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VIPsight

Corporate Governance – portrayed in the individual cultural and legal framework, from the standpoint of equity capital.

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transparent and independent current information / comments / facts and figures on corporate governance locally and internationally,

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VIPsight International


 Welcome to VIPsight America - Mexico

 

Author

 
Martín Dâvila  

 

16 August 2017

Chiara Lubich and her fight against poverty

At present and for a long time we have been fighting against a great scourge to humanity as a whole, and this is represented by poverty. According to Oxfam Mexico in its 2015 annual report, is where it is mentioned that, "While the wealth of the 4 richest millionaires in Mexico now accounts for 9% of Gross Domestic Product (GDP), 55.3 million people live in poverty", as well as the National Council on the Evaluation of the Social Development Policy (CONEVAL, for its acronym in Spanish for Consejo Nacional de Evaluación de la Política de Desarrollo Social), confirms that 55.3 million people in Mexico, representing 46.2% of the Mexicans, find themselves in a situation of poverty. However, Silvia Lubich, better known by Chiara Lubich, has designed a very simple idea, in addition to brilliant how tackling poverty, and that is what is known as the Economy of Communion.

Silvia Lubich had a wonderful life, full of many achievements and successes, despite having undergone some vicissitudes. All of these events he forged a character beautiful and by other kind, same as I go sharing later. She was born in Trento, Italy, on January 22nd, 1920, and dies at the age of eighty-eight years in Rocca di Papa, Italy, on March 14th, 2008. In the words of Silvia Lubich, she tells us how it is to be closer to God; "I was 19 years old and a great thirst for God", so that every time he was with a priest asked "Tell me of God", due to the incessant thirst for God, she tries to register at the Catholic University of the Sacred Heart in Milan (Università Cattolica del Sacro Cuore), however his family did not have the means to cover that expense, so that Silvia Lubich enters a contest to be able to get a scholarship for the study because it had 33 places available for that scholarship, unfortunately she left in the place number 34 for a free admission at the Catholic University of the Sacred Heart in Milan. After that fact in her life, she tells us the following "I remember how much I cried, because I believe that in the Catholic University talked about God. And I remember, that in the midst of that crying, in the living room with my mother, inside of me I felt someone told me: I will be your teacher."

The next major event in the life of Silvia Lubich is when in October 1939, makes a trip to Loreto, Italy, during a course for young people of Catholic Action, where you visit the Marian shrine of the house of the Holy Family of Nazareth, in the words of Silvia Lubich tells us; "I was invited to a congress of Catholic students in Loreto, where it is guarded according to the tradition, in a large church-fortress, the house of the Holy Family of Nazareth… participated in a school in the course with all the other; but, whenever I can, I run there. I knelt down next to the wall blackened by the lamps. Something new and divine surrounds me, it is almost as if I was crushed. It is with the thought life of the three (…). Every thought I have, I squeezed the heart, the tears fall without control. In each interval of course, I am always there. It is the last day. The church is full of young people. I pass through the mind a clear idea, that will never be erased: you will be followed by a legion of virgins". As she mentions at the end, he entered the sanctuary on the day before and found it full of people so they stayed in the back of the church, she tells us, "in some way, during the solemn Mass, while everyone was following closely the development in their missals, I knew that I had found 'my way'. Then came the image of a procession of the Virgin, dressed in white, who followed me in that way. I didn't know what that could mean, but that is what I experienced", therefore Silvia Lubich was when he felt the voice of God in his heart that thinks "I will continue to be a multitude of virgins". The outline of the new way of the Lord is the Focolare, a community of people which will be "virgins and married, all donated to God". So for Silvia Lubich, the birth of the Focolare in reality is during this trip. Virginia Azcuy writes about that event in the life of Silvia Lubich, "This was the first intuition of the Focolare, in contemplating the life of Nazareth: a 'family' normal and exceptional at the same time, a simple family of workers that are not in any of the others, but where God lives”.

After that trip to Loreto she is dedicated to study and work. She is part of the Faculty of Philosophy at the Università Ca'Foscari in Venice, however, the arrival of the Second World War prevented him to continue with his studies and therefore to return to his native Trento to work as a teacher, so during the school year 1940-1941 gives classes in the Seraphic Opera of Trento, directed by fathers cappuccinos. In 1943 a father cappuccino invites her to join the Third Order of the Franciscans, a lay branch, and it is when, in love for God, takes the name of Chiara, for the Santa Chiara of Assisi, a fervent follower of Saint Francis of Assisi, with whom he founded the Second Franciscan Order or of Poor Clare Sisters, so since then it is known as Chiara Lubich.

Also in 1943, after four years of that trip to Loreto, to Chiara Lubich is the most decisive event of his life: it is a cold winter day, at that time did not have milk so that his mother Luigia Lubich asked the daughters smaller than go find milk. Chiara Lubich in a gesture of charity toward their little sisters, offers to go herself by the milk due to the intense cold that feels, but let to Chiara Lubich we tell this fact: "When I was going down the street, I felt as if God said: Date all to me, date all to me. I stop in surprise. I'm going to look for the milk, go home, and I write a letter to a priest", in this letter tells the Father Casimir Bonetti, a priest cappuccino, what he had felt in his soul and his great desire to give themselves to God.

For those who expressed their desire to consecrate herself to God, in those years, you are advised to do so by a particular time and repeat it several times in such a way that a strengthening in its purpose. However, for the Father Casimir Bonetti, the desire to Chiara Lubich by consecrating oneself to God, I was so entrenched and so decided, after colloquium deep, authorized to be made immediately and for life.

Very early on the morning of December 7th, 1943, when Chiara Lubich is directed only to the Church, and with the accompaniment of the Father Casimir Bonetti, tells us the following memories of that day: "Outside had triggered a great storm," "I had the impression of having the world against me", "I had prepared a pew near the altar and had a small Missal in the hand. I do pronounce the formula by which I totally to God forever. I was so happy that I didn't even realize what he was doing, because I was very young. Only that, when you pronounce the formula, I had the impression that a bridge was falling behind me, that I couldn't go back because it was all in God. And there I dropped a tear in the missal. But, the happiness was immense!", "I married with God, therefore I hope all the good possible. It will be a divine adventure. I married with God! And then we saw that it was really as well".

As Virginia Azcuy mentioned, "Later, it was recognized that date symbolically as the home of the Focolare Movement", which was later adopted by the Catholic Church with the official name of Work of Mary. According to the official page of the Focolare Movement, today is present in 194 countries on 5 continents, with stable centers in 85 nations. They are a part, as members, some 120,000 people, 1'500,000 of adherents and sympathizers. Through initiatives and social works are regularly to reach one million people. In addition to Catholic Christians, are part of the Focolare Movement 25 thousand of Christians from 350 churches and ecclesial communities; they share in a different way the spirituality and the objectives more than 7 thousand believers of different religions and 10 thousand people of non-religious convictions.

There are many very important events in the life of this remarkable woman, I suggest that you review on the official website of the Chiara Lubich Center (www.centrochiaralubich.org), where it is exposed a chronological summary of all relevant events in the life of this famous woman where in detail each of these events.

Finally I wanted to get to this point, with the birth of the Focolare Movement, in May 1991, Chiara Lubich launches project of Economy of Communion, in the Mariapolis Ginetta of Sao Paulo, Brazil, as a response to the profound difference between rich and poor. In the words of Chiara Lubich tells us what is the fundamental principle of the Economy of Communion; "Unlike the consumerist economy, which is based on the culture of having, The Economy of Communion is the economy of giving. This may seem difficult, hard, heroic. But this is not so, because man, made in the image of God, who is Love, finds its fulfilment precisely in loving, in giving. This requirement is in the depths of his being, beyond that it is a believer or not. And it is precisely in this finding, confirmed by our experience, is the hope of a universal dissemination of the Economy of Communion".

Dr. Giuseppe Argiolas (a focolarino) tells us that the Economy of Communion is a project of economic development of solidarity in which they are listed all economic entities involved in the economic activity of a country such as: civil society, the government, consumers, suppliers, etc. The project in which the owners of the companies adhere freely and decide to put their profits in the communion of the same and that they have three main objectives:

1. Persons who get into difficulties are helped by these companies through the creation of new sources of employment in order to assist them in their primary needs, emphasizing this assistance that are within the Project.

2. Disseminate widely the precepts of their foundress Chiara Lubich giving and love.

3. The integral development of enterprises in all senses, technical, administrative, and above all the social.

Without a doubt, the life of Chiara Lubich is fascinating and that converges on an idea about how should be the economic activity guided by humanism and the good faith of the people, this concentrates on the basic principles of the Economy of Communion, and that is intended precisely to be able to completely eradicate poverty on the planet. However I think that more is needed on this economic model and therefore there is a big question: How to implement these precepts in all companies? It seems to me that a good way to do it, is to integrate it into the mechanisms of Corporate Governance as well as to the internal Codes of Ethics that each one of the companies have. I thank Dr. Giuseppe Argiolas taught me this new economic system and open my eyes to other economic concepts. I also want to thank Dr. Andrea Arantes for having invited me to the ceremony that took place at the Universidad La Salle in Mexico to commemorate the 20 years of awarding him an honorary doctorate in philosophy to Chiara Lubich (June 6th, 1997), chaired by Dr. Piero Coda, rector of the Sophia University Institute. I only hope that the Economy of Communion begins to be known in more countries and especially here in Mexico. We will have to see…

 

 

7 November 2016

The Clintons

The other side of the coin for election to the presidency of the United States is, for the first time in the history of that country, a woman named Hillary Rodham, or better known as Hillary Clinton. The elections in the United States will be the next week and according to several polls she goes to the head in the voters' preferences, in addition to that have given by the winner of three debates that has played in his run to the White House. This means that it is very likely to win these elections and therefore, Americans have a woman president. This is not the first woman president in America but it would be the first woman president to the United States (see table below).

America's Women Presidents

Name

Period

Country

María Martínez

July 1, 1974 - March 24, 1976

Argentina

Lidia Gueiler

November 16, 1979 - July 17, 1980

Bolivia

Ertha Pascal

March 13, 1990 - February 7, 1991

Haiti

Violeta Chamorro

April 5, 1990 - January 10, 1997

Nicaragua

Rosalía Arteaga

February 9, 1997 - February 11, 1997

Ecuador

Janet Jagan

December 19, 1997 - August 11, 1999

Guyana

Mireya Moscoso

September 1, 1999 - September 1, 2004

Panama

Michelle Brachelet

March 11, 2006 - March 11, 2010

Chile

Cristina Fernández

December 10, 2007 - December 10, 2015

Argentina

Laura Chinchilla

May 8, 2010 - May 8, 2014

Costa Rica

Dilma Rousseff

January 1, 2011 - May 12, 2016

Brasil

Michelle Brachelet

March 11, 2014 - Present

Chile

Hillary Clinton was born in the Edgewater Hospital of the city of Chicago, Illinois, on October 26th, 1947, where she spent hers first three years for after moving to the city of Park Ridge, Illinois. She grew up in the womb of a middle class and very conservative family, and besides they belonging to the United Methodist Church (UMC). She is the first daughter of the marriage formed by Hugh Rodham and Dorothy Howell. Hillary Clinton has two younger brothers Hugh and Anthony Rodham. An interesting fact is that belong to a family very conservative, hers political bias logically is in the Republican Party, made their first years in politics were intimately linked to that party, such and how I will show you later, however in 1968, changes its political ideology toward the Democratic Party, which currently militates.

In 1969 he obtained his B.A. in Political Science from the prestigious Wellesley College, which is a private university exclusively for women. In the graduation ceremony held on May 31st, 1969, animated by their classmates, Hillary Clinton gave the speech, being the first student to do so, although they used to make severe criticism toward the republican senator by Massachusetts, Edward Brooke, which is the first African American Senator to be elected by that position and it is also the first to belong for several periods in the Senate (1967 to 1979). Have been because Edward Brooke was black or because he was a Republican Senator, since she had already changed to Democratic Party, only she knows. In addition, her classmates believed that she would be the first woman president of the United States, and I believe that it is not very far from becoming a reality that omen that gave their companions of generation, just as I think that since then, she has always been seen as the President of the United States and has been committed despite who despite.

During the time that she was in the Wellesley College addressed the youth club republicans from 1966 to 1967, in addition in the summer of 1968 her Professor Alan Schechter prompted her to go to Washington D.C. to be as an intern in the Republican Assembly of the Chamber of Representatives of the United States. Likewise, during her stay in the House of Representatives Charles Goodelle, moderated Republican Congressman by New York, invited to participate in the late campaign by the Republican nomination to the presidency of the New York Governor Nelson Rockefeller. From August 5 to August 8, 1968 was carried out the Republican National Convention, in the Miami Beach Convention Center in Miami Beach, Dade County, Florida, to which Hillary Clinton participated as a member of the campaign of Nelson Rockefeller, in which Richard Nixon won the nomination for the presidency with 692 votes, while Nelson Rockefeller was in second place with 277 votes. The foregoing leads us to that not only had the republican ideology, but that was an active member of that party, this is the first inconsistency in the life of this woman.
In 1973, Hillary Clinton graduated from the Law School of Yale University, and this is where she known to her future husband, another student of law at Yale, William Blythe, better known as William (Bill) Clinton. Since the end of the spring of 1971 they became inseparable until now. After the graduation from 1973, Bill Clinton proposed marriage, but she declined because it was not safe to have a future with him (another incongruity).

Finally on October 11st, 1975, the Clintons were married in a Methodist ceremony in the hall of his house in Fayetteville, Arkansas. To the chagrin of both mothers she announced that his name would be Hillary Rodham, according to maintain their professional lives separated and to avoid conflicts of interest, in addition because "showed that remained me" (a new incongruity of this woman). In November 1976 they moved to the capital of Arkansas, Little Rock, due to that Bill Clinton had been elected as attorney general of Arkansas.

There began the political life of the couple, as Bill Clinton was elected governor of Arkansas on two occasions from 1979 to 1981 and then in two periods in a row from 1983 to 1987 and from 1987 to 1992. In that year began his career (both) by the White House to be elected as the president number 42 in the periods 1993 to 1997 and a second period of 1997 to 2001.

Hillary Clinton agreed to stay with her marriage in spite of the fact that her husband had been unfaithful with Monica Lewinsky in 1998, any woman with a little dignity had been divorced, and more about the way in which things happened, this did precisely in order to continue her career toward the White House, their dignity is something that she are not interested in, what is of interest to this megalomaniac women is her excessive ambition to achieve its sole objective in her entire life, to be president of the United States. In addition, as Jeff Gerth and Don Van Nattra say in their book "Her Way: The hopes and ambitions of Hillary Rodham Clinton”, the popularity that managed to Hillary Clinton in 1998 have been the highest in that a first lady has had (around 70 percent) but are not by personal or political achievements, but also to be seen as a victim of the scandal of media in the that was wrapped Bill Clinton.

Hillary Clinton being First Lady was also a Senator from the state of New York in 2000, again showing its unbridled ambition to such a degree that their opponents accused her of being a carpetbagging, because never before had resided in New York. In 2006 was elected in the Senate once again. Since October 2002 had already announced their aspirations to contend for the presidency of the United States, however in 2008 to be in campaign looking for the first time the nomination by the Democratic Party, decides to abandon its campaign on June 7th, 2008, making with that on August 28th, 2008, Barack Obama was named the Democratic candidate to the presidency of the United States. As a consolation prize, Barack Obama appointed her as Secretary of State, confirming her in the post by the Senate on January 21st, 2009.

Another inconsistency more is when Hillary Clinton had said that she was not going to run for the presidency of the United States and on April 12nd, 2015, she formally announced her candidacy for the presidency through an email and a video where at the end she uses the following phrase "Each day, Americans need an advocate. And I want to be that advocate". At the Democratic National Convention held in the Wells Fargo Center of Philadelphia Pennsylvania, July 26th, 2016, she was officially proclaimed the candidate by that party for the presidency of the United States.

After seeing so many inconsistencies in the life of Hillary Clinton, I still strange that many people, including those who are not of their ideology or party, are willing to vote for her. A few days ago I had the fortune to meet a remarkable Mexican because that is the first Mexican to get a Michelin star. This friend is already a U.S. citizen and lives in Chicago, Illinois, in the hometown of Hillary Clinton, the obvious question was, dear friend for whom you going to vote?, to what he answered me that he does not understand as was that among the 325 million inhabitants of the United States of whom 164 million are women, could not have chosen to another woman to be able to contend for the White House, he definitely not going to vote for her, because it seems that it is not suitable for directing the destinations in the United States. In my humble opinion, like my friend, I do seem to me to be the right person, and it is not because it is women, but by everything that represents, inconsistencies in his life, his lack of dignity when he knows about the infidelity of her husband, her immense ambition to become finally the first woman president of the United States, the petty corruption which has handled including the scandal of the e-mails and the private server that had in her house, same as attentive to the national security of her country, the ineffectiveness that insurance will lead to their management and many more little things that has to have around it. Frankly, if I were American, would not vote for this woman, I hope that does not win. Hopefully in this occasion, my predictions going to capitalize. We will have to see…

 

 

9 October 2016

Super Trump

Never before I had concerned the United States elections, however, it has now called a lot of my attention to the fact that one of the candidates for the presidency of the most powerful country in the world is to be an entrepreneur and a billionaire named Donald Trump. Although has the backing by the Republican Party, Donald Trump is not a career politician, for the same Republican politicians, Trump is an "outsider", which has earned him many followers outside of the political circles since it began his campaign. In spite of what many think of him, it seems to me that this personage, to reach the presidency, would mark a before and after in what refers to the public administration, since that could make the way of handling a country is very similar to what is the management of a company. And if that were not enough, I think that in regard to concepts and theories related to the Corporate Governance mechanisms as are the transparency, accountability and efficiency, he could put into practice in its management as the federal executive of the United States, despite whoever disagrees.

Due to the foregoing many of American politicians, including the same of the Republican Party that promotes to Trump, are fearful (better said, horrified) if he reaches to the White House, because they are ultimately their comfort zone and the perks of they have been enjoying until now. I am quite sure that Donald Trump is going to prove to everyone that a country can be handled in a different way to as has up to now been. This means that also in many other countries of the world continue with too carefully the elections approaching in the United States (November 8th, 2016), for the same reasons that have U.S. politicians.

Donald Trump was born on June 14th, 1946 in Queens, New York, is the fourth son of a real estate entrepreneur, Frederick Trump and of a Scottish immigrant Mary Anne MacLeod. Donald Trump obtained his BA in Economics and Anthropology of the Wharton School of Finance from the University of Pennsylvania in 1968, although it began his university studies at Fordham University in the Bronx during two years, however went to the Wharton School of Finance because it was one of the few universities at that time which had a program in the real estate sector. Likewise, during the years in which he studied at Wharton, began working with his father in the company what Fred Trump founded to its 22 years with his mother Elizabeth Trump in 1927, before call Elizabeth Trump & Son.

As Donald Trump graduated from the university in 1968, formally joined to his father’s Firm and to 1971 assumed full control of the Firm, as well as the change of name to The Trump Organization, being the current Chairman and President of one of the most important real estate companies of New York and the United States. According to the magazine specialized in business Forbes, the current fortune of Donald Trump is 3.7 trillion dollars, being the number 156 of the list of this magazine in its section “Forbes 400 / The Wealthiest In America”. So, he is rich, he shall not steal any dime to the public purse from the US taxpayers.

When I to be looking for information about this personage, I found it in his official web page in the section of biography an appointment very interesting about him: “Donald J. Trump is the very definition of the American success story, continually setting the standards of excellence while expanding his interests in real estate, sports, and entertainment. He is the archetypal businessman – a deal maker without peer”. As well as a note about what he thought about his father: “My father was my mentor, and I learned a tremendous amount about every aspect of the construction industry from him”. Similarly Fred Trump mentions about her Son: “Some of my best deals were made by my son, Donald ... everything he touches seems to turn to gold”. Then it means that Donald Trump is a kind of modern “King Midas”. In addition to the foregoing gives us to understand what nearby which were he and his father as well as the appreciation and mutual affection they felt for one another. It is clear from the above that Donald Trump is much more than they have already criticized that is a “Good Man” and which could also make the difference in the management of a country like the United States.

I think that like what happens in our country (Mexico), Donald Trump grew weary of the situation in which his country has been governed and therefore on June 16th, 2015 takes the wise decision (and the guts that many of us do not have) of officially start their wishes to reach the presidency of the United States. This he did in his hometown of New York City, and of course at the Trump Tower, with a slogan that shows what I mentioned before “Make America Great Again”. At the beginning his campaign manager was Corey Lewandowski, to then give the opportunity to Paul Manafort and currently the persons who manage his campaign are Steve Bannon and Kellyanne Conway.

The arguments and speeches that has given against illegal immigration, on Muslims, about free trade, of the item of military interventionism and above all by the insistence on the construction of a wall border between Mexico and the United States has brought several adherents of the middle class of his country. It seems to me that what Donald Trump said is just what many Americans think but do not dare to say, however, in saying that he and the way in which he has said, has caused that now has many followers as well as many critics, including Latinos who are there illegally. Although, I recognize that to me nor I liked the form and the way to say this because I believe that it is not appropriate, since it seems rude, offensive and on many occasions it is be until vulgar, however, that is his style that has led him to that on July 19th, 2016 in the National Convention of the Republican Party (founded on March 20th, 1854) they have chosen as the official candidate to run for the presidency of the United States, who obtained the support of 1,725 delegates, followed by Ted Cruz with 475, John Kasich 120 and Marco Rubio 114, while Jeb Bush, ended up with only three (3) votes.
The following table shows all the presidents that the United States has had to date today, it can be clearly seen that in 18 occasions have been republicans and 15 times have you been democrats. It seems to me that is a harbinger, Americans are conservative and that will again will elect a president who come of the Republican Party.

 

United States' Presidents

 

Number

Name

Period

Party

44

Barack Obama

January 20, 2009 - Present

Democratic

43

George W. Bush

January 20, 2001 - January 20, 2009

Republican

42

Bill Clinton

January 20, 1993 - January 20, 2001

Democratic

41

George H. W. Bush

January 20, 1989 - January 20, 1993

Republican

40

Ronald Reagan

January 20, 1981 - January 20, 1989

Republican

39

Jimmy Carter

January 20, 1977 - January 20, 1981

Democratic

38

Gerald Ford

August 9, 1974 - January 20, 1977

Republican

37

Richard Nixon

January 20, 1969 - August 9, 1974

Republican

36

Lyndon B. Johnson

November 22, 1963 - January 20, 1969

Democratic

35

John F. Kennedy

January 20, 1961 - November 22, 1963

Democratic

34

Dwight D. Eisenhower

January 20, 1953 - January 20, 1961

Republican

33

Harry S. Truman

April 12, 1945 - January 20, 1953

Democratic

32

Franklin D. Roosevelt

March 4, 1933 - April 12, 1945

Democratic

31

Herbert Hoover

March 4, 1929 - March 4, 1933

Republican

30

Calvin Coolidge

August 2, 1923 - March 4, 1929

Republican

29

Warren G. Harding

March 4, 1921 - August 2, 1923

Republican

28

Woodrow Wilson

March 4, 1913 - March 4, 1921

Democratic

27

William Howard Taft

March 4, 1909 - March 4, 1913

Republican

26

Theodore Roosevelt

September 14, 1901 - March 4, 1909

Republican

25

William McKinley

March 4, 1987 - September 14, 1901

Republican

24

Grover Cleveland

March 4, 1893 - March 4, 1897

Democratic

23

Benjamin Harrison

March 4, 1889 - March 4, 1893

Republican

22

Grover Cleveland

March 4, 1885 - March 4, 1889

Democratic

21

Chester A. Arthur

September 19, 1881 - March 4, 1885

Republican

20

James A. Garfield

March 4, 1881 - September 19, 1881

Republican

19

Rutherford B. Hayes

March 4, 1877 - March 4, 1881

Republican

18

Ulysses S. Grant

March 4, 1869 - March 4, 1877

Republican

17

Andrew Johnson

April 15, 1865 - March 4, 1869

National Union

16

Abraham Lincoln

March 4, 1861 - April 15, 1865

Republican

15

James Buchanan

March 4, 1857 - March 4, 1861

Democratic

14

Franklin Pierce

March 4, 1853 - March 4, 1857

Democratic

13

Millard Fillmore

July 9, 1850 - March 4, 1853

Whig

12

Zachary Taylor

March 4, 1849 - July 9, 1850

Whig

11

James K. Polk

March 4, 1845 - March 4, 1849

Democratic

10

John Tyler

April 4, 1841 - March 4, 1845

Whig

9

William Henry Harrison

March 4, 1841 - April 4, 1841

Whig

8

Martin Van Buren

March 4, 1837 - March 4, 1841

Democratic

7

Andrew Jackson

March 4, 1829 - March 4, 1837

Democratic

6

John Quincy Adams

March 4, 1825 - March 4, 1829

Democratic-Republican

5

James Monroe

March 4, 1817 - March 4, 1825

Democratic-Republican

4

James Madison

March 4, 1809 - March 4, 1817

Democratic-Republican

3

Thomas Jefferson

March 4, 1801 - March 4, 1809

Democratic-Republican

2

John Adams

March 4, 1797 - March 4, 1801

Federalist

1

George Washington

April 30, 1789 - March 4, 1797

Nonpartisan

 

I definitely think that today, Donald Trump is the best option to have the Americans to achieve a radical change in what refers to its domestic policy. Trump will be the president number 45 of the United States and which will achieve what many of the presidents at the global level have not succeeded, eradicate corruption and inefficiency of public administration, that is guaranteed with this personage, another way will continue with the same rhetoric of the whole life. At the beginning I mentioned that never before had me interested by the U.S. policy, but now I see it in another way. On July 21st, 2016 in Cleveland, Ohio, Donald Trump gave his acceptance speech at the Republican National Convention, on that occasion I saw completely. Ivanka Trump, his daughter, did an excellent presentation of his father and in my humble opinion I think that I could not been better for her to make the speech of welcome. Donald Trump at the start of his speech now if I thought it was coherent and fairly well taken, that gave me a lot of confidence in what I hope that comes to the United States, to speak again of the wall, has a lot of reason, if in the house of every one of us enters someone illegally which is what we do? We will built a wall more high, we put alarms and surveillance cameras, why do not have to make the United States? I would therefore like to see the change in the United States! Super Trump you have my vote! I hope you win! We will have to see…

 

17 July 2016

To Brexit or Not to Brexit…

The past June 23th 2016, the Great Britain has decided "democratically" leave the European Union, and it was precisely to next day of this famous date, throughout the world has generated a real scandal for the media. "Experts", "analysts", "statesmen" and "government officials" have decided to speak on what represents the output of Great Britain of the European Union. I think that many of them have valid arguments both in favor and against the output of Great Britain in the European Union and its economic, political and social consequences, however, I believe that even today it is still too early to be able to quantify and magnify it really has been this historic decision that has been in that day. Although it must be emphasized that the vast majority of financial markets in the world reacted badly to the news, since the majority of stock markets have had low significant, as well as some currencies in the world have reacted bad, especially the pound sterling that has had a depreciation of more than 10% with respect to the US dollar, a level that had not had since 1985, and with respect to the euro had a depreciation by nearly 7 per cent.

Talk about the origins and the impact that it did and that has been the formation of the European Union, it would be a great treaty, by which I summarize these origins in the following way.

