks The oil price after October 19

PricewaterhouseCoopers 20 Opportunities Crisis brings challenges and opportunities Some potential business opportunities in Mexico - Devaluation + Exports = Competitive Advantage - Tourism + Devaluation = Excellent opportunity - Existing Maquiladora Platform + Good Business Plan = Benefits for US and Mexico - Attractive prices for M&A activity - Undeveloped internal market = Opportunities for investment

PricewaterhouseCoopers 21 Opportunity? Source: Mexican Central Bank

PricewaterhouseCoopers 22 Opportunities Infrastructure According to the Global Economic Forum’s Report, Mexico ranks 64th of 125 Countries in terms of competitiveness in infrastructure. Investment in infrastructure in Mexico from 2001 thru 2006 represented 3.2% of the GDP, while Chile and China during this same period invested 5.8% and 7.3% of their GDP, respectively.

PricewaterhouseCoopers 23 Opportunities The goal is for Mexico to be placed amongst the 20% of the best ranked countries by 2030 The base scenario of estimated investment in Infrastructure for the period 2007 through 2010 is around $ 180 billion dollars. Expected more active projects: - Highways - Telecommunications - Ports - Water treatment

PricewaterhouseCoopers 24 Opportunities The Federal Regulatory framework and most of the States, allow Public Private Partnerships for the development of Infrastructure By the way of these association schemes and lack of public resources, different state entities are planning to develop Convention Centers It is expected that the development of these Centers will contribute to the economic development of the States Still attractive interest rates

MEXICO LAND OF OPPORTUNITIES Thank You PwC © 2009 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to PricewaterhouseCoopers Mexico, the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers.