MEXICAN PROCESSORS ENCOURAGED BY LOWER INFLATION, INTEREST RATES

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MEXICO CITY — Mexico's plastics industry leaders are confident that this year they'll see the strongest strides yet in the economy since the go-go days three years ago.

While prognosticators do not expect consumption levels to rebound to pre-devaluation highs, Mexico seems to have weathered the worst of the crisis.

Mexico's government projects growth to reach about 4.5 percent in 1997. The rate of growth in 1996 was about 4.5 percent, rebounding from the 7 percent decline in 1995. Short-term interest rates — critical for companies with outstanding bank loans — fell in the last year, ending at 25.7 percent, down from 46.81 percent in the last week of 1995.

Mexico ended 1996 with 28 percent inflation, and analysts expect inflation to fall below 20 percent this year — a vast change from the 53 percent inflation the nation reported in 1995. The Mexican peso slipped only gradually during 1996, closing at 7.88 to the dollar.

``We think Mexico's economy will probably grow faster than the government's expectations,'' said Tim Baker of the Mexico City office of SBC Warburg. ``We'll likely upgrade [gross domestic product estimates] to 5 percent,'' up from 4.2 percent, he said.

And the firm is more optimistic about inflation, expecting a rate of about 15 percent.

``We're bullish on Mexico,'' he said.

But as wages fail to keep pace with inflation, Mexico's domestic economy ``will still suffer,'' he said, and the winners are clearly those with means to export.

Last year, foreign investment totaled about $6 billion, down from the 1995 record of $7 billion. The nation's commerce ministry reported in January that 45 new maquiladora assembly plants began operating in October, generating nearly 3,000 new jobs. The new facilities bring the total of plants — which benefit from a tariff exemption on imported raw materials because the final product is exported — to 3,346. In addition, 60 other maquiladoras expanded operations, creating another 8,331 jobs.

Francesco Cecchetti, president of the Mexican plastics processors association ANIPAC, claims that some processors have returned to 1994 production levels on the strength of exports. The sectors experiencing the biggest

growth include automotive, housewares and beverage packaging, Cecchetti said. He did not release specific numbers.

Still, Mexico's plastics industry continues to see a pattern of downsizing and consolidation, which Cecchetti estimates has wiped out 30,000 jobs.

``Many companies have seen a one-half reduction in personnel, others have closed altogether or are still working on restructuring,'' Cecchetti said.

Of Mexico's pre-devaluation estimate of 3,500 plastic processors, 2,600 are now in operation, he speculated.

The cheaper peso makes imports of primary materials more costly, said Carlos Nava, executive director of Becton Dickinson and Co.'s Mexican operations.

``We don't have a reliable local supply and we have to get essentials from the U.S.,'' Nava said.

Nava hopes that this year the U.S. government will approve intratrucking between the U.S. and Mexico — something agreed to under the North American Free Trade Agreement but suspended last year by U.S. authorities because of safety and environmental concerns.

``This delay is costing me money because primary materials don't come fast enough,'' Nava said. ``Instead they sit on the border, stalled by the red tape of customs officials.''

Direct delivery from a U.S. trucker would allow Nava to reduce excess stock by 50 percent, he said, although he declined to put a dollar figure on savings. In spite of delays, Nava said sales volume of Becton Dickinson de Mexico SA increased about 3.5 percent in 1996, and the company probably will see at least that much growth this year. He did not reveal the unit's 1996 profit.

Baker, who follows Mexico's paper and plastic packaging companies, does not expect significant growth of domestic consumption of plastics in Mexico this year, which does not bode well for plastic packagers.

However, makers of automotive parts could benefit from continuing investment by General Motors, Chrysler and Volkswagen. And he expects growth in the domestic PET sector.

Privately, plastics industry leaders wonder whether there will be a flush in government spending for infrastructure projects, such as drainage, as Mexico's long-standing Institutional Revolutionary Party prepares for the first-ever election of a governor in Mexico City and half the seats in Mexico's congress face re-election.