On May 9th 1950, the French Minister of Foreign Affairs, Robert Schuman made the statement that bears his name (Schuman Declaration), which proposed the creation of a European Coal and Steel Community (ECSC) in which, the member countries would in common the production of coal and steel. This is due to the fact that the European nations came to the conclusion that, by pooling the production of coal and steel would make the frictions that there has always been between Germany and France, which were perceived as the historic rivals, would result in terms of the declaration that a situation of armed conflict would be "not only unthinkable but materially impossible" in the words of Robert Schuman. With the foregoing was thought, rightly, that the merger of the economic interests would contribute to raising the living standards of the countries and would constitute the first step toward a more united Europe. Since then that the inclusion to the ECSC was open to other European countries who so wish. In addition Robert Schuman together with Konrad Adenauer (Prime Minister of Germany) were the architects for the creation and consolidation of West Germany (May 23th 1949, of the Basic Law of Germany which formed the Federal Republic of Germany), which was the result of the union of the three zones of occupation controlled by the United States, France and Great Britain, leaving to one side to the area occupied by the Soviet Union. Doing a parenthesis in this, it is a real pity that only in Germany has been implemented the Social Market Economy and not permeating in the emerging "European Union", I think that would have made a more robust economy for member countries.

Therefore the Schuman Declaration is the basis with which Germany, Belgium, France, Italy, Luxembourg and the Netherlands on April 18th 1951 finally signed the treaty in which manage their heavy industries such as coal and steel were could manage as a whole, and that no country can individually make the weapons of war for use with any of the other member countries, as had happened in the past. This is, this treaty was the first attempt to "European Union", which had been carried out with the main objective of preventing armed conflicts in the future and to be able to correct the errors that occurred in the Versailles treaty signed on June 28th 1919 at the Palace of Versailles at the end of the First World War (a curious fact is that this treaty was signed exactly to the 5 years of the assassination of Archduke Franz Ferdinand of Austria in Sarajevo, Bosnia i Herzegovina, a fact which gave rise to the First World War).

The European Union is currently composed of 28 nations (Croatia was the last to be annexed to the European Union on July 1st 2013). In the following table I, according to the official website of the European Union, the listing of all member countries. The order is alphabetic, and there are two important columns to observe in the table. One is with reference to the Gross Domestic Product (GDP) per capita, that have each one of the member countries of the European Union and another column is important with reference to the Human Development Index (HDI). It should be emphasized that the values that are present in each one of these columns is very high compared with other countries.

In the following table, I present some countries of the world, which are obviously out of the European Union. It is important to note that the European countries that appear in the following table are the countries that are about to be accepted in the European Union according to the official website. It is also important to highlight that in the following table are the 5 largest countries in extension of the world (Russia, Canada, United States, China and Brazil). As in the previous table, it is important to take into account the columns relating to Gross Domestic Product per capita in each of the countries and the Human Development Index.

When comparing the two tables we find that on average in the European Union, the gross domestic product per capita is 33,682 and the Human Development Index is 0.866. While in the second table where there are countries around the world gross domestic product per capita is 20,682 and the Human Development Index is 0.788. In regard to the gross domestic product per capita, the European Union is around 39% higher than the countries that are ready in the second table, and on the Human Development Index The European Union presents a 9% more than the countries of the second table. In addition, the European countries that could be accepted as potential members of the European Union have the values of per capita gross domestic product (11,109) and the Human Development Index (0.762) below the average displayed in the second table.

I think that if they are accepted within the European Union, these values could rise significantly as it happened to most of the countries that have gone by appending to the European Union.

It will be interesting to see what will be the performance of these two values for the now ex-Union Great Britain. I believe that the British politicians who were in favor of Brexit were unaware of this, or maybe they believe that they are going to be better than the average that would have the whole of the European Union. To review the values, the Great Britain is well above the average for the European Union, this is the gross domestic product per capita is 45,653 around 26% more than the average for the European Union and the Human Development Index is 0.907 around 4.5% above the European average. I only hope that these two indicators do not fall dramatically in a medium term for that has had success this output of the European Union.

Meanwhile here in Mexico, the next day (June 24th 2016) The Secretary of Finance and Public Credit (SHCP, for its acronym in Spanish for Secretaría de Hacienda y Crédito Público), Luis Videgaray; the Secretary of Economy (SE, for its acronym in Spanish for Secretaría de Economía), Ildefonso Guajardo and one of the deputy directors of the Bank of Mexico, Roberto del Cueto, " get out of bed early" and very early, at 8:00 a.m., local time of the Mexico City, held a press conference to give the following messages:

Luis Videgaray announces a cut in public expenditure of 31,715 million pesos (around 1,700 million USD), which does not include cuts to Mexican Petroleum Company (PEMEX for its acronym in Spanish for Petróleos Mexicanos). The previous amount, only 21,079 million pesos (1,100 million USD) near the 91.7% will correspond to current expenditure. This reduction is in addition to that had been announced in February by a number 132,300 million pesos (6,950 million USD) equivalent to 0.7 percent of the Mexican Gross Domestic Product. In addition, Luis Videgaray stressed that the Commission of changes (formed by the Ministry of Finance and the Bank of Mexico), will only act when the depreciation of the peso is very large and that came to affect the inflation target that have been proposed.

Ildefonso Guajardo stresses that the trade balance and current account of Mexico will not be affected since the commercial relationship between our country and the Great Britain is hardly 5,000 million USD per year, which represents only 0.7 per cent of trade that Mexico has with the world, by which ensures that it will continue with Ildefonso Guajardo negotiations now in a direct way with the Great Britain to continue and strengthen the commercial relationship that has up to now.

Roberto del Cueto mentions that the Bank of Mexico will wait until June 30th 2016, the date on which have their quarterly board to implement actions on monetary policy. For today, this meeting has already been carried out and effectively the Bank of Mexico opted for increasing 50 basis points the reference interest rate, to have a value of 4.25%. This action represents a restrictive monetary policy, in such a way that you want to pre-empt situations that jeopardize the inflation target that is foreseen for this year of 3 per cent.

From my humble point of view, the Great Britain has never been part of the European Union that it retains its own currency (pound sterling), which makes many of the decisions of monetary policy are still taking only by the Great Britain. The Brexit will affect more Britain to other countries. In the case of Mexico, the ads that apparently were taken as a pretext to Brexit so as to be able to correct mistakes that by itself were already present in the Mexican economy. The cut that made the SHCP is the largest that has been given since 2007. However, and despite the actions taken, the Mexican economy remains very vulnerable, but not only in the economic issue, it is now the social issue which has been undermine little by little, the downside of this is that the government has already been exceeded by far in question of the social problems that we have right now, and this is not because of external shocks. It is we can survive all the ineptitude that has shown the current Mexican government? We will have to see

 

 

 

11 January 2016

Ente Nazionale Idrocarburi (ENI) enters triumphant to Mexico

On the basis of the Mexican Energy Reform, which was enacted on August 12nd 2013, and which was approved until December 11st 2013 by the Chamber of Senators, and immediately adopted by the Chamber of Deputies on December 12nd 2013, and constitutionally declared by the legislature on December 18th 2013, so that finally the Executive Branch the enact into law on December 20th 2013, as it appears in the Official Journal of the Federation (DOF, for its acronym in Spanish for Diario Oficial de la Federación, www.dof.gob.mx), so that it is not until now that begins in operation this Energy Reform, in the sense that the past December 1st 2015, has been signed the contract between the Secretariat of Energy (SENER, for its acronym in Spanish for Secretaría de Energía, www.sener.gob.mx), the National Commission of Hydrocarbons (CNH, for its acronym in Spanish for Comisión Nacional de Hidrocarburos, www.cnh.gob.mx) and the Italian company Ente Nazionale Idrocarburi, Società per Azioni (ENI, S.p.A.) (National Hydrocarbons Corporation) to comply with the contract in the second call of the call round one, which represents the granting of the first tenders to the private sector in the Mexican hydrocarbons sector, so ENI, S.p.A. has announced that it will invest around 1,100 million dollars (mdd) for the extraction of crude oil in the fields of Amoca, Miztón and Teocalli.

According to the CNH on its Internet homepage and in official statement, the Italian company ENI, S.p.A. is awarded the tender for the second call in the round one in the oil province called Southeast Watershed which comprises the Contractual area number 1. This area covers 67 km2 and includes the 3 fields Amoca, Miztón and Tecoalli, which contain reserves the type 2P, which means that it has 34 billion barrels of crude oil equivalent (MMbpce, for its acronym in Spanish for millones de barriles de petróleo crudo equivalente) for the field Amoca, 70 billion barrels of crude oil equivalent (MMbpce) for the field Miztón and 18 billion barrels of crude oil equivalent (MMbpce) for the field Tecoalli, in addition, 107 million barrels of light oil and 69 billion cubic feet of gas. These hydrocarbons are stored in areas of the Pliocene with a water strap of 33 meters of depth and 93 kilometers from the coast of the state of Tabasco, as mentioned the CNH.

According to what was said by the Secretary of Energy (SENER), Pedro Joaquin, "The company (ENI, S.p.A.) will be the first large-scale that comes to invest in Mexico under the new contractual model", as mentioned by the Commissioner President of the National Commission of Hydrocarbons (CNH), Juan Zepeda, "The company must invest 251 million dollars (mdd) in the first two years for the tasks of evaluation, despite that resources already tested in that area"; thus Juan Zepeda said that "From Today starts the transition phase of starting, with a duration of 90 days in which ENI will carry out the assessment of social impact and the studies that allow Set the baseline environmental". Federico Arisi, the executive vice president for the Americas of ENI International mentions "We are confident that our operation in Mexico will soon be considered as another of our successful projects", additionally Federico Arisi emphasis on saying that "for us is of great importance to start operations in Mexico with this project in the area one, which has very important reserves in the three discoveries that contemplates", and furthermore Federico Arisi confirms that "We have the best willingness to work in this country, where without a doubt we will give the best of our company, resources and experience, especially our capacity to develop projects in conventional waters with high efficiency and low costs using our technologies".

With all the above, the Mexican government hopes that the contracts awarded to date to the following companies: the Italian ENI, S.p.A., Argentina's Pan American Energy-E&P, and the US Fieldwood Energy-Petrobal, generate investments of 5,800 million dollars (mdd) in the next 25 years, which will be the minimum duration of the contracts.

Enrico Mattei was commissioned at the end of the Second World War to liquidate the public company Azienda Generale Italiana Petroli (AGIP), Italian General Company oil, that was founded in the year of 1926 by the Government of the Kingdom of Italy at the time of the apogee of fascism, which controlled the oil in Italy. However, he ignored these orders and encouraged the technicians and engineers to continue working because of the oil exploration to be had in the Po Valley in northern Italy, in addition to that would be discovered there to 1946 a large deposit of methane and small quantities of oil. An important detail is that Enrico Mattei, due to a great Italian nationalism, personally insisted and in turn got his company had the exclusivity of the exploitation of the area with the objective of preventing other foreign companies to undertake such exploitation.

In this way on February 10th 1953 founded to the Italian State company Ente Nazionale Idrocarburi, Società per Azioni (ENI, S.p.A.) (National Corporation of Hydrocarbons) with the main objective that the Italian State to compete directly with the oil companies of private capital, especially foreign ones. Enrico Mattei was the President of ENI until his death on October 27th 1962.

ENI, S.p.A. has followed a course similar to that which has been Petroleos Mexicanos (PEMEX), in the sense that since its beginning has had a great participation on the part of the state, however unlike PEMEX, in 1992 was converted into a Public Limited Company (private sector company) and the Italian State has been selling important part of equity in five phases between the years 1995 and 2001, although in the end have been left with an equity participation by more than 30% with the aim of continuing with an effective control of the company, in addition to that has the right to appoint the Chairman and the Chief Executive Officer (CEO) that for these dates are Giussepe Recchi and Paolo Scaroni respectively. Currently, listed in the Stock Exchange of Milan and with ADR's on the American Stock Exchange. ENI is now present in some 90 countries with almost 78,000 employees, being with this the largest Italian company of that country, its activities are in the oil sector, gas and petrochemical, but also produces electrical energy and engineering for the construction in the oil industry and with the sale of firm Snamprogetti to Saipem forays in engineering services offshore and onshore, that is precisely what is going to do to Mexico with the contract which it recently signed.

With the arrival of ENI, S.p.A. to Mexico as has been saying, represents a major step in the modernization of PEMEX. In the official page of the CNH, mentioned that the objectives of the Mexican Energy Reform is precisely to modernize and make more productive to the energy industry in Mexico. Additionally it has mentioned that there will be an increase in employment and the development of the country, in addition to reducing energy costs for the entire population. So I was thinking that if the Mexican government recognizes that until now has not been able to take this, why it want to continue to be the owner of this company so inefficient? Why does a scheme such as that which has precisely ENI?, that is, retain a small participation in the equity of the company (PEMEX) and the rest is left for that private capital to become part of the same company and probably everything they are looking for in terms of efficiency, modernization, transparency and profitability was given de facto. From what I have seen, in my humble opinion is that it is going to remain the same Inefficient and Corrupt company (PEMEX). I really hope I am wrong in this regard and that in the coming years they shout my big mouth with a situation totally contrary to what it is today. We will have to see…

 

9 December 2015

Pemex raids into the US market

With domicile in 7922 Park Place Boulevard, Houston, Texas, United States, the present December 3th, 2015, the parastatal company Petroleos Mexicanos (PEMEX), begins operations in the competed American market. This will be the first of 5 service stations that the businessman of Pakistani origin Adam Virani, plans to open in the United States, the business model is through the franchise that offers the parastatal PEMEX. At the opening ceremony were Jose Carrera, Director of Corporate Alliances and New Business of PEMEX and Marcelo Parizot, Director of Marketing and industrial processing of PEMEX, as well as the Governor of Campeche Rafael Moreno (namesake of the Puebla’s Governor, Rafael Moreno, please do not confuse them), among other personalities.

According to the official website of PEMEX in its National Newsletter 117, where it is mentioned that, "The city of Houston was chosen, in this initial stage, due to its high population of Latin origin, specifically Mexican, as well as being a city with a high level of competition in the gas driven market. Furthermore, it is an ideal place to test the penetration of the Pemex brand because it is the market most of the world competed, involving a significant number of future competitors in Mexico".

(http://www.pemex.com/saladeprensa/boletines_nacionales/Paginas/2015-117-nacional.aspx).

In addition to this newsletter is the claims that, "The opening of the stations of Pemex is with franchise investment of third parties, who are the owners of these service stations and determine the retail selling prices of the fuels, in accordance with market conditions in Houston. It should be noted that the gasoline that will be sold in these service stations will come from the American wholesale market. This opening is part of a strategy of PEMEX to expand in the United States in accordance with its mandate to focus on activities that will generate economic value in the environment of competition resulting from the Energy Reform".

(http://www.pemex.com/saladeprensa/boletines_nacionales/Paginas/2015-117-nacional.aspx).

Some data that we have to remember with regard to the operation of the business model that has PEMEX with their franchises. With the desire to cover all of the Mexican territory, on February 1st, 1992, it begins to sell gas stations in a format of franchises in such a way that private investors begin to handle the service stations with the mark of PEMEX throughout Mexico, the above is a model very similar to the system that has just started in the United States.

In addition to the above, the Energy Reform that was promulgated on August 12nd, 2013, and a year later on August 11st, 2014, the Law of Petroleos Mexicanos was promulgated, is precisely where there is the pattern for that franchising can be sold abroad, where it is this first franchise outside of the national territory.

However for PEMEX the competition is not so simple, because between the companies Exxon, Shell, Chevron and some others have close to 160 thousand gas stations in the United States, with very competitive prices as well as the quality of the gasolines that there are sold.

As if that were not enough, the competition does not end here, there is to see how we can find the reserves of crude oil with which Mexico account, it then presented a table which shows the top 20 countries with regard to their proven oil reserves, it is noted that Mexico is located in the 18th position:

Rank

Country

Reserves (barrels)

Year

1

Venezuela

298'350'000,000

2011

2

Saudi Arabia

267'501'000,000

2010

3

Canada

178'100'000,000

2009

4

Iraq

177'500'000,000

2010

5

Iran

137'600'000,000

2009

6

Kuwait

101'500'000,000

2009

7

United Arab Emirates

97'800'000,000

2009

8

Russia

79'000'000,000

2009

9

Libya

46'000'000,000

2009

10

Nigeria

36'220'000,000

2009

11

Kazakhstan

30'002'000,000

2009

12

Argentina

29'500'000,000

2015

13

Qatar

27'190'000,000

2009

14

United States

17'320'000,000

2014

15

China

15'700'000,000

2009

16

Algeria

15'150'000,000

2009

17

Angola

13'500'000,000

2009

18

Mexico

12'692'000,000

2010

19

Brazil

12'620'000,000

2009

20

Ecuador

6'990'000,000

2012

In addition in accordance with article 10 of the Regulation of the Statutory Law of article 27 of the Constitution in the Oil Industry:

1) The reports of quantification of reserves of Mexico, prepared by Petroleos Mexicanos, must be approved by the National Commission of hydrocarbons (CNH, for its acronym in Spanish for Comisión Nacional de Hidrocarburos).

2) The Energy Secretariat (SENER, for its acronym in Spanish for Secretaría de Energía) be recorded and will be announced the hydrocarbon reserves of Mexico based on the information provided by the CNH. So the last June 30th, 2015, the CNH ruled favorable reservations 2P and 3P published by Petroleos Mexicanos. That information indicates the following:

At January 1st, 2015, the proven hydrocarbon reserves amounted to 13,017 million barrels of crude oil equivalent (MMbpce, for its acronym in Spanish for millones de barriles de petróleo crudo equivalente), of these the 75% corresponds to crude oil; 8% to condensed and plant fluids and 17% on dry gas equivalent.

Of the total proven reserves, 8,490 MMbpce or 65% are developed, i.e. reservations that are expected to be recovered from existing wells including the reservations that can be produced using the existing infrastructure and the implementation of modest investment. The 71% of developed reserves are located in the complex Ku-Maloob -Zaap, Cantarell and Antonio J. Bermúdez and in the fields Jujo-Tecominoacán, Tsimin-Xux, Ixtal, Xanab, Kuil and Kambesah.

The proved undeveloped reserves, i.e. volumes that require additional goods and infrastructure for its production, amount to 4,527 MMbpce or 35% of proven reserves. The 53% of these reserves are concentrated in the complex Ku-Maloob -Zaap and Antonio J. Bermúdez, as well as the fields Ayatsil, Jujo-Tecominoacán, Kayab, Pit, Xux and Xanab.

With all of the above is as PEMEX began operations in the United States, however, and almost like an insult to the Mexican people, the price per gallon of unleaded gasoline of 95 octane (the comparable in Mexico is the so-called Magna) was launched with this service station is USD 1.549, which means that a liter will cost in the United States USD 0.4087, while in Mexico, the price per liter is USD 0.8192, which represents around 50% cheaper in US than in Mexico. In the case of diesel, a gallon at that service station selling for USD 2.05 or what is the same a liter of diesel is in USD 0.5541, while that in Mexico the liter of diesel is in USD 0.8573, for this case the diesel in the United States is around 35% cheaper than in Mexico. As I mentioned a while ago, this is a mockery to the Mexican consumer, because up to this point we realize that we are paying a tax on gasoline use in addition to the value-added tax (VAT or IVA for its acronym in Spanish for Impuesto al Valor Agregado). We can do with this, if in addition to the majority of people that use car in Mexico, the gasoline represents a perfectly inelastic good and due to this PEMEX takes advantage of this situation. I think it is time to make this company completely private, so that another companies reach the Mexican oil market and compete between them, with the purpose that the prices now if to become lower as in the United States, that is the unique solution, and that would represent a real and effective Energy Reform. Does not seem that way? We will have to see…

 

 

25 September 2015

Martin Winterkorn and his responsibility at the head of Volkswagen, AG.

Less that there might do a high executive of a company of the size, the importance and the prestige of the Group Volkswagen AG., it was to resign, as it made it the Chief Executive Officer (CEO) of the corporate the Professor Dr. Martin Winterkorn. I recognize the great value that he had (that in Spanish would be said of another form and I think that some translation does not exist) and that it represents what is to take the responsibility in his hands. Independently for if the Dr. Winterkorn is directly responsible or if at least he had knowledge of what was going on to Volkswagen's interior and all its subsidiaries. Precisely in this moment on September 23th, 2015, after the scandal of last few days, the Board of Directors in its division of Supervision has just finished its meeting and this one is the official communiqué that they announced in press conference (I took the following paragraphs of Volkswagen Group's corporate web site):

1. The Executive Committee takes this matter extremely seriously. The Executive Committee recognizes not only the economic damage caused, but also the loss of trust among many customers worldwide.

2. The Executive Committee agrees that these incidents need to be clarified with great conviction and that mistakes are corrected. At the same time, the Executive Committee is adamant that it will take the necessary decisive steps to ensure a credible new beginning.

3. The Executive Committee has great respect for Chairman Professor Dr. Winterkorn’s offer to resign his position and to ask that his employment agreement be terminated. The Executive Committee notes that Professor Dr. Winterkorn had no knowledge of the manipulation of emissions data. The Executive Committee has tremendous respect for his willingness to nevertheless assume responsibility and, in so doing, to send a strong signal both internally and externally. Dr. Winterkorn has made invaluable contributions to Volkswagen. The company’s rise to global company is inextricably linked to his name. The Executive Committee thanks Dr. Winterkorn for towering contributions in the past decades and for his willingness to take responsibility in this criticall phase for the company. This attitude is illustrious.

4. Recommendations for new personnel will be presented at the upcoming meeting of the Supervisory Board this Friday.

5. The Executive Committee is expecting further personnel consequences in the next days. The internal Group investigations are continuing at a high tempo. All participants in these proceedings that has resulted in unmeasurable harm for Volkswagen, will be subject to the full consequences.

6. The Executive Committee have decided that the company will voluntarily submit a complaint to the State Prosecutors’ office in Brunswick. In the view of the Executive Committee criminal proceedings may be relevant due to the irregularities. The investigations of the State Prosecutor will be supported in all form from the side of Volkswagen.

7. The Executive Committee proposes that the Supervisory Board of Volkswagen AG create a special committee, under whose leadership further clarifying steps will follow, including the preparation of the necessary consequences. In this regard, the Special Committee would make use of external advice. Further details about this will be decided at the Supervisory Board meeting on Friday.

8. The Executive Committee is aware that coming to terms with the crisis of trust will be a long term task that requires a high degree of consistency and thoroughness.

9. The Executive Committee will work on these tasks together with the employees and the Management Board. Volkswagen is a magnificent company that depends on the efforts of hundreds of thousands of people. We consider it our task that this company regains the trust of our customers in every respect.

 

The words of now ex-CEO of Volkswagen Group in which it assumes his total responsibility in front of the Board of Directors' meeting are: “I am shocked by the events of the past few days. Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group. As CEO I accept responsibility for the irregularities that have been found in diesel engines and have therefore requested the Supervisory Board to agree on terminating my function as CEO of the Volkswagen Group. I am doing this in the interests of the company even though I am not aware of any wrong doing on my part. Volkswagen needs a fresh start – also in terms of personnel. I am clearing the way for this fresh start with my resignation. I have always been driven by my desire to serve this company, especially our customers and employees. Volkswagen has been, is and will always be my life. The process of clarification and transparency must continue. This is the only way to win back trust. I am convinced that the Volkswagen Group and its team will overcome this grave crisis."

Not even the message that Dr. Winterkorn gave yesterday (September 22nd, 2015) on the situation so complicated by that there was happening with Volkswagen AG, could save him, since for this Friday on September 25th, 2015, he was expecting to be confirmed in his position for other 3 years, until 2018, that he has been in this post from 2007. In words of the Dr. Winterkorn: “The irregularities that have been found in our Group’s diesel engines go against everything Volkswagen stands for. At present we do not yet have all the answers to all the questions. But we are working hard to find out exactly what happened. To do that, we are putting everything on the table, as quickly, thoroughly and transparently as possible. And we continue to cooperate closely with the relevant government organizations and authorities. This quick and full clarification has the highest priority. We owe that to our customers, our employees and the public. Manipulation and Volkswagen – that must never be allowed to happen again. Millions of people all over the world trust our brands, our cars and our technologies. I am deeply sorry that we have broken this trust. I would like to make a formal apology to our customers, to the authorities and to the general public for this misconduct. We will do everything necessary to reverse the damage. And we will do everything necessary to win back trust – step by step. In our Group, more than 600,000 people work to build the best cars for our customers. I would like to say to our employees: I know just how much dedication, how much true sincerity you bring to your work day after day. Therefore, it would be wrong to cast general suspicion on the honest, hard work of 600,000 people because of the mistakes made by only a few. Our team simply does not deserve that. That is why we are asking for trust as we move forward: We will get to the bottom of this. We are working very hard on the necessary technical solutions. And we will do everything we can to avert damage to our customers and employees. I give you my word: we will do all of this with the greatest possible openness and transparency.”

Meanwhile here in Puebla, where one finds one of the biggest plants of the Volkswagen's corporate out of Germany, has been speculating on the possible closing of the Puebla plant after the scandal. Due to the fact that this scandal concerns directly the Poblan plant since several of the models involved as the Jetta, the Golf and of exclusive production for the Bettle Coupé and the Beetle Cabriolet here in Puebla, Mexico. At least if the Puebla plant does not close, the economy of the State is intimately tied by Volkswagen. The governor of Puebla, Rafael Moreno, who has his aspirations to assume the presidency of Mexico for 2018, has seen with very much displeasure the news and even already looking for a meeting with the high executives of Volkswagen de Mexico, S.A. de C.V., to analyze the possible consequences for the State of Puebla could have of the "Emissionsgate" (the scandal of the emissions).

The numbers that concern the current scandal in which there is involved the Group Volkswagen are the following ones:

Under the command of the Professor Dr. Martin Winterkorn, last year (2014) the group obtained historical earnings for 11 billion Euros and a business volume of about 202,000 million Euros for the whole consortium.

For the first semester of this 2015, Volkswagen finally could displace Toyota of the first place of sales that was showing the Japanese factory.

Audi in 1989 his first model presented with a motive Turbocharged Direct Injection (TDI) for the diesel engines, which makes them more powerful and with fewer emission. In 2014 they were done 25 years of this. For what from this date, Audi has produced 7.5 million cars with the TDI engines, only in 2013, 600,000 vehicles were produced.

The past Friday, September 18th, 2015, the United States Environmental Protection Agency (EPA) revealed that 482,000 cars made between 2009 and 2015 of the brands Volkswagen and Audi were equipped with a software that was manipulating the results of the emission with the purpose of issuing false information.

The possible cost, if it is that there turns out to be guilty the Group Volkswagen of manipulating the software for the models with Turbocharged Direct Injection (TDI) for the turbodiesel technology, it will be of about 18 billion dollars.

For Volkswagen de Mexico, S.A. de C.V., which is a plant located in the State of Puebla in Mexico and that shelters 14,646 employees, according to the Mexican Association of Automotive Industry (AMIA, for its acronym in Spanish for Asociación Mexicana de la Industria Automotriz) this scandal has represented a loss of about 2.6 million UD dollars every day of its exports towards USA, all that on the sales of the vehicles having engines with diesel technology (TDI).

Only the market in US for the models with diesel technology, both of Volkswagen and of Audi is 23%.

For the American market, 500,000 cars were sold with diesel engines (TDI) on the part of Volkswagen, which might be involved in the scandal.

The shares of the Volkswagen Group also met affected. In The Frankfurt Stock Exchange the name of the share for market stock is Volkswagen AG VZ, the ISIN is DE0007664039, its WKN is 766403 and its key symbol is VOW3. The past Friday, September 18th, 2015, the share closed in 162.40 Euros per share, but for Monday, September 21st, 2015, the share closed in 132.20 Euros per share, what it represent a fall of 18.60%. For Tuesday, September 22nd, it continues the fall to close in 106.00 Euros per share, which represented a fall of 19.82%. The previous thing was a fall in two days of 34.73%. Maybe with the advertisement of the resignation of the Professor Dr. Martiin Winterkorn, this September 23th, 2015, the share recovered marginally in 5.19% reaching a closing on the stock market of 111.50 Euros per share.

The most serious thing of everything this scandal represents the situation that would have to avoid Germany, since it might affect his national economy, in Germany there are 29 plants of the consortium and its work force is near to 274,000 employees.

The Emissionsgate teach us that the mechanisms of Corporate Governance work in a correct way, since the Board of Directors in its commission of Supervision took the control in the matter and acted in an immediate and effective way. Nevertheless I want to recognize and to applaud the great courage that the Professor Dr. Martin Winterkorn with his decision to give up and leave in Matthias Müller's hands (nowadays chief of Porsche) the future of the consortium Volkswagen, with the aim to extract afloat to the company of the current crisis. As curious information, the prominent figures who initiated all that are Peter Mock and John German of the group environmentalist Clean Transportation, a few total strangers. Ironic, isn’t it? I think that this will fix up in a best possible way, or at least I want to think it because I live here and the economy of this region depends on this plant, nevertheless, though the things could improve will come difficult years for us. Only I hope that it is the minor possible time. We will have to see…

 

 

1 June 2015

Index to move closer to the Social Market Economy

Businesses are the economic engine of the countries and therefore of society. Hence arising from both employment and income we enjoy many of us. If that wasn't enough, both economic growth and economic development come from corporations, because of this, it would be very difficult to perceive the world without the same. For this reason, you must generate indicators of industrial activity in order to be able to measure in some way the situation in which companies are located with respect to the overall economic indicators of a country, in addition to that are of the utmost importance for the proper functioning of signatures, because that would guarantee an increase in the productivity, competitiveness and on all its stay in the market. In addition, it is important to take into account the economic order in which companies operate because this would be a determining factor for the strategies in terms of competitiveness and productivity of firms, as well as how they interact with the society and some other agents (such as for example the State) that might be involved with them.

One of the Economic Orders that has boomed in the last few decades is the of the Social Market Economy (ESM), to which several authors call the third way between the command economy (socialism), which is regarded as highly ineffective, and the free market economy (capitalism) own of the nineteenth century, to which he had also considered inefficient. According to the philosophy of the Social Market Economy, mentions that it is not enough that there is an ethical order in the form of the functioning of the economy which is considered as the basis of any stable society, if not that it is felt that the Government should take a more active participation, in such a way that could provide a permanent social policy (Marktanner & Winterberg, 2009). The ESM focuses its efforts in order to stress that this is a model in which the participation of society is crucial.

Alfred Muller-Armack is the first to coin the term of Social Market Economy (ESM), in 1947 they released their book Leadership in the economic policy and market-oriented economic policies (Wirtschaftsordnung und Wirtschajtpolitik, by its title in German), and which mentions with the goal of creating an economy that from the base of the competition combines free initiative with a social progress thereby ensuring the economic capacity. Here is presented in a way a theoretical scheme of what it is called the third way, namely, the two that were in force at that time were socialism (command economy) and capitalism (market economy). After the Second World War, the resurgence of the destroyed Germany, originated the idea that the economy should have as spine the free market but should be headed by the social criteria, this is, is an economic system hybrid between the freedom that should have the market and the steering by the State in economic policies very linked to the society. Alfred Muller-Armack called this the Formula Irena that refers to the Greek goddess of peace Eirene (daughter of Zeus). This is due to the fact that the ESM conceives of social peace as the result of a well-functioning market economy with social participation and humanist by part of the State.

The theories presented by Alfred Muller-Armack, are a combination of elements of the Ordoliberalism (also called German neoliberalism), of the liberalism of the sociological and Social Doctrine of the Church.

Walter Eucken (considered a the intellectual father of ordoliberalism, which raises to the so-called School of Freiburg, Freiburger Schule), which is joined by other intellectuals of the era as: Franz Böhm, Hans Großmann-Doerth and Leonhard Miksch, later they were also joined Wilhelm Röpke, Alexander Rustow, Alfred Muller-Armack and Ludwig Erhard, which are a group of economists that make up finally the movement of the Social Market Economy (Soziale Marktwirtschaft).

With the formation of the School of Freiburg, is gestured the German Miracle, with the purpose to get out of the crisis so severe that he faced at the end of the Second World War as well as reestablish the economic and social order.

The best way to argue about whether in Mexico, there is the Social Market Economy or that both come close to that economic order can be done through the creation of an Index to move closer to the Social Market Economy.

The Bertelsmann Foundation in conjunction with the Center for Research on Applied Economics at the University of Münster in Germany, the foundations have been set on the construction of Index of the Modern Market Economy, in which they proposed to do several surveys to verify that both the countries are approaching toward the social market economy. This index is based on four key areas in which they have carried out their studies, these are:

1. Competitiveness and efficiency of the markets: (a) open markets, b) cash price system and c) Competition.

2. Efficiency and property rights. (a) Rights of ownership, (b) freedom of contract and c) responsibility.

3. Economic and ecological sustainability. (a) financial stability, b) consistency in policy and c) efficient environmental protection.

4. Social Inclusion: (a) labor market cash and b) social mobility.

To conform with the above an index to Mexico can be found several situations with respect to each of the components of them.

With regard to the heading of social inclusion, in the first place we can check that in Mexico the mobility is zero, that is, does not exist, although migration from Mexico to the United States remains very strong, do not do so with a criterion on which such mobility generate better working conditions for the Mexicans living in the United States, on the contrary, remain exploited and enslaved in working conditions unreliable.

Similarly, in this same ruble, the Mexican labor market is little cash, in addition to the high unemployment that you feel, the jobs are also very poorly paid, the minimum wage is really miserable (please see my last two articles to check it) if we could compare with wages that are in the United States and in Europe, however, the Mexican labor market is very dynamic in spite of wages and the subhuman conditions that are in maquiladora factories of the north of the country.

In the heading of competitiveness and efficiency of the markets, in Mexico the situation of competition is very unequal and unfair, the government continues to opt to foreign companies that with the promise of huge investments make the medium and small companies, especially the micro disappear in a short time, however, the creativity and the willingness of the Mexicans make some of the Mexican companies succeed and remain to this market so inefficient allocation of economic resources toward all and in favor of competitiveness.

And finally in the heading of the economic and ecological sustainability, what stands out is that the policy is inconsistent with the goals of growth of our country, I believe that this is the most delicate situation that we face and that of the more we move away from having a social market economy, since the state intervenes in the economic and social life of the citizens and this makes it difficult to be able to have a long-term vision on the part of society as a whole, we can only display in a system that when six ends, reinvents itself in new government in the sense of starting over again the actions of the social and economic policies and We have to respond to what the government in turn decides what is okay and what is evil, however, the capacity of the Mexican goes beyond what governments have done so far, this is why the declaration the filmmaker Alejandro Gonzalez to win the Oscar for best film in this 2015, in which he asserts that Mexico ever have the Government it deserves and that I share since it is now the part that we lack work and as mentioned above, distracts from the Social Market Economy.

It is undeniable that the Social Market Economy is currently running in the world, the example of the European Union may be the typical case, in fact this economic order originated in Germany, and therefore seen it worked very well. Companies should take its leading role in this economic system and to review the theory of the firm, we can tell that they are designed precisely to address this economic model. However it can be seen that still have much to do, especially here in Mexico. Companies are already in tune with this model, but what of the government? And even more, of the current government? I believe that only time will tell if this government has this social responsibility that we need so much, I hope to be able to see it because we have just the time and the social actors in Mexico don't see very well, we are still left with blockades of roads, of public places and spaces for the freedom of the Mexicans is guaranteed in all the senses. Perhaps the structural reforms that have been enacted and approved moving in that direction? We will have to see…

 

30 May 2015

The cost of the Mexican Government

In the last article concerned the issue of salaries that are received in Mexico. I mentioned only the salaries of senior managers of the companies and the current minimum wage that receive those who are less fortunate. As it is embodied in this article, the differences between salaries are abysmal, however, the cost wages represent is absorbed by the firms hires to their employees. Perhaps I did not mention in my last article, but it must be remembered that the salaries of those who I am talking about are on a monthly basis, since it is the more usual in Mexico handling them this way.

Therefore, as in the previous article, I got the concern of what would be the salaries of public servants of the highest level, that is, from the President of the Republic until his collaborators, the Secretaries of State and the Chief Executive Offices (CEO’s) of some public companies, who unlike corporations, these salaries paid all taxpayers and represent the cost that we have to keep those officials in these positions of privilege, especially of the President of the Republic, since this individual is going to receive this salary until the day it dies. This information I got from the web sites of the Presidency of the Republic, of the web sites for each one of the Secretaries of State and of the of the units listed below, as well as the web site from the National Institute of Transparency, Access to Information and Protection of Personal Data (INAI, for its acronym in Spanish for Instituto Nacional de Transparencia, Acceso a la Información y Protección de Datos Personales). In such a way that the Executive Branch in Mexico is represented in the following manner:

Position inside the Executive Branch Name Salary
Presidente Enrique Peña USD 15,642.23
Secretario de Gobernación (SEGOB) Miguel Osorio USD 9,745.10
Secretario de Relaciones Exteriores (SRE) José Meade USD 9,372.71
Secretario de la Defensa Nacional (SEDENA) Salvador Cienfuegos USD 12,903.68
Secretario de Marina (SEMAR) Vidal Soberón USD 12,912.19
Secretario de Seguridad (SS) Manuel Mondragón USD 11,467.23
Secretario de Hacienda y Crédito Público (SHCP) Luis Videgaray USD 9,373.16
Secretario de Desarrollo Social (SEDESOL) María Robles USD 8,044.77
Secretario de Medio Ambiente y Recursos Naturales (SEMARNAT) Juan Guerra USD 9,369.68
Secretario de Energía (SENER) Pedro Joaquín USD 10,955.16
Secretario de Economía (SE) Ildefonso Guajardo USD 9,318.77
Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación (SAGARPA) Enrique Martínez USD 9,374.65
Secretaría de Comunicaciones y Transportes (SCT) Gerardo Ruíz USD 10,096.45
Secretaría de la Función Pública (SFP) Julián Olivas USD 9,005.16
Secretaría de Educación Pública (SEP) Emilio Chuayffet USD 10,841.61
Secretaría de Salud (SALUD) María Juan USD 8,050.00
Secretaría del Trabajo y Previsión Social (STPS) Jesús Navarrete USD 13,233.68
Secretaría de Desarrololo Agrario, Territorial y Urbano (SEDATU) Jesús Murillo USD 9,276.00
Secretaría de Turismo (SECTUR) Claudia Ruíz USD 8,025.68
Procuraduría General de la República (PGR) Arely Gómez USD 12,561.83
Consejería Jurídica del Ejecutivo Federal (CJEF) Alfonso Castillejos USD 9,765.48
Director General de Petróleos Mexicanos (PEMEX) Emilio Lozoya USD 9,548.39
Director General de la Comisión Federal de Electricidad (CFE) Francisco Rojas USD 11,585.87
Director General del Instituto Mexicano del Seguro Social (IMSS) José González USD 9,287.29
Director General del Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (ISSSTE) Sebastián Lerdo USD 8,987.55
Director General de la Comisión Nacional del Agua (CONAGUA) Roberto Ramírez USD 11,000.00

In the following table I show the descriptive statistics for the salaries of senior officials of the Executive Branch in Mexico.

Statistics Secretary of State Area Director
Average USD 10,075.87 USD 10,390.92
Standard deviation USD 1,648.33 USD 1,341.65
Minimum USD 8,025.68 USD 8,987.55
Maximum USD 13,233.68 USD 12,561.83

As you can see, the average salary in both of the Secretaries of State such as the Area Directors, are equivalent to the average receive the Chief Executive Officers (CEO's) of the private companies in Mexico, which as I mentioned in the article above, are the higher salaries that can be paid to a person.

It should be noted that there are only three women directing State Secretariats in Mexico and are the lowest wages in this executive level. María Robles (SEDESOL) with a salary of USD 8,044.77 which receives a 25.25% less than the average for the Secretaries of State and 64.50 per cent below that receives Jesus Navarrete (STPS) who is the Secretary of State best paid of all. María Juan (SALUD) with a salary of USD 8,050.00 she receives a 25.17% less with respect to the average receive the Secretaries of State and with respect to maximum salary is 64.39% below. Claudia Ruiz (SECTUR) is the staff member with the lowest salary among all the Secretaries of State with USD 8,025.68 with a 25.55% less compared to the average and 64.89% less with respect to the maximum salary. It should be noted that Arely Gómez (PGR) just assume the position of the unit (March 4th 2015) and it is likely that his salary of USD 12,561.83 does not apply to her situation of women, if not to the post that was originally occupied by a man, Jesus Murillo, who now directs the SEDATU.

One curious fact is that the current government has a General Law for equality between women and men (Ley General para la igualdad entre Mujeres y Hombres), as well as a National Plan for Equal Opportunities and non-discrimination against women (Plan Nacional para la Igualdad de Oportunidades y no Discriminación contra las Mujeres), and that it intended the ridiculous amount of USD 1,568,270,014.52 what percentage would be barely 0.52% on the Federal Budget of the federal government. Perhaps it is not paradoxical? It seems to me that indeed this government has many inconsistencies between what it says and it makes, the above is a clear proof of this.

As for the President of the Republic, he earn 55.24% more than the average of what they receive all the Secretaries of State, 18.20% more than what you earn the higher salary for Secretaries of State and 94.90% more than what the Secretary of State earns with the lowest salary. There is again a great disparity between the salaries of high-level officials in the Mexican Executive Branch.

If that were not enough, for the taxpayers the heavy burden in cost that represents the Mexican Government is very high. According to the Official Journal of the Federation (Diario Oficial de la Federación) in the issuance of the December 3th 2014, is published the Federal Expenditure Budget for the fiscal year 2015 which is USD 302,882,412,903.23 per year, while the Gross Domestic Product (GDP) of Mexico is of USD 896,909,612,903.23 per year, so the public spending that is exercised by the present federal government represents around 33.77%. Only the payment to them makes the President of the Republic, the Secretaries of State and to the General Managers of the governmental units is USD 76,406,133,908.90 that is a fourth (25.23%) of the budget that you have for other items on the Public Expenditure in Mexico.

In truth it is a heavy load that we are paid to senior officials in Mexico. As if that weren’t enough, the appreciation that the citizens have on these subjects including the President is very bad, I would say, disastrous. The Mexican economy continues to plummet, the growth figures the adjusted to each time and are always on the low. Insecurity, unemployment, social unrest is present day to day and not in sight at any time an improvement in any of these indicators. Perhaps there is no output to the current Mexican situation? Until when will continue holding the economic, political and social situation? Once the Mexican citizens will wake up and adjourn the hand to bid farewell to our employees who do not act with righteousness? We will have to see…

 

 

4 April 2015

Remunerations in Mexico

The Club of Florence invited me to take part in its seminar that took place last February (from 5th to 7th), where the topic was analyzed "The function of Wisdom, About what is good and what is evil and the opportunity of a responsible use of our power of choosing". Since it is possible to estimate, the topic is interesting enough, in addition the exhibitions that they presented were going all in this sense, that is to say, which is the meaning of wisdom from a corporate point of view and especially for the high management of the companies. In addition, there was one of them that called more my attention. Dr. Mike Thompson presented it, the title of the same one was "Does it pay to be good? A Philosophical and future-oriented approach" Where Dr. Thompson mentions the situation of the remunerations that gives them to the executive high places of the companies in order that they do well his work and do not fall down in temptations of corruption or to squander resources of the company in own benefit or of some group of interest foreign to the owners of the same ones, since with this behavior opportunist vulnerable situations can be generated to the companies at which they are employed.

Of the previous thing it is clear that one of the internal mechanisms of Corporate Governance is precisely that of the remunerations, since it turns out to be a good internal mechanism in order that the executives line up to the aims for that there looks the firm, besides which the system of remuneration that implements a company promotes so much the organizational culture as the philosophy of the direction, likewise, with base in the profile of each one of the positions, compensates the capacity, the responsibility, the effort and the management in the capture of risks, for what it provokes a stimulus in the productivity of each one of the civil servants. The system of remunerations is, therefore a set of procedures and internal policies that it designs, administers and supervises the compensations and remunerations that are granted each of the employees of the company, with the purpose of contracting a link of cooperation between the employee and the company.

Therefore, as Dr. Thompson mentioned it in his exhibition, how much must be the salary that it is necessary to pay a CEO to him in order that it gives his major effort in benefit of the company that contracts him? In addition, how it must use his wisdom to be able to exercise well his work and line up with the aims of the company? There exist many factors that it is necessary to bear in mind with regard to the form in which the executives of the companies are going to take his decisions and which these are going to have a positive or negative impact in the profitability of the firms. In agreement with the Dr. Thompson later I reproduce his model of wisdom that every leading one must have:

With everything previous me there arose the curiosity to check the current situation of the salaries of the managerial high places of the companies in Mexico. Only I am going to see the situation of the salaries and not of what so much they use his wisdom in the capture of decisions, besides which I presuppose that to major salary that they obtain they would take better decisions for his companies and it would do that the profitabilities of them it would be better. Later I present a table where it is observed the current salaries that the executives obtain.

Statistics Chief Executive Officer (CEO) Area Director (CIO, CPO, CAO) Branch Manager
Average USD 11,587.10 USD 7,684.97 USD 3,032.73
Standard deviation USD 2,782.56 USD 3,234.64 USD 566.15
Minimum USD 7,903.23 USD 4,107.11 USD 2,295.97
Maximum USD 15,483.87 USD 12,290.32 USD 3,763.44

It is possible to observe that since it was of the CEO's be waiting they have in average I weld more high places about 51% more than the director of area, in addition the director of area gains 153% more than the managers and if we compare the CEO's with regard to the managers the number goes off very much since they gain 282% more. It would be interesting to see how much other employees of a company obtain, at least here in Mexico the disparity is great in salary between the different levels. In addition, the salaries that I am presenting are in general average of all the companies in Mexico, but also the disparities in salaries are given in the different sectors in those who are, for example, the industrial sector that more he pays to his employees is the Automotive and Autoparts, whereas the one that less pays is the sector of Services. Which are the reasons in order that they give themselves these disparities? Since actually I do not know it, I think that it is needed to do a deeper study and of major time to be able to define the differences.

Now the most interesting thing comes, if the disparity in salaries in the high management of the companies is very big, as I am mentioned previously the salaries of the employees with lower ranges in the organizational chart, also it is very unlike. An example would be to do the analysis with the lowest salary that is received in Mexico, this is, I go away up to the minimal salary. The National Commission of the Minimum Wages (CONASAMI, for its acronym in Spanish for Comisión Nacional de los Salarios Mínimos) of the Secretariat of the Work and Social Forecast (STPS, for its acronym in Spanish for Secretaría del Trabajo y Previsión Social), in the day of today it has fixed the minimum wage in Mexico in USD 4.52 daily, that to be able to compare it with the previous salaries it is necessary to multiply for 30 days, which gives us monthly salary of USD 135.68; now we have the following: with regard to the CEO's the difference is 8,440%; with regard to the directors of area it is 5,564% and with regard to the managers the difference is 2,135%.

The previous numbers are frightening, since the differences are huge, in addition, the most recent information that can be obtained of the National Institute of Statistics and Geography (INEGI, for its acronym in Spanish for Instituto Nacional de Estadística y Geografía) show that about 15.1% of the working population receives a minimum wage, which about 6.7 million persons represent. The worse thing of everything is that in agreement with the National Advice of Evaluation of the Politics of Social Development (CONEVAL, for its acronym in Spanish for Consejo Nacional de Evaluación de la Política de Desarrollo Social, who is the organism that takes charge measuring the poverty in Mexico) indicates that to feed an alone person (not a family) needs of USD 77.60, which means that every family should be gaining near 3 minimum wages to survive.

The minimum wage must not be fixed by decree, but by productivity and for the array of the human capital that every individual possesses, for what the educational level would represent major wage level. With numbers of the INEGI on the Economically Active Population (PEA, for its acronym in Spanish for Población Económicamente Activa), 2.2 million persons do not have instruction of any type, in addition there exist 14.9 million persons who only have managed to obtain the primary instruction. Both groups of persons who are in the previous situation represent 33.9% of the PEA and that in consequence are in the lowest scale of the wage level.

Finally, the minimum wage has been falling ill across the time for effects of the financial crises and the depreciations that the Mexican Peso has suffered, in agreement to a study of the Center of Multidisciplinary Analysis of the National Autonomous University of Mexico (UNAM, for its acronym in Spanish for Universidad Nacional Autónoma de México), in the last 30 years the purchasing power of the minimum wage always has been a negative, later I show it in the graph that constructed this Center of investigation.

I want to do a public gratefulness to Brigitte Mauel and to Hans-Martin Buhlmann for the invitation and the support to take part in the seminar of The Clube of Florence and especially for the hospitality that they had with me, since actually they make me feel as part of their family, besides the learning that I me bring for Mexico. Also I am grateful to the personalities that took part for sharing his knowledge and experience since with it they give me a vision more global than happens in the world. Lamentably with it I realize the big disparities that exist with regard to Mexico in many aspects, especially regarding the salaries and wages. Always one has spoken on small productivity and competitiveness that has my country, but on having seen the previous information, maybe there is no the very much incentive one on the part of the employees to any level in the Mexican companies and it discourages his capacity, effort and disposition to do that Mexico grows. I think that in this topic still there is much on of that speaking and analyzing. Thank you very much Brigitte and Hans-Martin, will I return the following year to Florence? We will have to see …

 

27 December 2014

The Mexican Automotive Industry

The Mexican Association of Distributors of Automotive (AMDA, for its acronym in Spanish for Asociación Mexicana de Distribuidores de Automotores) reported that the sale of cars in Mexico will end 2014 with a quantity of 1’128,175 cars, which represents an increase of 6% compared with the year of 2013. The above quantity had not been achieved since the year 2006, which were sold 1’131,507 vehicles. The above numbers show us that the Automotive Industry is one of the most dynamic in Mexico, in terms of production, sales and exports.

The adjunct CEO of the AMDA, Guillermo Rosales, argues that consumer confidence was weak in the first half of 2014, however, for the second half were implemented new strategies on the part of the Mexican carmakers and this boosted sales in such a way that with these strategies will close the year with positive numbers. In addition, Guillermo Rosales also mentions that the Fiscal Reform pressured sales toward the low due to the amount deductible from Income Tax (ISR, for its acronym in Spanish for Impuesto Sobre la Renta) declined from 175,000 to 130,000 Mexican pesos, and their impact was felt more in the first half of January to July. Well same Fiscal Reform increased taxes for individuals with business activity, which they represent an ideal market for compact cars that are sold in Mexico, doing that the first half of 2014 has been very difficult for the Mexican Automotive Industry.

Eduardo Solis, the President of the Mexican Association of the Automotive Industry (AMIA, for its acronym in Spanish for Asociación Mexicana de la Industria Automotriz), mentions that the recovery of the internal industry is similar to the that were 10 years ago, already that from January to November 2014 were sold 1’002,136 cars, representing a 6.2 per cent compared with the same period the previous year, by suggesting that the crisis of 2009 has been overtaken.

The dynamism of the Mexican Automotive Industry was also reflected in the field of exports of vehicles built in Mexico, so that 2014 has represented a very good year. The reports mentioned that it has reached a record representing a historic automotive trade surplus of 47 billion dollars, this amount being 8.2% higher to where it was in 2013, where it reached 43 thousand 452.6 million dollars according to the reports of the Bank of Mexico, so that will make this industry is the main generator of foreign exchange for Mexico, and in accordance with Eduardo Solis, the President of the AMIA, in 2020 Mexico will produce 5.5 million cars annually, of which exports will be 4 million Mexican vehicles, in such a way that Mexico will be one of the three largest exporting countries on a global scale. However, Eduardo Solis points out that the internal market will continue to be the problem because still there are a lot of imported used cars from the United States. In addition, the Mexican Automotive Industry during the first nine months of 2014 accumulated a trade balance surplus of 36 thousand 204 million dollars, which represents a 11.2% more than what was recorded in 2013 with 32 thousand 559.5 million dollars, also representing a historic record.

Also the Mexican Automotive Industry expects a sanitation to principles of the 2015 of the internal market with respect to imports of used cars from the United States. Guillermo Rosales, adjunct CEO of the AMDA, says that in spite of having sold more than one million new vehicles in 2014, remains a ballast for the indiscriminate import of used cars from the United States and hopes that the Secretariat of Finance and Public Credit (SHCP, for its acronym in Spanish for Secretaria de Hacienda y Crédito Público) incorporate better mechanisms to halt in final form this situation as the real potential of the automotive industry has not been due to this big problem.

In addition to all of the above, the automotive parts sector to the glimpse of a scenario in rise of the Mexican Automotive Industry, has taken the decision to transfer part of its production and even complete plants toward Mexico, the companies that have already confirmed this situation are: Delphi, Hitachi Group, JTEKT, Nidec and TE Connectivity, with the purpose to be much closer to its customers and take advantage of lower costs that this represents even more than in their countries of origin.

The foregoing also follows the announcement that was made on the implementation of three new plants in Mexico, Audi, BMW and Mercedes Benz, what will be a flow of foreign direct investment in set of around 3,660 million dollars, in addition to the start of operations of the second plant of Nissan in Aguascalientes and Guanajuato new plants from the Japanese Mazda and Honda.

The National Automotive Parts Industry (INA, for its acronym in Spanish for Industria Nacional de Autopartes), mentions through its President Óscar Albin, that in Mexico, there are three essential points that attract the investment of these companies to know: geographic location, free trade agreements and skilled labor and low-cost, the details would be the following:

Competitive labor: in accordance with Bank of America Merrill Lynch, in Mexico the production costs in labor are already 19.6% lower than in China.

Trade openness: The network of treaties of commerce that is Mexico with many countries of the world granted preferential access to 45 countries representing a potential market of 1,143 million people.

Infrastructure in growth: The Mexican Government has been referred to an investment of approximately 100 billion dollars from the National Program of infrastructure (2014-2018) that will implement the Secretariat of Communications and Transport (SCT, for its acronym in Spanish for Secretaría de Comunicaciones y Transportes) in Mexico.

Competitive costs: In accordance with Klynveld, Peat, Marwick y Goerdeler (KPMG), Mexico in comparison with the United States is 21% more competitive in the total cost for doing business in 19 industries.

Young Population: according to The National Institute of Statistics and Geography (INEGI, for its acronym in Spanish for Instituto Nacional de Estadística y Geografía), the young population in Mexico is of 112.3 million inhabitants of which on average have an age of 26 years old.

Therefore, toward Chihuahua will move the company Delphi, which will be a factory in Michigan, United States. Foreign direct investment that would come to Mexico will be 109 million dollars, and in a matter of jobs will be 327.

The firm Clarion that factory sound equipment for cars and is part of Hitachi Group, transfer two production lines that had in China toward the city of Queretaro, by the end of 2013, well same announced that 2015 will bring two more, which will represent an investment of around 67 billion dollars.

With an investment of almost 24 million dollars for the construction of a plant in San Luis Potosí, the Japanese industrial group JTEKT, moved the production of electrical steering systems of its plant in Osaka, Japan.

The Japanese firm Nidec Motor Corporation, through its subsidiary Advanced Motors, which manufactures electric motors, in March 2014 transfer 60% of its workers to Monterrey from Texas. It should be noted that their engines are used in applications in the automotive industry and utility vehicles.

TE Connectivity, Ltd., which is a company of electronic components for cars, moved their plant to Sonora from Shkoppe Minnesota, United States. Foreign direct investment that will be is estimated at 20 million dollars and will represent 144 direct jobs.

Note: Illustration taken from the newspaper El Financiero of its publication of December 18th 2014.

Fortunately the strategies that the Mexican Automotive Industry has been implemented to sell more cars in Mexico have exceeded the effects so evil that the Fiscal Reform has left in my country. I still do not understand how some people are still arguing that the structural reforms that have been implemented in Mexico will have a positive effects, if the numbers before presented and the arguments of the entrepreneurs before mentioned show us that had it not been for their strategies would have closed the year with encrypted negative. In addition, after all the announcements that are made about the automotive industry, the automotive parts are also glimpsing a positive scenario to be installed in Mexico. Only hope that the government does not interfere with what the private initiative has done to date. We will have to see…

 

2 December 2014

A dark outlook to Mexico in 2015

On November 19th, 2014, Agustín Carstens, the governor of the Central Bank of Mexico (Banxico or Banco de México), gave the third Quarterly Report of the Central Bank which includes from July to September 2014. The most important thing about this report is that he again reduces the prognosis on economic growth in Mexico. Previously predicted that the year 2014 was going to finish between a 2.0 and 2.8%, however, now the prognosis was adjusted downward and according to the governor of the Bank of Mexico the growth of the Mexican economy will be between 2.0 to 2.5%. In addition, Agustín Carstens adjusts its forecast for the next year, 2015, previously the prognosis was a growth of between 3.2 to 4.2%, now he mentions that it will be only 3.0 to 4.0%. Also, for the first time the Mexican Central Bank makes a forecast for the year 2016 placing it between 3.2 and 4.2%.

The third Quarterly Report of the Mexican Central Bank contains more information on the Mexican economy. The governor of Banxico mentions that the local economy grew 0.6% in the third quarter of 2014, which represents a real annual rate of 2.2%. The National Institute of Statistics and Geography (INEGI, for its acronym in Spanish for Instituto Nacional de Estadística y Geografía) confirmed the information about growth, which until the third quarter has had Mexico of 2.2%. While the Ministry of Finance and Public Credit (SHCP, for its acronym in Spanish for Secretaría de Hacienda y Crédito Público) presents a growth forecast of 2.7% toward the end of the year 2014. With respect to inflation, Agustín Carstens maintains its forecast that by the end of 2014 this around the 4% and that for the mid 2015 it arrived to converge to a value of 3%. The foregoing based on which Banxico through its monetary policy takes the decision to keep the Interbank Interest Rate for one day in 3.0%. The current account deficit in the Mexican will increase from 2.0 to 2.5% by the end of this year, 2014. This is due to the decrease that has been taken in the price of the Mexican mix of crude oil.

It is clear from the foregoing that the price of oil has fallen from a few months ago, in fact, oil prices have fallen more than a third since June, 2014, before the growing oil shale oil production on the part of the United States, which has overwhelmed the demand in times of weak global economic growth. And if that's not just the Organization of Petroleum Exporting Countries (OPEC) has maintained its production ceiling of 30 million barrels per day, same that have been maintained since 2012, as announced by the minister of petroleum of Saudi Arabia Ali Al-Naimi last November 27th 2014, in a meeting held the 12 member countries in their venue of Vienna. At the same time, the Minister of Oil from Iraq, Abel Abdel Mehdi, estimates an average price between 65 and 70 us dollars per barrel of oil. For what the Brent crude oil, which is a reference in Europe, fell to 8.4 per cent in London after the announcement of the OPEC, by what this year has fallen by 35%, the current price is USD 72.64 per barrel, which represents the lowest level since August 25th 2010. While the crude Western Texas Intermediate (WTI), which is a reference to the United States, falls 4.5% to be placed in USD 70.37 per barrel that represents the lower prices since the beginning of September 2010. It is estimated that the price of crude oil reaches USD 60 per barrel. The bad news is that the next date on which meet the 12 OPEC members will be up to the June 5th 2015.

All of the above has resulted in complicated situations in several countries of the world, such as Canada, Russia, Norway and Japan their currencies have depreciated significantly, as well as in Mexico, which have reached levels above the 14:00 pesos per US dollar, the last quotation walked by 14:10 pesos per US dollar for the lowest value of the Mexican peso from a little over 28 months.

For Mexico, the outlook is even bleaker, if it is added to the low international prices of oil by the foregoing it will sum the low production that has been taken in the Mexican government company named Petroleos Mexicanos (PeMex).

Gonzalo Monroy, CEO of GMEC consulting mentions “There is a high possibility that there is a decrease in production in 2015 to about 2.3 million barrels per day (mbd), there seemed little but with the fall in prices creates a double effect and a pressure on public finances because if there are fewer barrels that cover (with the coverage) there will be fewer resources”, also comments that “with the coverage of 2015 are assured a good price the production. Now the challenge for PeMex, is to produce more to maintain stable public finances”.

The coordinator of economic studies of Banamex, Eduardo González said “The drop in production is one of the risks that we visualize for 2015. The impact is in the direct relationship that has the removal in the set of sectors that make up the GDP”.

“By 2015 the book already, but it is a wake-up call that there is no way to square the economic package of 2016”, argues the director of the Center for Economic Research and Budgetary (CIEP, for its acronym in Spanish for Centro de Investigación Económica y Presupuestaria), Hector Villarreal.

In recent years, the decline in the extraction of oil in Mexico has been accentuated, it is expected that by the end of 2014, the production is of 2.35 million barrels per day (mbd), while the predicted value was 2.52 mbd. SCHP noticed a significant drop in 2015, already that estimated a 2.4 mbd production against a forecast of 2.5 mbd. In accordance with Barclays Mexico, the main risk is in the greatest deterioration in the production of oil, since a reduction of 0.5 million barrels per day in production has a negative effect on the income of the country of 17,100 million pesos (mdp), representing a 0.1% of the Gross Domestic Product (GDP). According to information from the Ministry of Finance in 2014 invested USD 773 million (mdd) in oil companies in order to guarantee coverage part of the public revenue of the year if the Mexican mix averaged 76.40 US dollars. In addition Fernando Aportela, vice-secretary of the Ministry of Finance, recognized in the past few days that the lower oil production will rest as 0.4% of Mexican GDP in the third quarter of the year.

The phase of natural decline in the deposits and to a likely overexploitation, according to the experts are the main reasons for PeMex has been decreasing its production.

Miguel Toro, a member of the Development Research Center (CIDAC, for its acronym in Spanish for Centro de Investigación para el Desarrollo) says that “Mexico exploded over its core resources such as the deposit of Cantarell and exploiting faster when there is a decline and a decrease of the reservations”, also mentions that the high inefficiency of PeMex and fewer resources to invest in technology, were running out of oil resources in Mexico.

Economic growth in Mexico has been very low since it started the present administration, I envisioned a very bleak outlook for Mexico next year, I do not think it will recover and I do not agree with Agustín Carstens in the sense that the economy in the next year that it came to be between 3.0 and 4.0%. I think that is going to be much lower and the time we see that the authorities again amended their forecasts. There are many risks for the coming months, and even though I myself have not wanted to acknowledge, now if I begin to see more each day what the governor of the Bank of Mexico mentioned as “recent social events” and that obviously negatively affect the growth of the country, in addition to all the structural reforms that have been implemented and that the date has not been actually work, and I think they could never work and when it add the external situation that affects my country for 2015 will be much more complicated than the current 2014. I would expect that the social situation does not grow, I am optimistic in this sense, but unfortunately as I view each day more and more demonstrations and social discontent frightens me. In my humble opinion, what should be done the current president is to renounce, and assume its responsibility as the person responsible for security of Mexico, I would like to see this individual could really acknowledge that it had been unable to make Mexico what we all hope, however, are only dreams, never give up, has never been in Mexico a situation so unless there was an armed uprising, but up to that Mexicans are very apathetic. We will have to see…

 

1 November 2014

Sustainable Development in Mexico

The concept of Sustainable Development has charged a lot of force in the last years because the companies are not only worrying about the economic aspect but of the social context in that they are wrapped up, their managerial actions have a strong impact since on several aspects, as they are it: the human, the economic one, the social one, the environment among others. It is this way that mainly its influence in the environment has made there to be a loss of the biodiversity and therefore a great one leaves behind in many other aspects.

Gro Harlem Brundtland, a Norwegian policy, proposes to Sustainable Development as: “Meet the needs of the present generation without compromising the ability of future generations to meet their own needs”, the foregoing was delivered at the World Commission on Environment and Development of the United Nations in 1983, which gave way to the Brundtland Report of 1987, so for the 1992 Rio Declaration, the above definition is assumed as the third principle.

It is clear from the foregoing that the Society, the Economy and the Environment are the three fundamental pillars on which it is claimed the Sustainable Development. So the social aspect is closely linked with the Social Welfare at the same time with the Economic Welfare and the environment, because of this, business performance must include these three indicators as well as the conservation, development that does not substantially affect the ecosystems, democracy, and respect, peace and equality toward human rights.

Companies therefore have a social responsibility, since they generate jobs and meet the needs of consumers, however, in countries in which poverty is made present and each time it is on the increase, this can lead to a catastrophe at various levels, social, economic and even environmental. At the same time, the technology limits the development and wellbeing both economic, social and natural resources, in addition to the ability of the environment to absorb the impact of the business activities. The improvement in technology is evident in such a way that the environment causes the ideal conditions to recover at the same rhythm that is being affected by the business activity with the aim to avoid the growing deficit of natural resources.

In Mexico as well as in many parts of the world, the companies have taken a more active role concerning its socially and environmentally conscious that these represent. The Mexican Stock Market (BMV, for its acronym in Spanish for Bolsa Mexicana de Valores) already includes a Sustainable Index (see my article dated February 16th 2013, in VIP Sight International) which shows the sustainable enterprises in Mexico.

Due to the foregoing, the Forbes magazine in conjunction with Luisa Mountains which is the founder and executive director of Ecovalores, company that performs the qualification of firms shows the Sustainable Index of the BMV and Gerardo Berges who is partner and director of Estrategias Ambientales Asociados (Environmental Strategies Partners) made a list of the most sustainable corporations in Mexico, they then introduced the list published by the Forbes magazine dated September 9th 2013:

Arca Continental, S.A.B. de C.V. (AC): Has savings projects and replenishment of water as Rainmaker, recognized in 2012 by the International Water Association and the National Reforestation Program. It is also leader in recycling pet through PetStar, in conjunction with Coca-Cola and other bottlers.

Alfa, S.A.B. de C.V. (ALFA): In its processing plant of aluminum, which is one of the largest in the world, recycles more than 483,000 tons per year. Another of his plants last year became the first with zero waste of the conglomerate, because it uses natural gas in 90% of its operations.

Alsea, S.A.B. de C.V. (ALSEA): Achieving reduced by almost 10% the power consumption through programs for efficient use of energy and has transformed 256,357 liters of burned oil to biodiesel. For 2018, seeks to reduce its carbon footprint by 20%.

América Móvil, S.A.B de C.V. (AMX): Its recycling program collected 642,091 units of mobile devices and accessories in 2012; while one of their initiatives for the efficient use of energy is the substitution of steam turbogenerator by solar panels.

Grupo Aeroportuario del Sureste, S.A.B. de C.V. (ASUR): Has a program to mitigate the impact on the habitat of the expansion of airports, has declined 40% its sewage and 7.4% of the waste generated by passengers in two consecutive years.

Axtel, S.A.B. de C.V. (AXTEL): Has succeeded in reducing 31% the emission of greenhouse gases to the atmosphere. It has also reduced its water consumption 54.5 %, through a permanent campaign of awareness and savings in all its facilities.

Tv Azteca, S.A.B. de C.V. (AZTECA): Since 2008, implements actions and sustainable processes for environmental protection, such as energy saving and recycling of waste.

Grupo Bimbo, S.A.B. de C.V. (BIMBO): Has decreased the energy consumption per unit produced in 20% and almost 25% water use, from 2009 to date. One of their plans is to send zero waste to landfill. Count with the largest wind farm in the food industry in Mexico.

Cemex, S.A.B. de C.V. (CEMEX): Has been reduced more than 30% the emission of dust in its production plants, NOx emissions have been reduced by more than 42% and the SOx in 21.77% in the last few years; while the use of alternative fuels has increased by more than 40%.

Controladora Comercial Mexicana, S.A.B. de C.V. (COMERCI): In 2010, undertook the Earth alive and managed to reduce 11% in two years the consumption in plastic bags, change its composition to promote its degradation in compost, adopted a waste management that decreases in 35% of the waste materials.

Fomento Económico Mexicano, S.A.B. de C.V. (FEMSA): Minimizes the environmental impact of its operations through research and optimization of water consumption and energy and waste management. Similarly, contributes to generate sustainable communities by investing in 2012 more than 276 million pesos in programs of social benefit.

Compartamos, S.A.B. de C.V. (GENTERA): Intended 2% of the annual net profits to projects of social responsibility and sustainability; its Foundation supports the environment with the adoption and care of four hectares of the mountain named “Nevado de Toluca” for three years benefiting more than 234,000 people.

Corporación Geo, S.A.B. de C.V. (GEO): Aiming at optimizing the use of the earth through vertical housing developments; promotes the development of bikeways. On the other hand, uses technologies that save water, as well as solar water heaters.

Grupo Financiero Banorte, S.A.B. de C.V. (GFNORTE): It is one of the ten companies in Latin America with best responses and performance reporting to CDP Investors in 2012 (climate change). Is a signatory of the Declaration on the Natural Capital where he chairs the working group on integration of natural capital in financial products and services.

Grupo México, S.A.B. de C.V. (GMEXICO): In 2012, invested $520 million in social actions, environmental and occupational safety. Impulse 2,900 actions that benefited from to 240 thousand people in neighboring communities, and reached the lowest level in the incidence rate of the mining industry in Mexico.

Grupo Herdez, S.A.B. de C.V. (HERDEZ): Count with a cogeneration project in wind energy, which provides energy to the corporate offices. In 2012, invested 54 million pesos in minimizing environmental impacts.

Desarrolladora Homex, S.A.B. de C.V. (HOMEX): Has installed 82,000 houses in water-saving devices, gas and energy; has built 25 treatment plants and has saved 760 tons of wood by the use of technology for the construction of blocks of aluminum. In its reforestation plan, has planted 34,780 trees.

Empresas Ica, S.A.B. de C.V. (ICA): 2009 to date, has benefited more than 1.8 million people through various social and environmental programs implemented in communities. ICA maintains a fund through concurrent with the National Forestry Commission a surface of 615 hectares, equivalent to 676,578 trees.

Kimberly-Clark de México, S.A.B. de C.V. (KIMBER): From 2007 to date, reached the goal of sending zero waste to landfill health, as well as the reduction per tonne produced 15.7% of energy use and 14.8% of m3 of water, after re-use 4.5 times in its processes.

Coca-Cola Femsa, S.A.B. de C.V. (KOF): Has improved efficiency in the use of water by 20%, from 2004 to date. Has managed to decrease 21% its energy consumption along with its wind farm that provides clean energy to 85% of the operations.

Genomma Lab, S.A.B. de C.V. (LAB): To the integrated management of their waste, he established an alliance with the foundation of St. Ignatius Loyola, who collected daily for sale to approved recyclers. Resources are channeled to the clinic Santa Teresita, to support children in situation of malnutrition in the mountain range named “Sierra Tarahumara”.

Mexichem, S.A.B. de C.V. (MEXCHEM): Their floors are equipped with closed-circuit water in their production process, thus they are able to recover more than 54% of the water used in the production process. During 2012, reduced by 68% solid waste generation.

Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (OMA): Count with a solar park in the airport of Zacatecas that generates 400,000 kW/hr. to the year, avoiding emit more than 200 tonnes of CO2 per year. In Zihuatanejo has reproduced 22,000 mangrove seedlings to reforest 6.5 hectares.

Organización Soriana, S.A.B. de C.V. (SORIANA): In 2012 was recycled more than 98,000 tons of solid waste, thereby avoiding the felling of 1’403,650 trees, the consumption of 127,650 barrels of oil, the use of 350,591 m3 of sanitary landfill; as well as saving 395,876 GWh of electricity and 2,051 million liters of water.

Grupo Televisa, S.A.B. (TLVISA): Supports the conservation of 256 hectares of forests in Oaxaca, through the program of neutralization of emissions.

Urbi Desarrollos Urbanos, S.A.B. de C.V. (URBI): Works to achieve thermal efficiency in the homes that develops; thermal insulation and environmental technologies that has been applied, have achieved a savings of 34.5% in the consumption of kw/h of the houses. Has declined 14.8% its consumption of water and 11.5 energy.

Wal-Mart de México, S.A.B. de C.V. (WALMEX): The company supports to 5,811 small agricultural producers and manufacturing of low-income to those who purchase directly; works with 250 small and medium, 51% of their employees are women, delivered 624 million pesos in donations and reduces its environmental impact while consuming 25% of clean energy and recycling of water.

After seeing all that it entails the Sustainable Development, in which emphasis is made on the close links between natural resources, economic growth and society, coupled with the possibility of the destruction of natural resources and the quality of life of the human species for future generations. It is awareness that must endure the conservation of the environment in spite of the economic growth that will be achieved by the companies. However, in my humble opinion, lack an important player for that all this can be achieved and this is the government. I think that the structural reforms that are being made in Mexico by the federal government not contemplated to Sustainable Development in any of them, so companies have an even bigger challenge as they are alone in order to achieve this. Only I hope that Mexican companies do not have obstacles on the part of government to be able to continue with the conservation of the environment. We will have to see…

 

30 September 2014

Financial Information

Every investor requires the use of the Financial Information that will allow him to reach to get from any reliable source that he have on hand, that with the purpose of correctly take their decisions of purchase-sale in the Stock Market. Due to the above, the Financial Information becomes the raw material of the investor, as well as a very important economic resource for this, however, in Mexico is not very developed the culture of the exchange of information or the submission of that.

Fortunately since 2012, the Mexican Stock Market (BMV for its acronym in Spanish for Bolsa Mexicana de Valores) has a project for the better management of the Financial Information that companies have to report, as well as the Banking Commission and Values (CNBV, for its acronym in Spanish for Comisión Nacional Bancaria y de Valores) has endorsed this project, in order to present the Financial Information in an international standard that has set the International Accounting Standards Board (IASB), with the development of International Financial Reporting Standards (IFRS) which have designed a system for the submission of information through a fully eXtensible Business Reporting Language (XBRL).

The international financial community has been defined and developed a system standard that has been called XBRL, which will give an effective exchange of information, both corporate and financial of the companies listed on the BMV.

In accordance with the information that is found in the internet page of the BMV, which mentions that four types of users will benefit from these specifications that provides the XBRL:

  1. Users who are preparing for the corporate and financial information.
  2. Users intermediaries in the processes of preparation and distribution of information.
  3. Users of the Financial Information (investors).
  4. The developing software firms.

Therefore, the objectives of XBRL is:

  1. Improve the product result of the preparation of Financial Information.
  2. Facilitate the current practices.
  3. Provide users with a standard format in which prepare reports that are subsequently presented in various forms and that allow for interpretation and efficient Exchange of information in different computing applications.

A Financial Statement in XBRL format from a technical point of view is made up of:

  1. An XBRL document.
  2. A Taxonomy using XBRL.

It is clear from the foregoing that a document XBRL, is one that contains the values that are being reported on a regular basis and that contains:

  1. Financial Facts and non-financial. Ledger Accounts and description in notes.
  2. The values of these facts. The amount that corresponds to a certain book account.
  3. Information from the context in which these facts are reported. For example the period of report of the financial account, the entity that is reported or if the information contained is handed down.
  4. The unit in which the facts are reported. For example USD to represent values in US dollars, or if it is a piece of in percentage or number of shares.

A dictionary of concepts or catalog represent the XBRL taxonomy, which come from the International Financial Reporting Standards (IFRS) for 2012, with a dictionary of 2545 concepts, they represent a number of elements which serve to bring facts and financial business, and it is technically an XML schema for a specific domain.

There are 5 Linkbases that represent the relationships between the concepts of an XBRL’s taxonomy. These 5 elements have an own syntax and meet a different objective for each concept being defined.

  1. The relations of Presentation have as objective to express in a simple manner the hierarchy between concepts using XBRL.
  2. The Linkbase of Definition is aimed at defining a myriad of relationships between concepts. While there is a similarity between the Presentation Linkbase and Definition, its objective is different.
  3. The Linkbase of Calculation is the element that allows us to define simple and basic rules of business between concepts. The relations of calculation in XBRL are simple addition and subtraction, however comply with the purpose of providing a first level of validation to the data.
  4. Allows us to add labels (or labels) to the concepts or identify the concepts in languages other than the original language in which has been defined.
  5. The Linkbase of Reference enables us to relate concepts and detailed and precise information on the use of the concept or its law enforcement.

The draft of the implementation of these XBRL is being carried out in two stages.

The first phase of the project consisted of the definition of a relationship between the accounting concepts in the taxonomy and the IFRS accounting catalog of BMV, this relation between concepts allowed to adapt the taxonomy of International Financial Reporting Standards to the universe of information defined by the BMV. From May 6th 2014, the BMV will install new server and convert the information of the basic financial statements that they receive to XBRL format already with the adaptations to labels that were defined in November of 2013. Likewise, the CNBV confirmed on March 6th 2014, the XBRL is an institutional project which is already in the portfolio of projects of the Commission. Between 2014 and 2015, the CNBV will be attuned to the normativity, at which time the stations in coordination with the BMV will implement the XBRL and reported progress.

The second phase of the project will be released in 2015, there are plans to make a review to the catalog of financial information in coordination with all the participants, committee of stations, analysis committee, BMV and CNBV, and extend the concepts that are currently used and incorporate additional information to the financial statements as they are, the notes to the financial statements, since the latter have become a very important point as the same financial statements. In this second phase of the project already would be all ready for broadcasters to optionally could send your file XBRL taxonomy already with a fairly robust and as mentioned above from the first quarter of 2016, through the endorsement of the CNBV, do the mandatory reporting under this standard.

With the standardization of the Financial Information that is being done in the Mexican stock market, the Mexican investors as well as international investors, will be able to transparently and in real time that element so important to the decision-making, this will make the Mexican stock market is a little more efficient than it has been so far. The foregoing will be a big step for the business in Mexico, however, I can only hope that the reforms that are being implemented in Mexico by the federal government not being ruined by the initiative that has the private sector and is able to attract more and better investment for the companies in this country. It will be that these structural reforms really work for Mexico? Or we will have to wait as long as it is lack of government administration to the actually getting put to Mexico in the levels of the international business that should be? We will have to see…

 

30 August 2014

The Mexican Stock Index

The Mexican Stock Market Index, known as the Index of Prices and Quotations (IPC, by its acronym in Spanish of Índice de Precios y Cotizaciones), of the Mexican Stock Market (BMV, by its acronym in Spanish of Bolsa Mexicana de Valores) reached a historic high of the year on August 29th 2014, arriving at 45,628.09 points. However, the highest value that has had the IPC reached the last January 28th 2013, at that time the value in points was 45,912.51, unfortunately this indicator was not sustained throughout the whole year and a half, perhaps due to the economic situation, which has been in Mexico with the blessed structural reforms that have been made and people have seen that have not served for nothing.

It is well known that with the construction of an index serves us as statistical tool in order to be able to measure relative change that suffers from a variable during a certain period of time, that is, it is set in the time a variable to go following the path that follows this. Therefore, The Stock Indexes are precisely the concept mentioned above, the prices of the shares are evolving in each moment and precisely will be observing its change in such a way that investors can realize what is going on with an action or a group of certain actions and with that take their decisions to buy or sell, which means it is an indispensable tool of analysis for any investor.

In addition, a Stock Index reflects the entrepreneurial activity that is taking in a particular country and in most cases is intimately connected with the economic situation that is going through a particular country. For example, in the Mexican crisis of late 1994 and early 1995, the stock index reflects the situation that it was presenting at that time, For example, on September 23rd 1994, the level of the IPC was 2,851.30 which was the highest level of all that year, it is noted that the IPC starts to go down, in such a way that it seems that we was warning that the crisis was due to arrive, and so it proved, at the end of 1994 the crisis broke out. The IPC continued to decline until you get to the date of February 27th 1995 and the level of the IPC reached 1,458.70; representing a fall of the stock index of 48.84%, it seems to me a barbarity. Due to the above, The Stock Index is a thermometer of the industrial and economic activity of a country.

At the same time, the IPC is the development of the stock market that has been in Mexico. The construction of the IPC is done using a representative sample, balanced and weighted average of 35 firms stations of a different variety of industrial sectors that are in the BMV, in such a way that is the Index of Prices and Quotations (IPC), using a methodology based on October 1978, which is the main indicator of the Mexican Stock Market, which represents the performance stock according to the variations in the prices of the same and its value of capitalization. He then introduced the current sample of the companies that make up the IPC alphabetically, and which will begin work on September 1st 2014.

  Issuer Key Serie Nr. of Shares Weight  
 
1 Arca Continental, S.A.B de C.V. AC * 258,806,329 1.12%  
2 Alfa, S.A.B. de C.V. ALFA A 3,092,699,538 5.72%  
3 Alpek, S.A.B. de C.V. ALPEK A 340,226,244 0.40%  
4 Alsea, S.A.B. de C.V. ALSEA * 404,085,622 0.81%  
5 América Móvil, S.A.B. de C.V. AMX L 23,496,779,472 16.44%  
6 Grupo Aeroportuario del Sureste, S.A.B. de C.V. ASUR B 166,877,477 1.25%  
7 Grupo Bimbo, S.A.B. de C.V. BIMBO A 944,303,857 1.79%  
8 Bolsa Mexicana de Valores, S.A.B. de C.V. BOLSA A 309,555,343 0.38%  
9 Cemex, S.A.B. de C.V. CEMEX CPO 9,749,996,758 7.29%  
10 Controladora Comercial Mexicana, S.A.B. de C.V. COMERCI UBC 354,787,829 0.79%  
11 Grupo Elektra, S.A.B. de C.V. ELEKTRA * 71,059,315 1.14%  
12 Fomento Económico Mexicano, S.A.B. de C.V. FEMSA UBD 1,735,676,564 9.79%  
13 Grupo Aeroportuario del Pacífico, S.A.B. de C.V. GAP B 210,631,240 0.86%  
14 Grupo Carso, S.A.B. de C.V. GCARSO A1 229,944,686 0.82%  
15 Compartamos, S.A.B. de C.V. GENTERA * 728,037,831 0.96%  
16 Grupo Financiero Inbursa, S.A.B. de C.V. GFINBUR O 1,338,599,296 2.45%  
17 Grupo Financiero Banorte, S.A.B. de C.V. GFNORTE O 2,004,864,070 8.11%  
18 Banregio Grupo Financiero, S.A.B. de C.V. GFREGIO O 79,010,075 0.27%  
19 Grupo México, S.A.B. de C.V. GMEXICO B 3,438,742,168 6.94%  
20 Gruma, S.A.B. de C.V. GRUMA B 173,773,867 1.13%  
21 Empresas Ica, S.A.B. de C.V. ICA * 439,000,763 0.49%  
22 Industrias Ch, S.A.B. de C.V. ICH B 122,331,185 0.39%  
23 Infraestructura Energética Nova, S.A.B. de C.V. IENOVA * 185,363,010 0.65%  
24 Kimberly-Clark de México, S.A.B. de C.V. KIMBER A 1,168,513,917 1.81%  
25 Coca-Cola Femsa, S.A.B. de C.V. KOF L 399,388,034 2.54%  
26 Genomma Lab Internacional, S.A.B. de C.V. LAB B 631,690,955 1.00%  
27 Grupo Lala, S.A.B. de C.V. LALA B 496,814,039 0.73%  
28 El Puerto de Liverpool, S.A.B. de C.V. LIVEPOL C-1 150,643,526 0.99%  
29 Mexichem, S.A.B. de C.V. MEXCHEM * 758,944,672 1.94%  
30 Ohl México, S.A.B. de C.V. OHLMEX * 556,458,320 1.00%  
31 Industrias Peñoles, S.A.B. de C.V. PE&OLES * 79,804,789 1.27%  
32 Promotora y Operadora de Infrestructura, S.A.B. de C.V. PINFRA * 183,169,983 1.50%  
33 Grupo Financiero Santander México, S.A.B. de C.V. SANMEX B 1,467,411,228 2.36%  
34 Grupo Televisa, S.A.B. TLEVISA CPO 1,963,778,756 8.45%  
35 Wal-Mart de México, S.A.B. de C.V. WALMEX V 4,225,673,168 6.43%  

Comparing to the previous sample with the current, there are 7 firms that come out of the sample, these are:

  Issuer Key Serie  
 
1 TV Azteca, S.A.B. de C.V. AZTECA CPO  
2 Grupo Comercial Chedraui, S.A.B. de C.V. CHDRAUI B  
3 Compartamos, S.A.B. de C.V. COMPARC *  
4 Corporación Geo, S.A.B. de C.V. GEO B  
5 Desarrolladora Homex, S.A.B. de C.V. HOMEX *  
6 Minera Frisco, S.A.B. de C.V. MFRISCO A-1  
7 Urbi Desarrollos Urbanos, S.A.B. de C.V. URBI *  

It can be seen that 3 of them represent the construction sector, which has been affected by the current economic situation in Mexico.

Therefore, the companies that come to the current sample for the calculation of the IPC are:

  Issuer Key Serie  
 
1 Controladora Comercial Mexicana, S.A.B. de C.V. COMERCI UBC  
2 Grupo Carso, S.A.B. de C.V. GCARSO A1  
3 Compartamos, S.A.B. de C.V. GENTERA *  
4 Banregio Grupo Financiero, S.A.B. de C.V. GFREGIO O  
5 Infraestructura Energética Nova, S.A.B. de C.V. IENOVA *  
6 Grupo Lala, S.A.B. de C.V. LALA B  
7 Promotora y Operadora de Infrestructura, S.A.B. de C.V. PINFRA *  

It should be noted that now the holding company of Carlos Slim enters for the first time to be part of the sample in the IPC calculation, as well as two financial institutions. In addition, returns the firm Comercial Mexicana to be part of the IPC, in spite of the financial situation so complicated that it has had in recent years, which almost lead to bankruptcy.

The Mexican Stock Market Index, is the primary tool of analysis and decision-making for investors, not just Mexicans, but of any part of the world, as it sums up the situation in the best possible way of prices of the main actions that have in the Mexican Stock Market. Only hope that investors are cautious in making their decisions and not be swayed by false appearances and especially to take their precautions already now that the situation in Mexico is not the best, the structural reforms that have been submitted have been whittled away to companies in a manner meaningful, it will be that it is not a propitious time to invest in Mexico? Will we have to wait until we finish this government to be able to think about an improvement in the Mexican situation? We will have to see ...

 

31 July 2014

The Superpowerful America Movil

América Móvil since its birth on September 25th 2000, is without doubt one of the Mexican companies more profitable, since it has been consolidated as the leading company in the telecommunications sector not only in Mexico but in the entire American continent, which already has operations from the United States to Argentina, and more recently has made inroads in the European market, very specifically in Austria and the Netherlands.

Region Country Subsidiaries Penetration Participation
Cellphone Cellphone
North America Estados Unidos Tracfone 108% 33%
México Telcel / Telmex 90% 70%
Central America Guatemala Claro 118% 36%
El Salvador Claro 118% 36%
Nicaragua Claro 118% 36%
Honduras Claro 118% 36%
Panamá Claro 118% 36%
Costa Rica Claro 118% 36%
Caribe Puerto Rico Claro 118% 35%
República Dominicana Claro 118% 35%
South America Colombia Claro 102% 61%
Ecuador Claro 116% 69%
Perú Claro 97% 40%
Brasil Claro / Embratel / Net 133% 25%
Chile Claro 152% 23%
Argentina Claro 145% 30%
Paraguay Claro 145% 30%
Uruguay Claro 145% 30%

The information presented in the table above was taken from the official website of the company (América Móvil), dated September 30th 2013. In the case of United States the information both in terms of penetration as to participation in cellular telephony, only includes the prepaid market. In the case of Central America and the Caribbean the participation numbers and cellular penetration are consolidated for those regions, as well as for the case of the region covered by Argentina, Uruguay and Paraguay.

A situation that affected in several ways to América Móvil has been the Telecommunications Reform in which the federal government has been driven, in such a way that the congress of the Union adopted on  June 10th 2013, the reform in the field of telecommunications and broadcasting, same as for the June 11st 2013, by part of the federal government introduced the secondary legislation for them, however, it is not until the last July 8th 2014 that the chamber of deputies with 340 votes in favor, 120 against and one abstention is approved the Federal Law of Telecommunications and Broadcasting itself that is officially promulgated by the federal government on July 14th 2014.

Since the news of the approval of the Federal Law of Telecommunications and Broadcasting is done on July 8th 2014, the Federal Commission of Economic Competition (COFECE, by its acronym in Spanish of Comisión Federal de Competencia Económica) finds that América Móvil is the company that exerts a marked preponderance in the telecommunications market. With the foregoing, the Board of Directors of América Móvil, decides to sell part of its assets with the purpose that this preponderance does not exist any more because they want to reduce to less than 50% and that the Federal Institute for Telecommunications (IFETEL, by its acronym in Spanish of Instituto Federal de Telecomunicaciones) of recent creation (September 11st 2013) does not impose regulations or asymmetric trust toward América Móvil, and although the managers of the company do not have still buyer for these assets, it seems that AT&T could be the company acquiring these assets. In addition América Móvil has announced that the transmission towers will not be sold in a package of assets that has been mentioned.

However, and despite the fact that the shares of América Móvil did not have a very clear trend since it was introduced the reform in telecommunications in 2013, the day after this announcement, the stock market supports that decision, as the actions of América Móvil on the Mexican Stock Market Bolsa Mexicana de Valores (BMV, by its acronym in Spanish of Bolsa Mexicana de Valores) rose 9.35% being the most notable increase since 2009, and the shares of this company in the New York Stock Exchange (NYSE) rose by 10% or $805.6 million, the same day.

If that were not enough, reports on the profitability of América Móvil have followed persist. On Monday 21st of July 2014, obtained a rise of 32.7% in its net profit for the second quarter of 2014, in figures would be a net profit of 18,833 million pesos (more or less 1,450 million US dollars or €1,050 million) between the months of April and June of 2014.

With the foregoing, as Dolia Estévez who contributes with the magazine specializing in business, Forbes, positioned back to Carlos Slim again as the richest man in the world, a place which he held from March 2010 until May 2013 the debunked Bill Gates. The richness of Carlos Slim progressed from $74,500 million to 79,600 million dollars, which represents a gain of $5,100 million in just 12 days of business (between July 1st to July 11st 2014) due to that investors have seen with good eyes the decisions taken and that it will cause the profitability continues to grow day by day.

Apparently the expansion strategy of Carlos Slim is simple, first begins in whole Mexico, then continued with Latin America and the Caribbean to go after to the United States and finally has been branching out into the European markets and by no later that anger for the rest of the world, as in past years Carlos Slim has been interested in expanding into Europe, very specific in Austria and in the Netherlands has had relatively small stakes in two major companies.

The largest company of telecommunications in Austria is the Telekom Austria AG which currently operates in 8 countries: Austria (A1), Slovenia (Si, mobil), Croatia (Vipnet), the Republic of Serbia (Vip mobile), the Republic of Macedonia (Vip operator), Bulgaria (Mobitel), Belarus (velcom) and Liechtenstein (mobikom Liechtenstein). Last May 15th 2104 América Móvil makes a public offer to buy 103’978,511 shares what represents the 23.47% of social capital, the foregoing translated in money would be a capital injection of 1,000 million euros (approximately $1,380 million dollars). On July 14th 2014 was the deadline for the public offering and once that is settled, América Móvil will become the main shareholder of Telekom with 225’085,222 shares representing approximately 50.80% of the social capital.

On the other hand, América Móvil has a small stake in the Dutch telecommunications company Royal KPN NV, from 27.1% to today's date but decreased their participation that was 29.8% in September 2013. KPN has activity in the Netherlands, Belgium, Germany, Spain and France, making it important in the region.

All the information and the events that have hovered around América Móvil, does not have weakened, on the contrary, each of the strategies and advertisements that have been generating the have become increasingly strong, the stock market supports each of its decisions in a very positive way, apparently the year is going to end with a unprecedented profitability, in addition to that already has acquired from the Austrian Telekom and that the Dutch company remains steadfast in its strategic alliance in their incursion by Europe. That is what continues to Carlos Slim? It will be that now goes to Asia, Oceania or another continent he want to conquer? It seems to me that he has no purpose in his ambition to become the richest man on this planet for many years more. We will have to see…

 

21 June 2014

The Mexican Poverty Trap

Agustín Carstens, governor of the Mexican Central Bank (Banco de México), after having a meeting with the board of governors, announced that his prognosis for the growth of Mexico will be toward the low, due to the fact that the Mexican economy has not presented signs of improvement, on the contrary, it has seen each day more destroyed due to the structural reforms implemented by the current Mexican government, therefore, in order to confirm that the Mexican economy goes into a tailspin, the Mexican Central Bank decides to decrease the target interest rate of 3.50% to 3.00% on June 6th 2014. The previous measure has as its purpose to increase consumption and speed up the economy. At the same time, the World Bank has also made an adjustment to the prospects for growth in Mexico of just 2.3%. In the same way, the Secretariat of Finance and Public Credit (SHCP, by its acronym in Spanish of Secretaría de Hacienda y Crédito Público), through its leader Luis Videgaray performs a huge adjustment in their expectations of growth this year of 3.9% to 2.7%, so the same secretary of treasury is confirming that the structural reforms have not worked as they expected, and what is worse, the current government has sunk more to Mexico in the Poverty Trap, which as in various occasions tried to slip out and has not been able to.

The auto mechanism maintained that causes poverty persist generation after generation in a given country is what is known as the Poverty Trap, which, if the government does not generate the necessary and sufficient conditions for breaking the vicious circle, will last forever. The main factors that originate from the Poverty Trap would be the following: a Government highly corrupt, a poor education system and health, inefficient infrastructure, limitation to the credit of both people and all kind of companies, social conflicts, capital flight and extreme environmental degradation that causes agricultural resources are exhausted.

In his book The End of Poverty, Jeffrey Sachs, explains in a way very consistent what is the Poverty Trap, in addition to propose initiatives that would terminate it. The main argument that argues is that the international aid agencies should be to behave as if they were venture capitalists and to finance companies of recent creation in such a way that companies that need help, they are provided with all the necessary capital and not just a small part, in such a way that the profitability is expected for each company would be shared between them in such a way that everyone would benefit. Jeffrey Sachs mentions that extreme poverty is due to the absence of six major types of capital: human capital, the capital of the company, infrastructure, natural capital, institutional capital, capital and knowledge.

It is clear from the foregoing that actually in Mexico is currently experiencing this problem, none of the reforms that have been proposed to date places emphasis on reverse poverty, currently in Mexico, there are 112’336,538 inhabitants according to the census of 2010, and that an estimate that is made for this year of 2014 is 119’426,000 close to 120 million inhabitants, of which, according to the National Institute of Statistics and Geography (INEGI, by its acronym in Spanish of Instituto Nacional de Estadística y Geografía) and corroborated by the Organization for Economic Cooperation and Development (OECD), it is 53.3% who find themselves in situations of poverty and around 11.3% are living in extreme poverty.

The previous situation worsens due to the fact that this government has been unable and unwilling to intervene to reduce these rates so alarming poverty, on the contrary makes me think that is exactly what they want to have for this government, keep many people in this situation of poverty to the social unrest is not a threat to the government, since what people do is try to survive and not do think that could be done to get government help them and much less in an uprising.

Here is where I think that is the paradox of democracy of Alexis de Tocqueville, since he mentions that four factors are needed for democracy to be totally: The first factor is the spread on the economic well-being that must perceive people of a particular country, the second is the existence of a society where power and social functions are fully decentralized in a large number of organizations, associations and groups with total independence, so that the political community must be pluralistic and inclusive with great presence between the society and democratic institutions. The third refers to a well-defined and clear separation of powers between the executive, legislative and judiciary, in the sense that each one of them is formed by different people and that they might not be jumping from one institution to another. And perhaps the most important proves to be the fourth that refers to the usages and customs of the society in terms of its political culture and perceptions of equality and freedom, he mentions that for all the actors in a democratic society must exist.

In my humble opinion, the democratic system that exists in Mexico is already expired, it should be possible to think of any other alternative already that there is now more inequality and can be seen with the distribution of resources and obviously the power, because it is concentrated in only a few families that have both the economic power as the political, and that as you can see it is very difficult to reach to lose at some point in their existence, because in addition they inheriting to their children and grandchildren, as if it were a monarchy of which fortunately only some countries to have them. When already Abdicate we know that they do so in favor of their successors, as we have just seen in Spain, so we must ask ourselves if we are actually living democracy, in which the majority should decide on everything relating to the management of the society, both from an economic point of view as a politician. To me if I would like to come to see that in Mexico could be a political system that actually goes in favor of all and not a few. We will have to see…

 

 


VIPsight Archives America - Mexico

2011 2012 2013

 

18 May 2014

Cementos Mexicanos

In an unexpected way and due to a heart attack, on Monday May 12nd in Madrid, Spain, die one of the most emblematic Mexican businessmen, Lorenzo Zambrano. His death is undoubtedly a great loss to the clan of Mexico business. Man of great character and conviction that with his vision and leadership, has been one of the great entrepreneurs who has given him international renown to Mexico in the sphere of business, in addition to placing his company Cementos Mexicanos, S.A. B. de C. V. (CeMex) as one of the best, one of the largest and one of the companies with a large global recognition.

Lorenzo Zambrano was born in Monterrey, Nuevo Leon, on March 27th 1944, in the heart of one of the most prominent families of northern Mexico because his father Lorenzo Zambrano was the heir of many of the country's largest companies, including to CeMex. If that were not enough, his mother Alejandrina Treviño who was niece of Francisco Madero, the initiator of the Mexican Revolution and former President of Mexico, was a member of one of the families of oldest landowners north of the country. In 1966 he graduated as a mechanical engineer administrator of the Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM) to continue his graduate studies at Stanford University, where he obtained in 1968 the Master's Degree in Business Administration. After completing his studies he joined his father's firm, CeMex, where for 17 years in positions and operational direction to that in 1985 he was named Chief Executive Officer (CEO),  in addition he is elected as the Chairman of the Board of Directors in 1995.

In the city of Monterrey, Nuevo Leon, in 1906, Lorenzo Zambrano (grandfather) founded the plant of Cementos Hidalgo, which four years later was forced to close during the Mexican Revolution, reopening at the end of that event. A second plant, Cementos Portland Monterrey began operations in the early 20’s with a capacity of 20,000 tons per year, this is due to the technology used is that of leading edge with an oven of a single step and dry process same for 1930 is installed a second oven of that type to increase its capacity to double (40,000 tons a year). In 1931 was establishing the consortium Cementos Mexicanos, S.A. (CeMex) with the merger of the two aforementioned plants (Cementos Hidalgo and Cementos Portland Monterrey). The installed capacity of plant increases year-on-year, this is, in the early 40’s are produced 92,000 tons per year and in 1948 its capacity is four times more than in its foundation in 1906 (124,000 tons per year).

Cementos Maya of Mérida, Yucatán, is acquired by CeMex in early 1963. In 1966 opens in Torreón and Valle producing plants. Cementos Portland del Bajío in 1973 was acquired by CeMex. The increased production of cement in Mexico is due to that for 1976, acquired to Cementos Guadalajara, at the same time that begins to make contributions in the Mexican Stock Market (BMV, by its acronym in Spanish of Bolsa Mexicana de Valores).

The great boom of CeMex should be to Lorenzo Zambrano and its international vision, to be appointed as CEO in 1985 and with the signing of the General Agreement on Tariffs and Trade (GATT) this company takes its flight toward its great period of expansion, since it produces a record 6.7 million tons of cement and clinker, as well as the export of 574 thousand tons of cement and clinker, all of the foregoing three of its major cement plants Monterrey, Guadalajara and Torreón well over one million tons produced each. For 1986 opens a new plant in Huichiapan with the highest technology allowing it to get in that year to 10.7 million tons. Begins with investments in cement production in the United States and acquires Cementos Anahuac and for 1989 acquires Cementos Tolteca which was the second largest producer of cement in Mexico and with this catapult to CeMex as the tenth cement producer at the global level. The international expansion comes in 1992 when acquiring the two largest cement producers of Spain, Valenciana and Sansón.

All of the above makes that CeMex, from their central offices located in San Pedro Garza Garcia, Nuevo León, has a presence in more than 50 countries in the world that operates on four continents, has 66 plants producing cement, 2,000 facilities of ready-mix concrete, 400 quarries, 260 distribution centers and 80 marine terminals being the third largest cement producer in the world, only behind the Swiss Holcim founded in 1912 and the French Lafarge was founded in 1833.

In spite of the mourning for which they were passing, CeMex's Board of Directors met on Thursday May 15th to take the decision as to who could replace Lorenzo Zambrano in the two positions that he held, on the one hand was the CEO, and the other was the Chairman of the Board of Directors, the foregoing is what is known as duality in the theory of Corporate Governance, same in which many of the international codes are not in agreement, it is always preferable that these two positions are in two different people. From my humble point of view, I think that this would be the time to ensure that the duality with which operates CeMex by around 20 years ending with the aim of generating greater certainty and transparency to the operations of this multinational firm.

The candidates to take the post of Chief Executive Officer (CEO) are: Francisco Garza, Chairman of the Advisory Board of CeMex for Latin America and Advisor to the Director-general for Institutional Relations; Juan Romero, President of CeMex Mexico; Jaime Elizondo, President of CeMex Central America, South America and the Caribbean; Juan Sanagustin, Executive Vice President of Strategic Planning and Business Development and finally Fernando Gonzalez, Executive Vice President of Finance and Administration.

Candidates for the post of Chairman of the Board of Directors are: Roberto Zambrano, Tomás Milmo, Armando Garcia, Rodolfo Garcia, Dionysius Garza, José Rincón, Francisco Fernandez, Rafael Rangel and finally Rogelio Zambrano.

I believe that taking such an important decision is not easy, in addition to that all these characters are quite capable of taking the reins of this impressive company, the final decision was unanimous and was in that the CEO shall be Fernando Gonzalez and the Chairman of the Board of Directors shall be Rogelio Zambrano, his post begins immediately.

Fernando Gonzalez joined CeMex in 1989 and is currently the Executive Vice President of Finance and Administration, graduated with a degree in Business Administration and a Master's in Business Administration from the ITESM and in accordance with the official website of CeMex, he has held several senior management positions, including Corporate Vice President of Strategic Planning; President of CeMex Venezuela; President of CeMex Asia; President of CeMex South America and the Caribbean; President of CeMex Europe, Middle East, Africa, Asia and Australia; Executive Vice President of Planning and Development, Executive Vice President of Planning and Finance.

Rogelio Zambrano is a member of the Board of Directors of CeMex since 1987 and is Chairman of the Finance Committee since 2009. His studies at the ITESM as an industrial engineer and systems as well as a Masters Degree in Business Administration from the Wharton Business School of the University of Pennsylvania. He is the grandson of the founder of CeMex, Lorenzo Zambrano, son of Marcelo Zambrano and also cousin of our famous character, Lorenzo Zambrano.

It is regrettable that a Mexican of the caliber of Lorenzo Zambrano has died of the manner in which it did, never married and has no children, I believe that if he had it and they were actually working at CeMex, they would be the obvious successor of his father, however, I have no doubt that both Fernando Gonzalez and Rogelio Zambrano have been chosen for their great capacity to be able to continue driving to CeMex in the manner that had been done to date and that will continue to grow and face the current challenges facing, such as the draft of fusion that bring between hands Lafarge and Holcim. I offer my most sincere condolences to the family Zambrano and all the members of CeMex, because I know for a very good source, that Lorenzo Zambrano was very beloved to all his employees, Requiescat in Pacem. Hopefully the companies are prepared for an eventuality such as this. We will have to see…

 

29 March 2014

Corporate Governance and the Social Market Economy

Businesses are the Economic Engine of the countries and therefore of society. Hence arising from both employment and income we enjoy many of us. If that wasn't enough, both economic growth and economic development came from corporations, because of this, it would be very difficult to perceive the world without them. For this reason, the mechanisms both internal and external of Corporate Governance are of the utmost importance for the proper functioning of the firms, because that would guarantee an increase in the productivity, competitiveness and on all its stay in the market. In addition, it is important to take into account the economic model, in which companies operate because this would be a determining factor for the strategies in the field of Corporate Governance as well as how they interact with the society and some other actors (for example the State) that might be involved with them.

One of the economic models that has boomed in the last few decades is the Social Market Economy (SME), to which several authors call it the “third track” between the command economy (socialism), which is regarded as highly ineffective, and the free market economy (capitalism) which is found in the nineteenth century, to which he had also considered inefficient. According to the philosophy of the Social Market Economy, mentions that it is not enough that there is an ethical order in the form of the functioning of the economy which is considered as the basis of any stable society, if not that it is felt that the State should take a more active participation, in such a way that could provide a permanent social policy. The SME focuses its efforts in order to stress that this is a model in which the participation of society is crucial.

Alfred Müller-Armack is the first to coin the term of Social Market Economy, in 1947 they released their book “Leadership in economic policy and market-oriented economic policies” (“Wirtschaftsordnung und Wirtschajtpolitik”, by its title in German), in which he mentions, “with the goal of creating an economy that from the base of the competition combines the free initiative with a social progress thereby ensuring the economic capacity”. Here is presented in a way a theoretical scheme of what is called the “third way”, namely, the two that were in force at that time were socialism (command economy) and capitalism (free market economy). After the Second World War, the resurgence of the destroyed Germany, originated the idea that the economy should have as spine the free market but should be headed by the social criteria, this is, is an economic system hybrid between the freedom that should have the market and the steering by the State in economic policies very linked to the society. Alfred Müller-Armack calls this the “Formula Irena” that alludes to the Greek goddess of peace Eirene (daughter of Zeus). This is due to the fact that the SME conceives of social peace as the result of a well-functioning market economy with social participation and humanist by part of the State.

The theories presented by Alfred Müller-Armack, are a combination of elements of the ordoliberalism (also called German neoliberalism), of the sociological liberalism and Catholic Social Teaching.

Walter Eucken is considered as the intellectual father of ordoliberalism, which raises to the so-called School of Freiburg (Freiburger Schule), which is joined by other intellectuals of that era as: Franz Böhm, Hans Großmann-Doerth and Leonhard Miksch, later they were also joined Wilhelm Röpke, Alexander Rüstow, Alfred Müller-Armack and Ludwig Erhard, which are a group of economists that make up finally the movement of the Social Market Economy (Soziale Marktwirtschaft).

With the formation of the School of Freiburg, was gestured “the German Miracle”, with the purpose to get out of the crisis so severe that Germany faced at the end of the Second World War as well as reestablish the economic and social order.

The basic principles which underpin the Social Market Economy are:

  1. Ethical principles that are closely related to human dignity, the common good and welfare as well as the solidarity and subsidiarity, in such a way that the economic system is at the service of man through a liberal system with margins and limits regulated by the ethical principles and values of any society.
  2. It is a System of Perfect Competition, in which the prices and the quantities demanded and produced are regulated by the market where there is a sufficient amount of suppliers and customers.
  3. Ensure the Currency Stability in which it must keep a constant purchasing power value of the currency through monetary policy proposal and executed by the central bank with great independence from the State.
  4. Grant Free Access to the Markets by what must be regulated in order to that there are no barriers to entry or exit with the purpose of obtaining a full efficiency in any market for products, inputs and services.
  5. There must be full Contractual Freedom owing to the need for the establishment of the contracts is free-form for the existence of full competition, otherwise, the State should intervene through a legal framework that will ensure social justice in the way of handling contracts.
  6. Private Property must have a fully social function, to what is called social mortgage, in such a way that there is the principle of a universal destination of goods.
  7. Granting of a Full Responsibility on the part of all the actors in the system, owing to we are looking for the freedom in the economic benefit by saving the core ethical values as the common good moderation social and environmental responsibility.
  8. Constancy in the Economic Policy on the part of the State in the sense of ensuring the welfare of all social actors involved in the economy.

 

The Social Market Economy is the primary objective that is the economic policy proposed by the European Union. Article 3, paragraph 3, rescues of the Treaty of the European Union the way in which it will operate the internal European markets, “will work toward the sustainable development of Europe based on a balanced economic growth and price stability, in a highly competitive social market economy, aiming at full employment and social progress, at a high level of protection and improvement of the quality of the environment”. The foregoing is employment in 2004 in the Article I-3 Paragraph 3 of the Treaty establishing the European Union, this failure by what was resumed in the Lisbon Treaty which entered into force in the year 2009. In addition, the economic system that governed to the European Union is “with respect to the principle of an open market economy and free competition”, in such a way that in the Article 119 of the Treaty on the functioning of the European Union, both monetary and economic policy is subject to the Social Market Economy, so that in the Maastricht Treaty of 1992 it is incorporated.

In the Treaty establishing the European Union in its Article I-3 Paragraph 2 mentions that there must be an “internal market with free competition and without restrictions”, which as I mentioned above is one of the principles of the Social Market Economy, by what we can observe that the guideline which has the economic system of the European Union is the Social Market Economy.

It is an undeniable fact that the Social Market Economy is currently running in the world, the example of the European Union it is perhaps the classic case, in fact this economic system originated in Germany, and from what we been seen it worked very well. Companies should take its leading role in this economic system and to review the theory of Corporate Governance we can tell that they are designed precisely to address this economic model. However much remains to be done, especially here in Mexico. Companies are already in tune with this model, but what of the government? And even more, of the current government? I believe that only time will tell us if this government has this Social Responsibility that we need so much, I hope to be able to see it because we have just the time and the social actors in Mexico don't see very well, we are still left with blockades of roads, of public places and spaces for the freedom of the Mexicans is guaranteed in all the senses. Perhaps the reforms that have been enacted and approved go in this direction? We will have to see…

 

28 February 2014

Corporate Governance arrives at the Vatican

Jorge Bergoglio, better known as the Pope Francisco, has announced this February 24th, 2014, the establishment of a Secretariat of Economy for the State of Vatican City, as well as issued by the Pontifical spokesman Federico Lombardi. The Vatican Press Office issued a note to mention that the institution just created "Will have authority over all the economic activities and administrative to the inside of the Holy See and the State of the Vatican City". It is further noted that "The reform has the precise objective of improving the utilization of resources, thus enhancing the help available for the various programs, including the working with the poor and the marginalized". And it is explained that "The changes will allow a more explicit participation of high-level experts with experience in financial management, planning and reporting", the papal document was published moments later in the Official Journal L’Osservatore Romano. This economic reform carried out by the Pope Francisco is done via a “Motu proprio”, which is a decree emanated directly on its own initiative of the Pope, which is entitled suggestive “Fidelis dispensator et prudens” (“Admin faithful and wise”) that was inspired by the biblical quote Luke the Evangelist.

Responsible for the new Vatican Secretariat of Economy will be a cardinal, to which him will be called Prefect; so, the first one will be the archbishop of Sydney, Australia, George Pell, and apparently the Secretary-general of this organization shall be the Spanish priest Lucio Vallejo. In addition it also emphasizes the creation of a figure of General Auditor, who shall be appointed soon by the Catholic leader, and that will be endowed with powers to review any agency or institution of the State of Vatican City. The Vatican Secretariat of Economy, will be responsible for preparing an annual budget, as well as the financial planning of the Vatican, in addition it will have several support functions such as human resources and provisioning, the most important thing is that there will be a complete balance sheet with all the financial information that is generated in the Holy See.

With the creation of the Vatican Secretariat of Economy, also it is consider the establishment of a Council of Economy, consisting of 15 members, which still must be appointed by the Pope Francisco. Of the members to be included, 8 will be bishops or cardinals and the 7 remaining members shall be specialists not clerics in financial issues of several nationalities, with "competence in financial matters" and "recognized professionalism". This council will meet periodically to evaluate policies and specific practices, as well as prepare and analyze the relations on the economic and administrative activities in the Vatican.

The existing administrative offices in the central government of the Catholic Church not be replaced by these new structures, that is to say, the Prefecture for the Economic Affairs and the Administration of the Patrimony of the Apostolic See (APSA, by its Italian acronym for l'Amministrazione del Patrimonio della Sede Apostolica), the latter which serves as the Central Bank of the Vatican, will continue with its current functions, as they have done so far, in fact, both the Vatican Secretariat of Economy as its Council of Economy will take the responsibility for coordinating existing offices.

However, the Council of Cardinals for the economic and administrative problems of the Holy See, which is composed of 15 cardinals from various nationalities, disappears, because the functions of the latter shall be taken by the two agencies that have just been created.

Following the resignation of Joseph Ratzinger, the previous Pope Benedict XVI, which lasted from April 19th, 2005 until February 28th, 2013, by which the March 13rd, 2013, Jorge Bergoglio was elected on the fifth ballot carried out during the second day of the conclave. Takes the name of Francisco, by the holy italian Francisco of Assisi, and becomes the Pope 266 of the Catholic Church and is therefore the Head of State and the highest authority of the Vatican City State, which gives it a immense power both ecclesiastical and economic. It is therefore the only theocracy of Europe. The functions of the government delegated on the Secretary of State, the archbishop Pietro Parolin. Other functions of government will be assumed by the Governor of Vatican City State, the Cardinal Giuseppe Bertello. In addition, the Pope Francisco is also the “Vicar of Christ on earth” and the “Successor of Peter”, to those who profess the Roman Catholic religion.

Nestled within the city of Rome, Italy, is the small country-state, which is known as the State of Vatican City. It has an extension of 0.439km2 or 44 hectares, which represents the smallest country in the world, only the Basilica of San Pedro represents 7% of its surface area and along with the Plaza de San Pedro occupy 20% of its total surface area, which means that it is the most urbanized country of the world. The number of inhabitants is 932, and the official language is Latin. It is one of the six European micro-states (Andorra, 468 km2; Liechtenstein, 160 km2; Malta, 316 km2; Monaco, 2.02 km2; San Marino, 61.19 km2). In 1984 the Organization of the United Nations Educational, Scientific and Cultural Organization (UNESCO), declared it as a World Heritage Site. The Kingdom of Italy conquest in 1870 the Papal States to that on February 11st, 1929, after the signing of the Letrán Pacts born the Vatican City State, an independent nation.

The financial support for the Vatican City State comes from a wide variety of sources, including investments, real-state income, and the donations of people catholic dioceses and institutions, these help to finance the Vatican bureaucracy, best known as “Roman Curia”, the diplomatic missions, and the media. On the other hand, an annual collection of diocese and donations go directly to a budgetary fund, known as Peter's Pence, which is used directly by the Pope by charity, disaster relief, and aid to the churches in developing nations. Donations have increased between 2010 and 2011. The budget of the State of Vatican City includes the Vatican Museums and the post office and is financially supported by the sale of stamps, coins, medals and tourist souvenirs, covered by fees for admission to the museums; and by the sale of publications. Their income increased between 2010 and 2011 due to the expansion in the opening hours and a growing number of visitors. However, the Holy See has not escaped the financial crisis that is affecting other European countries; in the year 2012 began a review of expenditures to determine where reduce costs to reverse its 2011 budget deficit of 15 million euros. Most of the costs of wages and other costs related to staff; the income and living standards of workers are comparable to those of their counterparts working in the city of Rome.

The Corporate Governance finally arrived at the Vatican. The internal mechanisms for monitoring and surveillance as well as the creation of agencies of transparency will make the corruption and mismanagement will be completed in the Holly See. The economic reform that is conducting the Pope Francisco is a good sign in the sense that the finances of the Vatican will be transparent, austere and will be watched not only by personalities of the clergy but by external personalities that obviously will be certainty of a good administration of all economic resources with which account the Holy See. This confirms that the Pope Francisco is the Pope better prepared for the post that holds and that its management will be of long-term. Now I wonder, how will this affect the whole Catholic Church of the world? It will be that these reforms are sending a clear signal of austerity and transparency to the whole Church and not only to the Vatican? We will have to see…

 

31 January 2014

Mergers and Acquisitions in the Mexican Banking System

In addition to labor markets and legal system that each country has, the theory of Corporate Governance mentions that mergers and acquisitions, best known for M&A by the acronym in English, represent another of the external mechanisms of control.

It is called Merger to the union of two or more firms which were legally separated and that from the merger will form a new society. The literature mentions several forms of mergers, however in consensus we could say that there are two types of mergers, one of them is called Pure Merger, which is formed when two or more firms join to form a new, which dissolve but are not settled, this is, the companies dissolve simultaneously to form a company formed by the assets of them, through the allocation of shares of the company resulting to the shareholders of the dissolved. The dissolution of the merged companies, if prior to the formation of the new company, can be arranged under the suspensive condition of the merger. The other type of merger is a Merger by Absorption that is when one of them absorbs the heritage of the remaining, in this case also dissolve but are not settled, this is, troop-contributing its assets to another already formed and with which they form a single body. The absorbent company has increased its capital through the creation of actions that attach to the shareholders of the companies annexed, in representation of the contributions made to the merger.

The main features that are presented in a merger are: 1) the dissolution of the company absorbed that disappears, 2) the transmission of the universality of the assets of the company being acquired to the acquiring company, 3) the shareholders of the company being acquired are transformed into partners of the acquiring company, 4) mergers are operations is usually practiced in periods of economic expansion or crisis, 5) the transfer of all the assets and liabilities of the acquired companies to acquiring companies or companies to merge to the new company, 6) the dissolution without liquidation of the acquired companies to merge, 7) in the immediate attribution to the shareholders or the companies being acquired or of the merging societies of shares of the acquiring company or of the new society.

Finally the mergers are mainly for the following reasons: a) the synergy, b) the tax considerations, c) the purchase of assets below their cost of replacing, d) the diversification, e) obtaining the control on a larger company.

On the other hand we will called Acquisition when a firm purchases all the shares of another or other businesses without merge their assets, it is a direct negotiation, in which a company buys the assets or shares of the other and in which the shareholders of the acquired company are no longer the owners of the same. As with the mergers, there are several types of acquisitions, the main forms are: Consolidation, it is a situation very similar to a merger except for the fact that it creates a completely new firm, because both the acquiring and acquired finish their previous legal existence and become part of the new company. In a consolidation, the distinction between the company that makes the acquisition and the company that is acquired is not of importance; however, the rules that apply are basically the same as mergers. Also, in both cases, the acquisitions result in various combinations of the assets and liabilities of the two companies. Acquisition of Shares, consists in buying the shares entitled to vote by delivering to change cash, equity and other values. The purchase procedure usually begins with a private offering affected by the management of a company to another. The offer is communicated to the shareholders of the company fixed as acquisition target by means of public announcements, such as the posting of notices in the newspapers. Acquisition of assets, these acquisitions involve the transfer of property titles. The procedures can be costly. A company can acquire another company by buying all of its assets and this will require the formal vote of the shareholders of the vendor company. Merger by incorporation, is when two or more existing institutions come together to constitute an institution of new creation, causing the extinction of the legal personality of the incorporated institutions and transmission to Universal title of their heritage to the new society.

In the case of acquisitions will have some advantages that are important to consider these can be a significant decrease in the cost of operation and/or production, due to the reduced staff, at the same time, it can eliminate the rivalry and the fair and unfair competition that prevents them from having a greater economic power and the realization of higher profits, you can reach to have greater profitability, because the instruments of production are more conveniently used when they are managed under a single management or are concentrated in the same space, consequently reducing the costs, therefore the company absorbent becomes a stronger society, with enjoy greater commercial credit, since it is now they can ensure an administration more methodical and a more centralized control.

However, some acquisitions may generate risks and inconveniences, especially when it is merged companies with low or zero operability with respect to signatures and highly efficient active, as they may increase the difficulties or previous distortions rather than being reduced. All of the above can trigger difficulties with an acquisition poorly handled in such a way that could cause an imminent bankruptcy for the company that is being formed on the basis of such acquisition. Because of this, they should be very careful when performing a proposed acquisition by some companies.

The theory of Corporate Governance takes into account the M&A as a mechanism of external control because usually if a firm is to submit an administrative mismanagement on the part of their managers and therefore begins to generate less wealth, that is, fewer jobs, sales, profits fall as well as a decrease in the quality of the product/service, causing that the firm is a perfect target for companies who are looking for M&A, so what suits them to the directors, it is the alignment of the objectives pursued by the company as a whole and not only by the search of the personal benefits of their managers.

This situation was presented in Mexico in the banking system after the financial crisis of late 1994, in which the majority of Mexican banks showed signs of unavoidable declines in their yields, due to the non-performing loan portfolio in the shells that made unsustainable their lending operations in such a way that many of the banks were on the verge of bankruptcy. The nonperforming loans was generated by the high interest rates that were induced by both inflation and macroeconomic policy of the government of that time, in addition to the accelerated expansion of credit to the private sector that took place between the years 1988 and 1994. The new bankers who began on at that time made clear his inexperience in the bouquet as well as their ignorance in the measurement of the risks on the credits that were giving and as if that were not enough, there were significant weaknesses in the control and supervision by the regulatory authorities of the banking portfolio.

The only feasible way they saw the Mexican banks in early 1995 was through mergers and acquisitions, so that in May of 1995 it began the new makeup of the Mexican banking system with the merger of the Multibanco Mercantil Probursa merged by part of the Spanish bank Banco Bilbao Viscaya, for November 1995, the Banco del Centro merged with Banco Mercantil del Norte. There not just this situation, indeed that is the beginning of a series of mergers and acquisitions that I’ll show below:

I. June 1996, Banoro is acquired by the Banco Mercantil del Norte.

II. July 1996, Inverlat is associated with Scotiabank.

III. August 1996, Banca Cremi and the Banco de Oriente are acquired by the Banco Bilbao Viscaya.

IV. March 1997, Banca Serfín is associated con HSBC.

V. May 1997, the Banco Mexicano merged with the Banco Santander.

VI. August 1997, Banca Confía is acquired by Citibank.

VII. August 1997, Banpaís is acquired by the Banco Mercantil del Norte.

VIII. December 1997, the Banco del Atlántico, the Banco del Sureste, and the Banco Interestatal are acquired by the Banco Internacional (Bital).

IX. June 1999, Banca Promex and Banca Unión are acquired by Bancomer.

X. April 2000, Banca Serfín merged with the banco Santander Mexicano.

XI. October 2000, Bancomer merged with the Banco Bilbao Viscaya.

XII. November 2000, Inverlat merged with Scotiabank.

XIII. October 2001, Banamex merged with Citibank.

XIV. November 2001, Bancrecer merged with the Banco Mercantil del Norte.

Both the revolution in information technologies such as the globalization have resulted in the expansion of the markets as well as the decrease in production and marketing costs by what many economic sectors, such as the Mexican banking system, have been restructured. Mergers and acquisitions have been strategic instruments by which firms have carried out the restructuring that need to increase their sizes and accelerated significantly, which has represented an increase in their economies of scale and scope with which increase their yields and participation in their respective economic sectors. It generates a challenge for public policy in the sense of allowing corporate restructuring necessary but at the same time the protection of a fair competition between companies. There is still to wait a reasonable time to verify that the mergers and acquisitions in the banking sector is going to be beneficial to Mexico, will be that these strategies will generate a sustained economic growth and accelerated in spite of the financial reform that has promoted the current Mexican government? We will have to see…

 

22 December 2013

Correlation of forces in the Corporate Governance

The current government has presented a series of structural reforms (educational, financial, agricultural, energy, political), of which there are still some that are about to be adopted by senators and deputies and that have caused great controversy in Mexico. While some groups insist that these reforms will be catastrophic for the country, other submits that will be beneficial.

The groups that are against the reforms that have been submitted are the political parties of the left as they are: the Labor Party (PT, by its Spanish acronym for Partido del Trabajo) and its leader Alberto Anaya, the Party of the Democratic Revolution (PRD, by its Spanish acronym for Partido de la Revolución Democrática) and its leader Jesus Zambrano, the Citizen Movement (MC, by its Spanish acronym for Movimiento Ciudadano) and its leader Dante Delgado and the Movement National Regeneration (MORENA, by its Spanish acronym for MOvimiento REgenaración NAcional), and its leader Martí Batres as well as its spiritual leader Andres López (it should be noted that this last individual has contents to the Presidency of the Mexican Republic on two occasions and have not been able to win). In addition to the above are the members of the National Coordinator of Education Workers (CNTE, by its Spanish acronym for Coordinadora Nacional de Trabajadores de la Educación) which was created on December 17th, 1979, and it is precisely in these moments that meet 34 years are at a sit that has been going on for several months in protest of the reforms listed above but on all of the education. All of them contend that the structural reforms will bring more disadvantages and less competitiveness to Mexico, the consequences are devastating in all the senses, political, economic and social.

However, despite the above, there are many other groups were in favor of structural reforms, an example is Victor Gonzalez, who is the President of the National Governing Council of the Mexican Institute of Finance Executives (IMEF, by its Spanish acronym for Instituto Mexicano de Ejecutivos de Finanzas, A.C.), which says that with the approval of reforms Mexico will have an accelerated growth of the 5 and 6 percent, as well as greater attraction of investments and that it will generate 1.5 million jobs that the country needs. At the same time, the president of the National Committee of Economic Studies of the IMEF Federico Rubli mentions that the inflationary effect of the reforms only will be reflected in a principle of the implementation of these, but in the coming months will be diluting as well as the Bank of Mexico must make use of the tools of monetary policy to reduce this inflationary effect that could be presented.

With the above, in my humble opinion do not believe that what mention the IMEF is entirely correct. Each of the structural reforms has its positive points, but to revise them in greater depth in each one of them will have more negative points that could make your implementation is directed more toward the negative side the positive. In addition, all makes it appear that what is happening is what is called the Correlation of Forces.

A colleague of mine, Victor Sanchez, spoke to me for the first time a few weeks ago on the Correlation of Forces, which can be defined as the relations of power and strength that each of the groups in power can exert to achieve their goals, whatever, but that if in favor of its cause, in addition, these groups of power could generate positive or negative things for society as a whole. As well the power is understood as a relationship of forces in the domain of a given society and can be understood as the ability to exercise an action to obtain objectives on the part of that group of power.

We can guess that “Where there is power there is resistance” by what leads to the so-called Correlation of Forces, due to the confrontation in the pursuit of the goals of the power groups originate from both the resistance as the use of power to counteract to the opposing party, already that should be considered the mutual relationship of confrontation and struggle as well as the relationship of the domain of a group on the other.

This entire situation is happening in the macroeconomic and social environment of Mexico, the resistance is the left while the group in power that is represented by the government give rise to all this conflagration that live in these days.

If the above situation is given at the social level, I have a question, the Correlation of Forces will not occur into a company? That is to say, there will be groups of internal power that make the company work or not in a way harmonious?

Obviously, the search for the answer to these questions we can tell that it was precisely because the alignment to the interests and objectives of a company are achieved with efficient mechanisms of Corporate Governance that since the time of Berle and Means (1932) passing through the theories of the firm of Fame (1980) (Nobel prize awarded in 2013). In 1976 Michael Jensen and William Meckling wrote about the theory of the firm, where applied the theory of agencies on modern corporations. These authors formally modeled problem principal-agent, finding that cost is incurred due to the conflict of interests between managers and owners. By what each group of internal power have its own objectives, which sought to achieve at any cost. These authors showed that an administrator, which does not have absolutely nothing of rights on the cash flow of the firm, has a potential conflict of interest with the shareholders of the company. Since then the financial economists have worked to understand, define, measure, and minimize such conflicts of agencies; or more precisely, to minimize its negative impact on the value of the firm.

With all of the above, makes me think that my colleague Victor Sanchez to the mention of the term Correlation of Forces was fortuitous for our talk of that time, but that has been widely applied in the company through the Corporate Governance and its control mechanisms both internal and external. It is worth mentioning that each of the companies use to Corporate Governance in a different way and I have also found that for each of the companies have a different meaning, however, the result is the same, the alignment of the objectives of each of the group in power that coexist in a company. It would be possible in a medium-term all firms have the same concept on the Corporate Governance? We will have to see…

 

24 Novermeber 2013

Corporate Governance in the State-owned Enterprises

In private companies, the objectives of the managers and shareholders can enter in conflict due to the fact that shareholders have as main goal the maximize the value of their investment in the company, while for the administrators, the objectives are others, such as the satisfy their own desires in terms of their salary, recognition, power, the thrill to the challenge, and the opportunity to make a difference in the world, among others, that translates into control over the company in addition to that they are responsible for the handling of the financial and corporate information. The above leads to the fact that the mechanisms of Corporate Governance. Therefore I am a question arises, the Corporate Governance may also apply for public companies?

Private companies have a goal of securing profits while in state-owned enterprises are not pursuing profits but the common good of society. In private companies the decisions are taken by few people, which make it more efficient the decision-making process, while in public enterprises, the decisions are taken by many people and the process is obviously very bureaucratic. In the private companies, the administrators are either elected or kept in their charges through the correct performance that each person has in their management, while in state-owned enterprises generally administrators are elected or retained in their charges through the or nepotism and cronyism that each one of them, which would mean that are probably not the best people to lead the public companies in which they come to be, and finally, when it have situations of crisis, private companies could reach to break or deal with complicated financial situations in exchange for public companies the state can never go to break, in case that this were to happen, the state injected Cash flows to maintain the operations of this type of companies.

Due to the above we returned to the question, as it could be the Corporate Governance in public enterprises? By what I set the task of investigating how the Corporate Government arrives to work in public enterprises. Fortunately I found that if there are codes of Corporate Governance practices that also apply to public companies. One of them emits the Organization for Economic Cooperation and Development (OECD), calls the OECD Guidelines on Corporate Governance of State-owned Enterprises (2011), which as mentioned the same OECD in that document, is an “extension” of the OECD Principles of Corporate Governance issued in 2004 for private companies. Likewise, the consulting company Deloitte issued Corporate Governance Practices in entities of the Public Sector (2010). This means that it is possible that public companies may have the inside their codes of Corporate Governance.

The two documents agree that State-owned Enterprises have a leading role for the society, are the companies that could generate higher economic growth in a country even greater than the private sector companies, because of this, it is very important to take into account the guidelines that have Corporate Governance for the correct operation of that.

Likewise, we might well ask another question, why is it necessary that the State-owned Enterprises have good Corporate Governance mechanisms? The answer would seem obvious, as was mentioned above, public companies are more complex than the private companies, in addition to the administrators of that is possible that lack the skills, abilities and attitudes to be able to carry out good management in a matter of planning and control. In accordance with the document of the consulting firm Deloitte, identified some factors that make the administrative process in the private firms is very inefficient: A. There are a lack for a competitive market by what lack of need for effective and efficient processes; B. public enterprises have greater ease of access to financial resources, this allows you to generate an economic waste eloquent; C. The State fully supports public enterprises, which affects the responsibility that in other circumstances should assume their administrators before the scarcity of resources; D. electoral cycles make the objectives are not carried out at the time in which they were in place, the current administration as well as the political interests that each one of the administrators could have; E. personal interests and party favor that the management of the resources generates the high-level corruption and inefficiency of regulators that could avoid this corruption.

The OECD Guidelines on Corporate Governance of State-owned Enterprises, are the following (taken from the official document of the OECD website):

I. How to Ensure a Legal and Regulatory Framework effective for State-owned Enterprises. The legal and regulatory framework for public enterprises should ensure the equality of conditions in the markets in which companies compete the public sector and private sector enterprises, in order to avoid market distortions. The framework should be based on and be fully compatible with the OECD Principles of Corporate Governance.

II. The State acting as Owner. The State should act as an owner informed and active, and establish a property policy clear and consistent, ensuring that the Corporate Governance of State-owned Enterprises is done in a transparent and accountable manner, with the required level of professionalism and effectiveness.

III. Equitable treatment of shareholders. Both the State and public companies should recognize the rights of all the shareholders, and according to the principles of the OECD on Corporate Governance, ensure a fair treatment and equal access to corporate information.

IV. Relations with interested Parties. The property policy of the State should fully recognize the responsibilities of public enterprises with interested parties and request to report on their relations with these.

V. Transparency and Disclosure. Public enterprises should maintain a high level of transparency in accordance with the OECD Principles of Corporate Governance.

VI. The responsibilities of the Boards of State-owned Enterprises. The boards of public enterprises should be sufficient authority, competence and objectivity to perform its function of strategic guidance and oversight of the administration. Should act with integrity and take responsibility for their actions.

The Corporate Governance Practices in entities of the Public Sector, which emits Deloitte give the pattern using a few basic principles that would lead to public enterprises to effective governance. To the effect that State-owned Enterprises are able to identify some elements of Corporate Governance which can contribute to its operation, in accordance with the official document, then presented these Corporate Governance principles:

1. Leadership and commitment of the government bodies. To create a system of effective government, the composition of the governing council and other bodies of government, whether ad hoc committees or other similar support to the Council, they must have clarity about the responsibilities that are assumed and the commitment that exists with regard to the citizens.

2. Communication. One of the current opportunities of the public sector is placed on communication between their areas and all those fields that are connected to their operations and services. Such failure in the communication limited fluency in the operations of the entities, and impedes the flow of information in the times and with the opportunity that is required toward the corresponding filters, affecting with this capacity for an adequate and efficient decision-making process.

3. Accountability. To correctly identify when there must be accountability, it must define who is responsible, by which it is responsible for which it is responsible and when is responsible. The lack of these threat criteria compliance with organizational objectives. When accountability is adequate is familiar with the functions of each of the members and it optimizes the response to any contingency.

4. Transparency. Perhaps the transparency in all its aspects is the most important element that should be in the public sector in our country. The lack of clarity in the information undermines confidence in public institutions by the third parties involved. Show how resources are obtained, the expenditure of the same and the management of operations, shows that public entities are reliable, responsible and with a good governance, in addition to providing the optimal public image.

After all the above, I now another question arises, how is it possible that in the Energy Reform that introduced the federal government last August 12nd 2013, does not include these practices of Corporate Governance for State-owned Enterprises? In fact, the major public enterprises of Mexico are precisely those that are in the energy sector this is, Mexican Oil Company (PEMEX, by its Spanish acronym for PEtroleos MEXicanos) and the Federal Electricity Commission (CFE, by its Spanish acronym for Comisión Federal de Electricidad), which are the larger State-owned Enterprises in whole Latin America.

Perhaps I am very ingenuous to think that the current Mexican government could get to do things well, this is, with transparency, without partisan interests or personal, trying to decrease or why not eliminate the corruption that much damage has been done to Mexico. It is clear that what you are most interested in the Mexican political class is to get rich at the expense of the people, continue to get high returns because of their links with the entrepreneurs elected to serve the government as parapet and continue with corruption so excruciating for the natural resources that has Mexico. The oil is and will continue to be the “black gold” for the politicians of Mexico. Perhaps some day in Mexico there will be a government fair, equitable, efficient, transparent and without corruption? Perhaps I do not live to see it, just as it happened with my father, which he never saw in its 62 years of life to a Mexico fair and honest, by the ones who fought until the last day of his death, in memoriam for Juan Dâvila, Requiescat In Pacem (November 12nd 1998). Only hope that my children if they live in a Mexico other than the current. We will have to see…

 

23 October 2013

Consortium Volkswagen.

In the theory of Corporate Governance will have various control mechanisms to allow companies to alleviate the problem of agencies that are introduced, and since then that such control mechanisms are aimed at in the search for a good performance of the firms. The mechanisms in which the company has a greater influence are the internal ones. One of them is represented by the creation of business groups, in this, the purpose is to obtain the profitability and the highest performance it will be possible for the companies through the generation of a Consortium that will have the greatest amount of satellite companies, this is, it does so through the acquisition or merger of companies, ranging from those that are closely related as the companies that do not have the slightest relationship.

This strategy has been adopted by the Consortium Volkswagen. We realized that due to the fact that since several years ago has been merging or acquiring many companies in the automobile industry, as well as other industries no longer so closely related to the automobile industry as it is the financial one, since April 1st 2008 was founded the Volkswagen Bank with headquarters in Puebla. As mentioned earlier, this strategy is aimed to obtain the highest profitability of the entire Consortium Volkswagen.

In addition, this coincides with the corporate strategy toward 2018, where it is mentioned that this strategy is focused on positioning the Consortium Volkswagen as the leader among automotive manufacturers worldwide, through four objectives that will make Volkswagen manufactures the most successful and fascinating cars in the world (taken from the corporate website of the Consortium Volkswagen):

1. Volkswagen intends to deploy intelligent innovations and technologies to become a world leader in customer satisfaction and quality.

2. The goal is to increase unit sales to more than 10 million vehicles a year; in particular, Volkswagen intends to capture an above-average share of the development of the major growth markets.

3. Volkswagen intends to increase its return on sales before tax to at least 8% so as to ensure that the Consortium Volkswagen’s solid financial position and ability to act are guaranteed even in difficult market periods.

4. Volkswagen aims to become the top employer across all brands, companies and regions; this is necessary in order to build a first-class team.

Currently the Consortium Volkswagen account with twelve marks from seven European countries:

Brand Country of origin Year of acquisition
Audi Alemania 1964
Bentley Reino Unido 1998
Bugatti Francia 1998
Ducati Italia 2012
Lamborghini Italia 1998
Maschinenfabrik Augsburg-Nürnberg SE (MAN SE) Alemania 2011
Porsche Alemania 2009
Scania Suecia 2008
Škoda República Checa 1991
Sociedad Española de Automóviles de Turismo (SEAT) España 1982
Volkswagen Alemania 1937
Volkswagen Vehículos Comerciales Alemania 1956

In addition, the consortium Volkswagen is holder of the 19.9 % of the shares of Suzuki (Japan) and 90.1 % of the shares of Italdesign Giugiaro (Italy).

In accordance with the official information from the Consortium Volkswagen, operates 105 plants of production in 19 European countries as well as in more than eight countries in the Americas, Asia and Africa. It has 550.000 employees worldwide that manufacture 37.700 vehicles daily. Its vehicles are sold in 153 countries of the world.

When on January 30th 1933 Adolf Hitler is appointed chancellor of Germany, picks up the project to build a car that was accessible to the vast majority of the Germans, with the main objective to show the world that the German plants were the most competitive of all Europe, through a policy of state with a great support to the German industry. It is as well as you are responsible to Ferdinand Porsche the project of the construction of the “car of the People” (Volks wagen). Therefore, the goal of Adolf Hitler was to build the factory largest automaker in Europe, that he gave the task of looking for the ideal place for this purpose. The features that It was looking for was, in the first place that had access to a navigable waterway, in second place was necessary to take an own electric power station, in a way that could supply power to both the new factory as to the city because he believed that the factory should have its own city where will shelter to all workers and their families from the Volkswagenwerk. The location selected was the town of Fallersleben on the shores of the channel of Mittelland. Since the fourteenth century this village was part of the county of Schloss Wolfsburg, which was owned by the count Friedrich-Werner Graf von der Schulenburg.

Adolf Hitler called the car as Kdf-Wagen (Kraft durch Freude: strength through joy) and the city is named as Kdf-Stadt. However this name is only mentioned in the catalogs and between the Nazi military, as in all of Germany he was known as Volkswagen, beetle or Bettle. Although Ferdinand Porsche made the drawings and designs of the Kdf-Wagen, Adolf Hitler was the sharpened the last details of the Bettle.

It was as well as the May 28th 1937 was founded the city and the new factory, arrived more than 70,000 people from all corners of Germany to be present at the opening ceremony where since then Adolf Hitler was present mounting in a Kdf-Wagen convertible drive by Ferdinand Porsche.

At the end of the second world war, the British government took control of the factory that was totally destroyed by bombing to produce again the model beetle during the difficult years of the postwar era, however, for the year 1948 by the management of the former head of Opel, Heinrich Nordhoff ensured that the British government returned the company to the German government.

The German federal government issued shares in 1960 for the German stock market in such a way that changed the name of Volkswagenwerk Aktiengesellschaft and for the July 4th 1985 it was appointed as Volkswagen AG.

In March 1954 are arriving in Mexico the first models of Volkswagen.

In January of 1964 started operations the Volkswagen of Mexico’s company.

Construction work of the Volkswagen plant in Mexico beginning in June 1965 in the city of Puebla.

In October 1967 in the Puebla plant is constructed the first Volkswagen sedan, which is the official name given to the “vocho”, or “Bettle”.

The Volkswagen sedan has reached the amount of 1’000,000 units in September 1980.

In July 2003, almost forty years of interrupted production of the Volkswagen Sedan in the plant of Puebla, ends the worldwide manufacture of the “vocho”. Since 1946 there were manufactured 21’529,464 units.

Definitely after having reviewed the information concerning the Consortium Volkswagen makes me think that the theory of Corporate Governance is made specifically for this company. There is no doubt that lead to practice each of the theories and concepts which frame the Corporate Governance and on everything related to the formation of economic groups. Here I will tell you an anecdote, in recent days was visiting here in Puebla Hans-Martin Bühlmann. He and I went to visit the Volkswagen plant that it is found in this city and were really surprised by this vast and fascinating plant, in addition we are thankful to all the people that we dealt with and that made possible the visit to Volkswagen in Mexico, especially Thomas Karig and in particular to Donaji Baez. However, it will be possible for the Consortium Volkswagen achieved their objectives that have been raised? The will be able to achieve without any mishaps even in spite of future financial crises that could occur during the next 5 years? We will have to see…

 

25 September 2013

Competitiveness and Corporate Governance

Corporate productivity as a whole leads to the competitiveness of a country, by the need to be defined and measured is very complex because there are so many factors both internal and external which can cause either an increase or a decrease in competitiveness. The World Economic Forum, each year publishes the World Competitiveness Report, in which it manages a Global Competitiveness Index (GCI), which is measured by 12 pillars that consideration of the World Economic Forum are the most important, as well as those who have been measuring for several years now. In the case of Mexico, the institutions that are responsible for collaborating with the World Economic Forum for the measurement of the index are: the Mexican Institute for Competitiveness (IMCO, by its Spanish acronym for Instituto Mexicano para la Competitividad, A.C.), the Center for Intellectual Capital and Competitiveness (CeCIC, by its Spanish acronym for Centro para el Capital Intelectual y Competitividad, A.C.) and finally the Ministry of the Economy, however, in my point of view there are a lack with the academic sector in the built of the GCI for Mexico, because that could provide some of the theories in order to improve these indexes.

The 12 pillars mentioned by the World Economic Forum, they are grouped into three forces that would lead to a better and greater competitiveness of countries, these would be: the Basic requirements, that are key to raise the productive factors in a country; the Efficiency enhancers, which would lead to an improvement in the economic efficiency of the countries and finally the Innovation and sophistication factors, which would generate that the countries to become much more innovative.

I will mention in a very general way what are these 12 pillars that built the Global Competitiveness Index grouped into the three forcers that built the World Economic Forum, namely:

Basic requirements.

Pillar 1. Institutions: the institutional environment is determined by both the administrative framework such as the legal framework, which represent the way in which individuals, firms and the government interact to give way to an increase in income and economic welfare of a country. The quality that it have in that institutional environment will result in the degree of well-being that can be achieved by the society and the country as a whole.

Pillar 2. Infrastructure: the economy is determined by the efficiency that is placed in the infrastructure provided by the government in each of the countries. Everything that it can mention as infrastructure, the most important thing this referred to the investment in transport infrastructure, to be achieved in each of the countries, by what these should be efficient and of very high quality.

Pillar 3. Macroeconomic stability: this pillar can only be provided by the government through its fiscal and monetary policies that provide decides to ensure macroeconomic stability, which is an important pillar to generate productivity and hence competitiveness.

Pillar 4. Health and primary education: a healthy society will be a society highly efficient, productive and that generate a high competitiveness to their country of origin, in the same, basic education that is to be achieved by the population will be more productive by what e reflected in greater competitiveness.

Efficiency enhancers.

Pillar 5. Higher Education and training: when the countries want to grow much more and in an accelerated manner there is a need for a great quality in higher education and the training that its workforce can get. Both the private and public sectors must put too much emphasis on this fifth pillar, since it is essential for the competitiveness that is achieved in each of the countries.

Pillar 6. Goods market efficiency: goods markets are theoretically efficient, however, to put them into practice come to be seen certain inefficiencies that make the laws of supply and demand do not reach the expected equilibrium in the markets. The countries that succeeded in eliminating these inefficiencies are those that are coming to be more competitive.

Pillar 7. Labor market efficiency: the labor market is a very important factor for any country, in addition to that it is required to be efficient. Many of the countries where the labor market is highly efficient find himself in a situation of great competitiveness, the opposite also applies, countries with highly inefficient labor markets are less competitive.

Pillar 8. Financial markets development: the financial market is crucial, since here emanate from the productive investments that enable them to make the companies that leads to a highly competitive nature of the country, it is clear that this market must be highly efficient, since this depends on the capital flows that are circulating in the interior of a country and that also runs between the countries.

Pillar 9. Technological readiness: in this pillar would be agility that would have the productive sectors in adopting new technologies that are being generated every day. Theoretically it is known that the technological change leads to economic growth in a manner very accelerated, however, the adoption of the technology is not always done in an efficient manner and early.

Pillar 10. Market Size: The economies of scale are generated in the countries where markets are large in size, and same is achieved high productivity in economies with large markets, and therefore, there is a direct relationship between the size of the market in a particular country and the competitiveness that achieves.

Innovation and sophistication factors.

Pillar 11. Business sophistication: The sophistication in the business is determined by two basic elements that are intimately linked, the quality in the business networks throughout the country and the quality of the strategies and operations that the companies have individually. In such a way, that the higher the quality of these two elements, the competitiveness will be larger for the country to achieve these goals.

Pillar 12. Innovation: each of the countries must be generators of innovation to its interior. Innovation is not only can give in the product, it can also achieve great innovations in the productive processes that generate great competitiveness on the inside as well as externally. What is the purpose of the other pillars can be achieved if a country cannot generate their own innovations, so that is also reflected the high degree of competitiveness with the high degree of innovation.

All of the above can be summarized in the figure that I take of the Global Competitiveness Report from the World Economic Forum in where they are in a very clear way the three forces with each one of its pillars and the goals that are achieved with each one of them.

With all the above is built the Global Competitiveness Index, therefore for Mexico has the following numbers:

      Subindexes
Period Overall index Basic requirements Efficiency enhancers Innovation factors
Rank Score Rank Score Rank Score Rank Score
2008-2009 60 4.23 60 4.47 55 4.16 70 3.60
2009-2010 60 4.19 59 4.47 55 4.15 67 3.57
2010-2011 66 4.19 66 4.51 61 4.09 69 3.46
2011-2012 58 4.29 67 4.59 53 4.21 55 3.65
2012-2013 53 4.36 63 4.64 53 4.31 49 3.79
2013-2014 55 4.34 63 4.63 55 4.27 55 3.79

It can be seen that the competitiveness of Mexico has been increasing, but not substantially. Although it can also appreciate that Mexico is located in the middle table, since for each of the periods of study have the following quantities of countries that have been compared.

Period Number of countires  
 
2008-2009 134  
2009-2010 133  
2010-2011 139  
2011-2012 142  
2012-2013 144  
2013-2014 148  

If we review the data for each of the guiding forces which gives us the Global Competitiveness Report can be done the following analysis for Mexico:

      Pillars
Period Basic requirements 1. Institutions 2. Infraestructure 3. Macroeconomic stability 4. Health and primary education
Rank Score Rank Score Rank Score Rank Score Rank Score
2008-2009 60 4.47 97 3.49 68 3.51 48 5.32 65 5.55
2009-2010 59 4.47 98 3.4 69 3.69 28 5.29 65 5.48
2010-2011 66 4.51 106 3.4 75 3.74 28 5.24 70 5.66
2011-2012 67 4.59 103 3.44 66 3.98 39 5.25 69 5.69
2012-2013 63 4.64 92 3.59 68 4.03 40 5.21 68 5.71
2013-2014 63 4.63 96 3.56 64 4.14 49 5.11 73 5.69

Looking at the table above we can see that the worst numbers are held in the pillar for institutions, as mentioned above, this item is external to the companies and depends only on the government management that it is made in Mexico, although it is contradictory because in the pillar in the best that it are going to Mexico is in the macroeconomic stability. Here's a great question, that will be going to the interior of the Mexican government? whereas the assessment is the worst at the institutional, macroeconomic stability is the best for this force.

      Pillars
Period Efficiency enhancers 5. Higher education and training 6. Goods market efficiency 7. Labor market efficiency
Rank Score Rank Score Rank Score Rank Score
2008-2009 55 4.16 74 3.83 73 4.14 110 3.97
2009-2010 55 4.15 74 3.86 90 3.97 115 3.82
2010-2011 61 4.09 79 3.94 96 3.86 120 3.80
2011-2012 53 4.21 72 4.07 84 4.08 114 3.92
2012-2013 53 4.31 77 4.11 79 4.2 102 4.01
2013-2014 55 4.27 85 4.03 83 4.19 113 3.94

 

      Pillars
Period Efficiency enhancers 8. Finantcial market sophistication 9. Technological readiness 10. Market size
Rank Score Rank Score Rank Score Rank Score
2008-2009 55 4.16 66 4.30 71 3.25 11 5.48
2009-2010 55 4.15 73 4.12 71 3.53 11 5.57
2010-2011 61 4.09 96 3.82 71 3.55 12 5.54
2011-2012 53 4.21 83 3.92 63 3.75 12 5.55
2012-2013 53 4.31 61 4.15 72 3.80 12 5.58
2013-2014 55 4.27 59 4.19 74 3.66 11 5.61
                 

In the above tables can be seen that the worst numbers are for the efficiency in the Mexican labor market, while the size of market places Mexico in a range of fairly high competitiveness. I believe that these data are obvious to the current Mexican economy.

      Pillars
Period Innovation factors 11. Business sophistication 12. Innovation
Rank Score Rank Score Rank Score
2008-2009 70 3.60 58 4.24 90 2.95
2009-2010 67 3.57 62 4.15 78 2.99
2010-2011 69 3.46 67 3.91 78 3.01
2011-2012 55 3.65 56 4.11 63 3.19
2012-2013 49 3.79 44 4.26 56 3.33
2013-2014 55 3.79 55 4.24 61 3.35
             

The above table presents to Mexico in a quite acceptable range and in keeping with the global ranking that has with respect to the other countries, that is, Mexico is in a situation of average table in the ruble of international competitiveness.

The information about the CGI makes us think that for Mexico are required to make major changes to increase their productivity and thus its competitiveness. Unfortunately, the current government is very concerned about other things that are completely different to locate in better positions to Mexico in the ruble of competitiveness. All the reforms that have been currently occurring in Mexico have only discontent in the population and hardly this will contribute significantly to an increase in national competitiveness, on the contrary everything is to the detriment of the progress of my country. In my humble opinion, I think it would be interesting to measure the management of each of the governmental administrations through the Global Competitiveness Index, because it seems to me that is a component that does not depend on political pressures and partisan as it would be that the same be done by Mexican entities, in addition to this, I'm going to see me prophet but I already can predict that for the present administration, the figures for Mexico will fall drastically. The private sector do not see the current situation of Mexico? The Corporate Governance will help the Mexican competitiveness? Everything we will leave in the current government? We will have to see…

 

21 August 2013

Corporate Governance and Syndicalism

When we think of the Industrial Revolution, we believe in progress, in new and novel forms of production, especially the series production. Prior to the Industrial Revolution, the productive processes were virtually in an artisanal way, in such a way that the Industrial Revolution made the entrepreneurs of the time invest larger amounts in Capital Goods (machinery and equipment) due to the change in the productive processes, therefore, they also hoped that the greater the investment made, higher rates of return, that they made ambitious and began to exploit their employees with the purpose to obtain still greater profits. Due to the above, many thinkers of the time (Karl Marx, Friedrich Engels, Mikhail Bakunin, Pierre Proudhon, Georges Sorel, among others) to realize the situation is so precarious that aroused among the working class, gave rise to the ideas on the rights of workers, which resulted in the Syndicalism movement. Therefore, the Industrial Revolution in reality brought to Syndicalism.

Currently, many of the companies in the world are liable to a trade union, same as in the theory of Corporate Governance is not referred to. The theory of agencies, only are concentrated among the top management and the owners of the companies, leaving far behind the study and the influence that trade unions can have on Firm Performance. In addition, when I was investigating on this issue, the majority of the companies listed on the Mexican Stock Market (BMV, by its Spanish acronym for Bolsa Mexicana de Valores), do not have trade unions (with the exception of the mining industry) and those that do have them, the union does not represent a ballast for the same, since they are independent trade unions and affect only the companies that emanate from them.

Here in Mexico, the problem is rather trade union for state-owned companies, which coupled with the situation in which the state is really a bad administrator, the trade unions are still the high inefficiency of the efforts on the production of public goods that deal with so much corruption that exists within and outside of the state-owned companies, are truly a great ballast that have had to drag for several decades.

On August 12nd 2013, the current Mexican government, presented its version of the Energy Reform, which, like the Financial Reform that was submitted a few months ago, it has no feet or head, that is to say, they have a lot of information but in reality they do not perceive anything in particular. One of the situations that mentions that Energy Reform is that it seeks to modify the articles 27 and 28 of the Mexican constitution for that with this, the private sector can association with some of the state-owned companies, as it is in the specific case of Petroleos Mexicanos (Pemex) and make joint investments in exploration and exploitation of oil and natural gas, especially in the unconventional reservoirs. According to the government, this Energy Reform is not to privatize the state-owned companies that provide services, but if a private company invests in the exploration and exploitation, what will happen with the profits? I guess that must be shared, so that private companies will begin to get income from these investments, it is not privatization?

As we expected, after the news, investors at the just time in they came to be known that this was the Energy Reform not supported by them so, that day the IPC (Stock market indicator) fell 1.23% as well as the peso dollar depreciated significantly. Something interesting is that since that day, the BMV has been declining day after day and so to date the IPC has decreased from 2.44% cumulatively to today's date. Which means that the Mexican business sector do not see with good eyes is Energy Reform.

Paradoxically, two companies in the energy sector that is mentioned a lot in the Energy Reform, Petroleos Mexicanos (Pemex) and the Federal Electricity Commission (CFE, by its Spanish acronym for Comisión Federal de Electricidad) are two state-owned companies that trade unions have to the most corrupt and powerful, not only in Mexico but also in the whole world.

The Mexican oil company Pemex is positioned as the eighth most important oil of the entire world, this tells us about the dimension that has this company in Mexico, since it represents the main source of revenue for the federal government, despite the high inefficiency and corruption that prevails in its interior. Then I presented the list of the top 10 oil companies in the world:

  1. Saudi Aramco, owned by the Royal family of Saudi Arabia, produces daily 12.5 million barrels.
  2. Gazprom, Russian state-owned company, produces 9.7 million barrels daily.
  3. National Iranian Oil Co., Iranian state-owned company, its production is 6.4 million barrels per day.
  4. Exxon Mobil, a privately-held company founded by American John D. Rockefeller, the daily production is 5.3 million barrels.
  5. PetroChina, Chinese state-owned company, its production is 4.4 million barrels per day.
  6. British Petroleum (BP), British privately-held company founded by William D’Arcy, its daily production is 4.1 million barrels.
  7. Royal Dutch Shell, a privately-held company dutch/uk founded by Jean Kessler, Henri Deterding, Hugo Loudon, Marcus Samuel y Samuel Samuel, its production is 3.9 million barrels a day.
  8. Petroleos Mexicanos (Pemex), Mexican state-owned company, its daily production is 3.6 million barrels.
  9. Chevron, privately owned American corporation, its production is 3.5 million barrels per day.
  10. Kuwait Petroleum Corporation, Kuwaiti state-owned company, daily produces 3.2 million barrels.

As mentioned in previous lines, the most powerful trade unions are driving the destinations of the companies in the Mexican energy sector. Below I mentioned the main trade unions and their leaders in Mexico:

National Union of Education Workers (SNTE, by its Spanish acronym for Sindicato Nacional de Trabajadores de la Educación), who is led since 1989 by Elba Gordillo. It is the largest trade union in Latin America.

Telephone Workers Union of the Mexican Republic (STRM, by its Spanish acronym for Sindicato de Telefonistas de la República Mexicana), its leader is Francisco Hernandez since 1976, who also directs the National Union of Workers (UNT, by its Spanish acronym for Unión Nacional de Trabajadores), an independent association of workers that was formed in 1997.

Oil Workers' Union of the Mexican Republic (STPRM, by its Spanish acronym for Sindicato de Trabajadores Petroleros de la República Mexicana), its leader is Carlos Romero since 1993. The oil workers union is the world's most powerful.

National Union of Mineral Workers, Metallurgical, and Similar Steel of the Mexican Republic (SNTMMSSRM, by its Spanish acronym for Sindicato Nacional de Trabajadores Mineros, Metalúrgicos, Siderúrgicos y Similares de la República Mexicana), which since 2002 has as leader to Napoleon Gomez, who from his exile in Canada directs this union.

Railwaymen Workers' Union of the Mexican Republic (STFRM, by its Spanish acronym for Sindicato de Trabajadores Ferrocarrileros de la República Mexicana), Victor Flores is its leader since 1995 which led to the privatization in the railroad industry.

All these unions are from companies or public sectors. What would happen if private companies were to these unions? Hardly would be scaled back due to the high-level corruption that exists. It is worth mentioning that the fortunes which receive the union leaders is unquantifiable, due to the fact that there is no way to check how and how much handled the quotas that give them their unionized.

How the Corporate Governance could handle the situation of a union that is in a particular company? I have been looking for in the theory to be able to understand the situation and still can't find anything. This has led me to a new line of more in-depth research on this topic, because it seems to me very interesting for us to see how it is handled the trade unions and how would these affect the business performance. I hope to be able very soon to be able to share with the readers something more detailed, clear that it will be for private companies and for those that I can give data to do so. For the state-owned companies is very difficult to be able to handle something, as they are very closed and affecting interests of many people. The Energy Reform should start with clean to the trade unions that they have, that would be the first proposal that should be done, in addition to having the intention to make more efficient companies that handles the Mexican State, in my humble opinion, that would be the real Energy Reform, and not what he has presented the current government. Syndicalism has been the best way to defend the rights of Mexican workers? Any government ever will do something about them? We will have to see…

 

7 July 2013

La Bolsa Mexicana de Valores.

Currently in the Mexican Stock Market (BMV, by its Spanish acronym for Bolsa Mexicana de Valores) there are 139 companies listed in it. For the size of a country that is Mexico, it seems to me that there are very few companies which are listed in the BMV, however, and as mentioned in the Mexican Financial Reform (my participation of the last month, June 14th 2013) it is intended that the medium-sized companies, since the companies currently listed on the stock exchange are among the biggest companies that exist in Mexico, will begin trading in the BMV in a short-term. In addition to the requirements that are so stringent and restrictive than we have right now in the BMV, the Mexican Financial Reform does not provide for concrete actions in the Securities Market Law (Ley del Mercado de Valores) in such a way as to facilitate the inclusion of medium size firms, in such a way that the rules have not been sufficiently clear and accurate for this purpose.

The stock market life in Mexico is generated when they began to negotiate the first actions of mining companies for the year of 1850, in this way the time passes until in the year of 1867 is enacted the Law Regulating the Securities Brokerage (Ley Reglamentaria del Corretaje de Valores), which would make the stock transactions would be of a better way. For the year of 1886 is constituted the Mercantile Exchange of Mexico (Bolsa Mercantil de México, S.A.) by instances of the corridors of that time.

The predecessor of the BMV was what was recognized as the National Stock Exchange (Bolsa Nacional, S.A.), which is based on October 31st 1894 with headquarters in the Street of Plateros 9 and on the corner of Street Cadena, in the historic center of Mexico city, now that street (Plateros) is known as the street of Madero. The foregoing is specific due to the efforts of three distinguished corridors of that time Manuel Algara, Camilo Arriaga and Manuel Nicolín, who promoted that the negotiations of the values were made at that time should have a normative and institutional framework.

Notwithstanding the foregoing, another group of stock brokers were organized headed by Francisco A. Llerena and Luis G. Necoechea to form the Mexican Stock Exchange (Bolsa de México, S.A.), on June 14th 1895. However, for September 3th 1985, due to the fact that they had match in the objectives and link between the members of the two stock exchanges, decide to merge and is called Mexican Stock Exchange (Bolsa de México, S.A.), while retaining its cedes in the Street of Plateros 9, and this is how the stock market begins in Mexico, within this history of the Mexican Stock Market, we can say many things, however I’ll only mention some important dates which, in my humble point of view, are relevant to mention to the BMV, these are the following:

During the early years of the twentieth century, virtually the stock market activity in Mexico was paralyzed, because international prices of the metals were very volatile and economic crises facing the country prior to the armed uprising of the Mexican Revolution, so that by the year 1908, in the alley of 5 de Mayo is the opening of the Mexican Stock Exchange (Bolsa de Valores de México, S.C.L.), which is set in place until 1920, that is when it switch from headquarters and is located in the Street of Uruguay 68, until 1957.

For the year of 1933 so we could say that the Mexican Stock Market is as we know it today, since the Law of Securities Regulations (Ley Reglamentaria de Bolsas) was promulgated and the stablishment of Mexican Stock Exchange (Bolsa de Valores de México, S.A.) which is overseen by the National Securities Commission (Comisión Nacional de Valores), what is now known as the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, CNBV).

The Securities Market Law (Ley del Mercado de Valores), enters into force in the year of 1975, in addition to that Mexican Stock Exchange (Bolsa de Valores de México, S.A.) changes its name to the current Mexican Stock Market (Bolsa Mexicana de Valores, S. A. de C. V., BMV), as well as appended the Stock Markets from Monterrey (which originated in 1950) and from Guadalajara (which originated in 1960).

On April 19th 1990, is inaugurated the new and beautiful building which will house the BMV since that date, its address is located on the Av. Paseo de la Reforma 255, Mexico City.

For the year 1995, the debt securities are owned and operated by electronic means, through the Electronic System for Trading, Transaction, Registration and Allocation (Sistema Electrónico de Negociación, Transacción, Registro y Asignación), better known as BMV-SENTRA, which is a system developed and administered by the BMV with the purpose to make more agile operations and negotiations of the values in the Stock Market, and for the year 1996, the capital market also was uploaded to the same system BMV-SENTRA.

A very important date for the Mexican Stock Market is that with effect from January 11th 1999, the entirety of the negotiations of the Stock Market were incorporated into the electronic system BMV-SENTRA, for this reason also the futures contracts over the IPC in the derivatives market of Mexico (MexDer), so that for the 30 December 30th 1999, the main indicator reached a historic high of 7,129.88 points.

The service company Corporate Mexican of the Stock Market (Corporativo Mexicano del Mercado de Valores, S.A. de C.V.), was estrablishment on January 1st 2002, with the purpose of recruiting, control and manage the staff from the BMV as well as other financial institutions with compose the Stock Center.

The company Bolsa Mexicana de Valores, S.A. de C.V, changes its name to Bolsa Mexicana de Valores, S.A.B. de C.V, since from the day of June 13th 2008, their securities and values are incorporated into the Stock Market through an Initial Public Offering (IPO) whose key is “BOLSA”.

The Governing Body of the BMV, on April 19th 2010 adopted an organizational restructuring that meant moving from an organization based in individual enterprises to five business divisions:

  1. Markets and Information.
  2. Depository, Cleaning and Settlement.
  3. Technology.
  4. Promotion and Planning.
  5. Corporate Services and Institutional Relations.

All companies wishing to sell their shares in the BMV will ask them a series of requirements, which are

  1. For that a firm can issue their shares that are traded in the BMV, it must put in contact with a Brokerage House (Casa de Bolsa).
  2. Interested companies must be registered in the National Registry of Securities (Registro Nacional de Valores, RNV), which is administered by the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, CNBV).
  3. Submit a request to the BMV, through a Brokerage House in which are annexed the financial information economic and legal that are being asked.
  4. Comply with the provisions in the Internal Regulations of the Mexican Stock Exchange.
  5. Once achieved the status of issuer, the company must meet a series of maintenance requirements of listing, such as the obligation to make public, on a quarterly basis, all the relevant information as well as their financial statements.

The number of Brokerage Houses that exist within the BMV is 34, also it seems to me that there are very few now that competitiveness is not evident in this case.

With a representative sample, balanced and weighted average of 35 issuer firms, is built the Index of Prices and Quotations (Índice de Precios y Cotizaciones, IPC), using a methodology based on October 1978, which is a major indicated on the Mexican Stock Market, which represents the equity performance according to the variations in the prices for that. So, I introduced the current sample of the companies that make up the IPC alphabetically.

Nr. Issuer Key Serie Nr. of Shares Weight
1 Arca Continental, S.A.B de C.V. AC * 448,405,461 1.96%
2 Alfa, S.A.B. de C.V. ALFA A 3,339,806,067 4.35%
3 Alpek, S.A.B. de C.V. ALPEK A 351,855,103 0.37%
4 Alsea, S.A.B. de C.V. ALSEA * 318,748,163 0.49%
5 América Móvil, S.A.B. de C.V. AMX L 31,868,289,099 17.70%
6 Grupo Aeroportuario del Sureste, S.A.B. de C.V. ASUR B 128,502,391 0.85%
7 TV Azteca, S.A.B. de C.V. AZTECA CPO 957,069,199 0.38%
8 Grupo Bimbo, S.A.B. de C.V. BIMBO A 1,308,873,732 2.14%
9 Bolsa Mexicana de Valores, S.A.B. de C.V. BOLSA A 385,059,400 0.54%
10 Cemex, S.A.B. de C.V. CEMEX CPO 8,376,249,143 5.41%
11 Grupo Comercial Chedraui, S.A.B. de C.V. CHDRAUI B 141,262,110 0.29%
12 Compartamos, S.A.B. de C.V. COMPARC * 917,375,738 0.82%
13 Grupo Elektra, S.A.B. de C.V. ELEKTRA * 71,234,561 1.45%
14 Fomento Económico Mexicano, S.A.B. de C.V. FEMSA UBD 1,603,849,188 9.65%
15 Grupo Aeroportuario del Pacífico, S.A.B. de C.V. GAP B 265,409,270 0.78%
16 Corporación Geo, S.A.B. de C.V. GEO B 462,783,253 0.11%
17 Grupo Financiero Inbursa, S.A.B. de C.V. GFINBUR O 1,855,395,847 2.35%
18 Grupo Financiero Banorte, S.A.B. de C.V. GFNORTE O 1,942,236,302 6.86%
19 Grupo México, S.A.B. de C.V. GMEXICO B 3,610,868,487 6.60%
20 Gruma, S.A.B. de C.V. GRUMA B 156,860,777 0.39%
21 Desarrolladora Homex, S.A.B. de C.V. HOMEX * 217,948,993 0.10%
22 Empresas Ica, S.A.B. de C.V. ICA * 507,072,452 0.51%
23 Industrias Ch, S.A.B. de C.V. ICH B 161,514,211 0.64%
24 Kimberly-Clark de México, S.A.B. de C.V. KIMBER A 1,362,710,701 2.57%
25 Coca-Cola Femsa, S.A.B. de C.V. KOF L 422,005,569 3.41%
26 Genomma Lab Internacional, S.A.B. de C.V. LAB B 781,264,427 0.92%
27 El Puerto de Liverpool, S.A.B. de C.V. LIVEPOL C-1 183,160,411 1.19%
28 Mexichem, S.A.B. de C.V. MEXCHEM * 974,030,035 2.47%
29 Minera Frisco, S.A.B. de C.V. MFRISCO A-1 390,722,936 0.80%
30 Ohl México, S.A.B. de C.V. OHLMEX * 415,434,414 0.62%
31 Industrias Peñoles, S.A.B. de C.V. PE&OLES * 110,615,233 2.32%
32 Grupo Financiero Santander México, S.A.B. de C.V. SANMEX B 1,849,035,038 3.29%
33 Grupo Televisa, S.A.B. TLEVISA CPO 2,387,666,654 6.90%
34 Urbi Desarrollos Urbanos, S.A.B. de C.V. URBI * 543,478,307 0.06%
35 Wal-Mart de México, S.A.B. de C.V. WALMEX V 6,571,734,616 10.71%

Due to the fact that the Bolsa Mexicana de Valores is an “Institution headquarters of the Mexican Stock Market. Institution responsible for providing the infrastructure, monitoring and the services necessary for the execution of the processes for issuing, placement and exchange of values and titles”, as well as the that the BMV “contributes to this channel of financing is carried out in a manner free, efficient, competitive, equitable and transparent, in response to certain rules previously agreed upon by all participants in the market. In this sense, the BMV has encouraged the development of Mexico, already that, together with the institutions of the financial sector, has helped to channel the savings toward productive investment, a source of growth and employment in the country”. In fact, this is the main purpose of any Stock Exchange in the world, generate domestic savings and finance companies for countries to achieve a healthy development, however, in Mexico it is still very restrictive and I do not believe that the Mexican Financial Reform will achieve that the Stock Market grows, quite the contrary, investors are very skeptical, so the IPC is still falling day after day. I believe that investors think as I do, the Mexican Financial Reform is a fiasco and it will not achieve absolutely nothing, at least until the end of the Reign of this federal administration. We will have to see…

 

14 June 2013

The Mexican Financial Reform

The Mexican Financial Reform was presented last May 8th 2013, on the part of Luis Videgaray, which leads to the Secretariat of Finance and Public Credit (SHCP, by its Spanish acronym for Secretaría de Hacienda y Crédito Público), with the main objective of promoting a proper and strong development of the financial sector in the country in such a way that Mexicans will benefit from it. According to the Secretary of the Treasury, Luis Videgaray, the above will be achieved through the “establishment of guidelines to promote financial inclusion, to which the Development Banks contribute to the growth of the sector, to promote healthy competition, achieve the promotion of credit, maintain a strong financial sector, and to make the credit an engine for productive development inclusive”.

The above are found in much more detail in the official website of the Ministry of Finance (SHCP) are also mentioned the 13 basic principles on which it supports the Mexican Financial Reform, namely:

  1. Strengthening of the National Commission for the Protection of Users of Financial Services (CONDUSEF, by its Spanish acronym for Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros).
  2. Correspondents of Savings and Popular Credit.
  3. Credit Unions.
  4. Development Banks.
  5. Granting and Enforcement of Collateral.
  6. Debt Restructuring.
  7. Warehouse and Finance Companies to Multiple Object (SOFOM, by its Spanish acronym for Sociedades Financieras de Objeto Múltiple).
  8. Settlement Bank.
  9. Investment Funds.
  10. Stock Market.
  11. Sanctions and Foreign Investment.
  12. Financial Groups.
  13. Secured Credit.

The thirteen previous points are summarized through four basic foundations, the Mexican Financial Reform, want to give greater incentives and flexibility, both by Development Banks as to Commercial Banks in such a way that will generate more credit and improve the conditions of it, according to the SHCP the four basic foundations are the following:

I. Encourage the credit through the Development Banks;

II. Increasing competition in the financial sector;

III. Expand the credit of private financial institutions; and

IV. Ensure the strength and wisdom of the financial sector as a whole.

In the first point, it is intended that the Development Banks is a complement of Commercial Banking in the generation of credits for Mexican families, with special emphasis on the areas to encourage further development of the country.

In the second point, it is intended that there will be more competition in the private financial institutions in Mexico, with the purpose to increase the credits, cheaper transaction costs and therefore the interest rates that are currently there are more low. According to the Ministry of Finance, the first thing to do is generate a diagnosis on the part of the Federal Competition Commission (CFC, by its Spanish acronym for Comisión Federal de Competencia), in such a way that will make an in-depth analysis of the current situation that occurs in the Mexican Financial System with the purpose to give recommendations on the competitiveness that is in this moment in the same. Within this same point, it is intended that medium-sized businesses can be listed on the Mexican Stock Market (BMV, by its Spanish acronym for Bolsa Mexicana de Valores) as well as its eventual permanence. In addition to creating a credit information bureau for Financial Institutions, in such a way that the National Commission for the Protection of Users of Financial Services (CONDUSEF, by its Spanish acronym for Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros) has relevant information on the financial institutions, with the aim of that users have availability of such information for the time in which they wish to make use of their services.

In the third point, the performance of the financial entities will be evaluated periodically by means of the authorities that are responsible for the surveillance and monitoring of the Mexican Financial System, in such a way as to encourage greater transparency in it. This will give greater certainty between users of Mexican Financial Institutions.

The fourth point, the SHCP mentions that “laying down measures that contribute to the strengthening of this sector. To do this, it is planned to raise the rank of law rules for the formation and quality of capital provided for in the rules of banking regulation of Basel III. In addition, it facilitates the processes of bank failures, while safeguarding the rights of savers; and reinforces the mechanisms for coordination and cooperation between the financial authorities, contemplating Law level of the existence of the Council of Stability of the Financial System as a permanent body".

After reading all the Mexican Financial Reform, I agree with those who say that is a Structural Reform that our country needed. In some other countries, these reforms have been presented in contexts of severe financial crisis that have lived, now for Mexico has been carried out without pressures of that type, it must be remembered that the financial crisis that shook to Mexico at the end of 1994, gesture are mainly in the banking system because loans were granted indiscriminately and irresponsibly, that meant that the majority of the banks fall in nonperforming loans since they were unable to recover the loans before granted. This Financial Reform, should have been given long before, it seems to me now that arrived late and that is so populist since it want to bring the credits to more families and businesses to lower interest rates, I hope that they will not generate a similar situation or worse than that of 1994.

The economic theory always puts us in a scenario in which there is Perfect Competition, by which it can be deduced that the competition between the companies will benefit us all, in a previous article (Mexican Banking System, March 17th 2013), I mentioned that in Mexico, there are only 43 Commercial Banks, which in my opinion is far from the situation of competition and competitiveness that a country should have, because of this, Financial Reform wants to generate the necessary competence in any sector of the economy, more competition means that interest rates are reduced and that banks will offer better conditions in their financial services.

An important thing to stress in the Mexican Financial Reform is the Stock Market, now it wants to that medium-sized companies may have access to the Stock Market, in this way would have a wider range of shares and financial assets for those who want to invest in the Mexican Stock Market, so again the part of the competition and competitiveness comes again in this context.

Unfortunately it appears that the investors have not endorsed this Financial Reform, quite the contrary, they have been withdrawing their capitals of Mexico, this can be seen when we follow the index of prices and quotations (IPC, by its Spanish acronym for Índice de Precios y Cotizaciones) of the Mexican Stock Market (BMV, by its Spanish acronym for Bolsa Mexicana de Valores) through the last few months. I make mention of some interesting data that have been presented in the BMV. Last year (June 12th 2012) the IPC was in 37,271.00 points; the first time that broke the psychological barrier of the 40 thousand points was the June 29th 2012 to be located in 40,199.55 points; the next working day of the entry of the new government, this is the December 3rd 2012, the IPC was in 42,323.84 points; the historic peak that has reached the IPC was with date of January 28th 2013 to be located in 45,912.51 points, this date toward the IPC has now gone into a tailspin, in such a way that for the date on which it was revealed the Mexican Financial Reform, on May 8th 2013, the IPC was already in 42,102.14 points, the next day on May 9th 2013 felt dramatically to 41,682.64 points. As I mentioned earlier, the IPC has been declining at an alarming rate, in such a way that for today (June 12th 2013) the IPC is at a level of 39,890.24 points, in addition to which it is observed that it will still continue to decline even more. If we evaluate the new government in the perception of investors, has condemned the current administration, as the performance between the two figures, the input of the current government and that of today, we can calculate in quite a significant drop, this is, it has a severe decline of -6.72%. All of the above tells us that indeed, had not liked the Financial Reform, if I wonder, in my humble point of view, the Mexican Financial Reform arrived late and in a bad time, in addition to that it is not feasible in the short term at least. Investors will know something more that I have not taken into account? They will have a better perception of the Financial Reform? I will be right to say that this is not feasible in the short term this Financial Reform? We will have to see…

 

17 May 2013

Family Business

Mexican firms have an important characteristic, about 70% of them that are listed on the Mexican Stock Market (BMV, by its Spanish acronym for Bolsa Mexicana de Valores) are Family Business. The above statement I found in the time of the research for my book, Corporate Governance and Firm Performance, Dâvila (2010), in which, I explained that to find the family link that has a company search for the names of the members of the Governing Boards of approximately 180 companies and through several years. The feature that should have these companies in order to be able to determine if they were Family Business or not, was when two or more members of the Board of Directors had the same last name, that is, the names of the father and the mother, or if the family name was rare, enough with only one. Therefore, those who were related almost were the brothers and perhaps fathers with their sons. In this way calculate that about 70% of Mexican firms have this family link. However, I believe that if we extrapolate the previous criterion toward other members of the family as they could be cousins, uncles, or the political family such as parents or brothers-in-law this family link could reach up to about 90 %.

In addition, I would like to emphasize that what I am mentioning is exclusively for the large companies, of which are listed on the Mexican Stock Market, I don't know if I could extend this approach to other companies, at least, that I know, I think that if you have that link, since many of the Mexican entrepreneurs have done their business, then they were gone by inheriting to their sons and daughters, it seems to me that it is a natural and cultural trait of most of these.

Although I can imagine that many of these entrepreneurs do not know about the theories of Berle and Means (1932), in which they suggest that the separation between ownership and control in the firms leads to potential problems among the objectives of the managers and stockholders. The stockholders are concerned with maximizing the value of the company, while managers have different targets, among which are the improvement in the personal reputation and safety at work, among others. In addition the managers-owners (or families) who control the companies have personal motivations and to increase the financial value of their companies. But at the same time, also have a strong incentive for personal gain and control over the firms, at the expense of minority shareholders and other interested parties, the majority of these companies hire to members of their families as executives and directors of the same, so that the nepotism is an important feature in this type of organizations. In addition, the stockholders of Family Business monitored closely to their executives and directors (even if these are members of the family), as they have many of their interests in the firm.

All of the above is what we know as the problem of agencies and many authors propose that to be able to resolve it with the creation of internal links. Therefore, the Mexican businessmen have already taken this Corporate Culture, in such a way that helps to reduce a better way and in addition to cheap form the fact that the members of the families take the reins of monitoring and surveillance of a particular company.

With all of the above, and to be researching on this topic, I found myself with a very typical example of what is a Family Business, the companies of Carlos Slim.

Carlos Slim, to which the prestigious magazine Forbes ranks as the richest man in the world with an estimated fortune of 73 billion dollars, due to the fact that in November 1997, he underwent surgery for cardiovascular problems, and at that time it was rumored that he had died, has been preparing its succession when he decides to withdraw from the business. One of the basic premises with which it has been doing this, it is based on a solid structure of family values and high cohesion among all their children. That same year, Carlos Slim he joined his eldest son, Carlos Slim Jr., to the Chief Executive Officer of Carso Group and of Sanborns Group.

Due to the foregoing, Ruben Aguilar, who has served for several years as a counselor of Carso Group, mentions that “place their children and to their key people as heads of his companies to take any risks, has been one of the best decisions Carlos Slim made ".

Hector Macias, business adviser at the consulting firm Price Waterhouse Cooper (PwC), argues "It is a good example of succession. Carlos Slim has been known to prepare their future generations, to make them equal to or more capable than him and take the reins of the business while he is dedicated to open new business".

Fernando Negrete, CEO of the consulting firm Mediatelecom Policy & Law, said, “Carlos Slim was not limited to a succession within the family. Also assembled a solid team working and loyal to his business project”.

Fernando Butler, former president of the College of Economists and who has been a consultant of Telmex, comments that "the succession of Carlos Slim has the touch of clan, with its peculiarities Lebanese, and in a combination of Japanese model, with little administrative spending and corporate".

The current situation of the Slim clan in which children from 17 years ago are in strategic positions of the Family Business for each of the divisions of companies of Carlos Slim, is as follows:

Carlos Slim Jr., is the eldest son, is Councillor owner of the Carso Group in addition to being Chairman of the Board of Directors of Carso Group and America Movil, according to the latest annual reports available. Also he is Chairman of Telmex and Telmex International and CEO of Sanborns Group, as well as a board member of American Telecom, Carso Global Telecom, U.S. Commercial Corp., and CompUSA.

Marco Slim, is the second of his children which serves as President and CEO of Inbursa Financial Group. President of the National Foundation for Transplants and the Carso Institute for Health. He is a CEO of Teléfonos de Mexico, Carso Global Telecom, American Telecom, Inbursa Bank a multiple banking institution, investment securities, Casa de Bolsa, Seguros Inbursa, and other subsidiaries of Inbursa Financial Group and Carso Group.

Patrick Slim, is the third of the children and shares with Carlos Slim Jr. the presidency of America Movil and is Councillor owner and vice president of the Board of Directors of the Carso Group, in addition to commercial director of Telmex mass market as well as Chairman of the Board of Directors of Ferrosur, CEO of Nacobre Industries and member of the Board of Directors of Carso Global Telecom, Teléfonos de Mexico, Calinda Hotels, Condumex Group, Companies Frisco, Sears Roebuck of Mexico, Mexican Cigars the Tobacco, Promotora Inbursa and Nacobre Industries. Also participates in the review of legal issues to help the release of people unjustly imprisoned. Since 1998 is a livestock farmer of fighting bulls to be owner of the Dehesa de Brito, in Tlaxcala.

Unlike his male children, the three daughters of Carlos Slim, Soumaya, Vanessa, and Johanna, have been more inclined toward art and philanthropy therefore do not form part of the Family Business of the Slim clan.

Juan Pérez, partner of the consulting firm Heidrick & Struggles, he mentions that "the daughters of Carlos Slim are no less capable than their brothers, but not the Slim involved from young people, as it did with their children, it may be a cultural issue", perhaps due to the fact that in some countries, cultures and families, it is traditional that the children will go to work and women are engaged in your home or to another type of functions, it is as well as Carlos Slim has no women forming part of any of the Board of Directors of all his companies.

Although Carlos Slim has been given to his children and also to his sons in law positions within their companies while his daughters are focused on philanthropy, foundations, the Museo Soumaya (in memory of his deceased wife Soumaya Domit which happened on March 7th, 1999).

Therefore the sons in law are also part of the companies of Carlos Slim as follows:

Soumaya Slim, the fourth daughter is married to Fernando Romero which is an architect, and was responsible for the design and construction of the Soumaya Museum.

Vanessa Slim, the fifth daughter is married to Daniel Hajj which is the Chief Executive Officer of America Movil and counselor of Telmex.

Johanna Slim, the youngest of the daughters is married with Arturo Elias, which is the Director of Strategic Alliances Communication and Institutional Relations of Telmex and Chief Executive Officer of Telmex Foundation. He also participates as a Director of America Movil.

With all of the above it is very clear to me that the Family Business is a very good Corporate Governance mechanism ensuring the permanence and best performance of the firms in Mexico, because it ensures that between the family would be more difficult to have situations of corruption or fraud, at least the Mexican culture of solidarity, of respect and values are what they would do that that will not occur at least in the medium term. One important thing is that most of the companies that I've been watching have no more than 100 years. This is, just go on your first or second generation, in which those who control the destinies of the firms are the sons of the founders (like Carlos Slim). Following the example that this clan of the Slim’s, where they are already 20 grandchildren of this magnate, what will happen in the next generation? Who will be the leader of this generation? Will be just as profitable enterprises when they come to be controlled and administered by the grandchildren? We will have to

 

16 April 2013

Corporate Law in Mexico

When we talk about Corporate Law we are referring to the study of the interactions that occur between the corporation, which is constituted by the stockholders, directors, employees, creditors, with other interested parties in the corporation as may be the consumers, the community, the environment and the most important would be the outside investors, those entities that are interested in depositing their capitals and their confidence in the corporation. At the same time, the Corporate Law is represented by the laws to which they are subject societies, the majority are for-profit, however here could enter non-profit societies as the civil associations, trusts, community organizations and charitable organizations.

In the Corporate Law stipulates that all companies have separate legal personality, additionally the owners of the same could have limited liability or unlimited liability. In addition, in the Corporate Law stipulates that the stockholders of the companies should be delegated to a Board of Directors the control and monitoring of the daily operations of the entire corporation, due to the fact that the “Securities Market Law” (Ley del Mercado de Valores, in Spanish) in its article 23 mentions that this is mandatory for companies to have a Board of Directors in which bears the control and surveillance of the firm. In most cases, these Boards of Directors are constituted by the same owners of the companies, however the Corporate Law is different from country to country, so that in each of the countries provide for different conformations for the members of the Boards.

Here in Mexico, in the Securities Market Law in its article 24 provides that the members of the Boards of Directors should be selected in the Annual General Meeting (commonly abbreviated as AGM, or also known as the annual meeting), as well as the constitution of the Board of Directors shall be the following: The Board of Directors shall consist of a maximum of twenty-one members, of which, the twenty-five percent must be independent, as a minimum. Owner by each member of the Board of Directors may be an substitute member, any substitute of an independent member shall have the same character of independent. In contrast to the foregoing, in the document issued by the Coordinating Council Enterprise (CCE, by its Spanish acronym for Consejo Coordinador Empresarial) called Code of Corporate Governance best practices (Código de Mejores Prácticas Corporativas, in Spanish), it sets the maximum number of members that conform to a Board of Directors must be fifteen and the minimum number of three, in addition to that there should be no substitutes for each of the members. In what both match documents is in the minimum number of independent members who shall be 25% of the total Board of Directors. This means that there is much ambiguity in each of the Mexican companies in the direction of the maximum number of members and substitutes for each of the members.

From the foregoing it also establishes that the Boards of Directors must carry out an AGM, which is a meeting that you have each year in which they are advertised to all stakeholders in the corporation, this is, shareholders, stockholders, senior managers, and of course, to all the members of the Board of Directors. The AGM has as main objective to select the members of the Board of Directors as well as to give a detailed report of the operation that took the company in the year that just passed as well as to mention the projects that are ongoing and the activities that will take place in future. It is a good opportunity for both, shareholders as stockholders receive information of corporate finance of the company as well as fiscal situations and performance that has taken the company in the last year. Are verified on all the profitability that has had and very important for each of the partners, the dividends that have been generated to date.

Unfortunately when I’m searching for information on the dates and places in which they are to be carried out the AGM in Mexico, I found myself with several obstacles. The first and very important is that the Mexican Stock Market (BMV, by its Spanish acronym for Bolsa Mexicana de Valores), which is the entity that should concentrate all the relevant information of the Mexican companies, don't have that information in a simple way, I meant via its web site. The second situation with which I found is that when I try to contact the companies directly, refuse to provide such information, I am told that this is confidential information. Therefore I believe that the Corporate Law in Mexico is a simple laws that they are not implemented.

It is clear from the foregoing that I tried to find information by other means, and that when it comes to finding financial and stock market information of the companies on an international basis, can be done through the International Securities Identification Number (ISIN) which is an identifier for the securities quoted on the Stock Market. The securities for which will include the ISIN are bonds, promissory notes, equities, options, derivatives of debt securities, futures, among others. The structure that makes the ISIN comes from the standard of the International Organization for Standardization ISO 3166-1 alpha-2, this code ISIN is 12 alpha numeric characters, which do not contain information to characterize the financial instruments, but also serves to have a uniform identification of each of the securities in the Stock Market for the moment that make contracts for marketing the same. The ISIN code consists of three parts, the first corresponds to the code of country of issue, not necessarily that it is the country where the issuance of these securities; the second part corresponds to an identifier of national security and the last part is a verifying digit. This is, the first two characters are the country code, the following nine correspond to the code of national security and the last digit is the verifying digit. Again I found that the information that I was requested is not available in an easy way.

Corporate Law is different between the countries, as mentioned earlier, here in Mexico are simple laws that are not put into practice, because if so, all companies should be transparent and efficient as well as providing the requested information. I think that is one of the situations with which to Mexico, it is seen as a Stock Market quite inefficient. I hope that one of the owners or executives of Mexican companies read these lines and realize the importance of providing information to the people from outside as me, because any of us could be potential investors. I hope that this change in the near future. We will have to see…

 

17 March 2013

Mexican Banking System

Apparently in the entire world monetary policies have been relaxed, some central banks have chosen to keep its interest rates, other central banks such as Banco de México (Mexican Central Bank), have taken the decision to reduce their rates of interest, as happened last March 8th 2013 in which the Banco de México reduced its target interest rate of 4.5 to 4.0. This could be a notice in which central banks are eying a new global financial crisis? In the case of Mexico, it must be remembered that the financial crisis that is lived at the end of 1994 gesture from Mexican commercial banks.

The history of the Mexican Banking System can be traced from the colonial era, in fact, the activity of bank intermediation toward without banks, the means of payment were the barter, were also used metal coins both domestic and foreign, in addition to using promissory notes and coupons with multiple endorsements. The credit that was required at that time the provided the Church and some of the merchants, which were large speculators as well as usurers.

For June 2nd 1774 in New Spain, Pedro Romero, Count of Regla, through a donation to the Crown of 300 thousand pesos gold, he founded the Real Monte de Piedad (which continues until the present) which is a credit institution pawn, but still cannot be considered as a commercial bank.

Due to the growing mining activity in Mexico, the Banco de Avío y Minas (Bank of Avio and Mines) was established in 1784, during the mandate of Carlos III. This could be viewed as a commercial bank, which financed to the miners who had scarce resources, unfortunately, this bank only operated until 1792. The bankruptcy of this bank was mainly due to an inefficient administration on the part of the viceroyalty’s authorities, already the majority of the miners had no capacity to pay, in addition there were auto-loans, preferential credits and loans to non-productive activities by lack of follow-up to the projects for which they were given the credit, if that's not enough, in the years 1785 and 1786 there was a severe financial crisis in Mexico. Finally, it is worth mentioning that in the eight years of operation of this bank, succeeded in mobilizing large amounts of capital.

The Banco de Avío (Bank of Avio) was created with the main objective of promoting and encouraging to the manufacturing industry in Mexico. The nascent government that emerged after Mexican independence had as president Anastasio Bustamante, and at that time was a project for the creation of this bank, originally the Department Account and reason for the Secretariat of Finance made the proposal and Lucas Alamán, who served as Minister of Foreign Affairs, presented to the Mexican Congress to the Bank of Avio, is as well as October 16th 1830, the Chamber of Deputies adopted the law decree its creation. He is considered the first bank of public capital (what is known as development banks). The main function of this bank was lending to entrepreneurs for the acquisition of machinery, the most interested were the entrepreneurs in the textile industry, which were willing to pay the rate of 5% credit imposed by this bank. The operations of this bank only lasted for 12 years, in which arrived to lend a little more than 1 million pesos for that in 1842 the then president of Mexico Antonio Lopez gave the order to shut it down, arguing that it was no longer financially sustainable and that manufacturing industry already had grown enough to be able to continue getting financing of the Bank of Avio.

Another financial institution that it is worth mentioning was the Banco Nacional de Amortizaciones de la Moneda de Cobre (National Bank of Amortizations of the currency of copper), created in 1837.

The first private commercial bank in Mexico was founded on August 1st 1864 and started operations in Mexico D. F., this was the Bank of London, Mexico and South America, who was an english branch of the bank The London Bank of Mexico and South America, Ltd. The social capital to start operations is 2 and a half million pesos, equivalent to half a million pounds of that date (nominal).

Hence starts the Mexican Banking System, because in 1875 establishing the Bank of Santa Eulalia in the state of Chihuahua which was granted by the governor of the state, shortly after the foundation of the Bank of Hidalgo. Under the presidency of Manuel González, was founded in 1881 in the city of Mexico the Banco Nacional Mexicano (Mexican National Bank) with capital of the Banco Franco-Egipcio (Franco-Egyptian Bank) that has its headquarters in Paris. To Eduardo L’Enfer is granted the concession to open in 1883 the Banco Mercantil, Agrícola e Hipotecario (Merchandise Bank, Agricultural and Mortgage), additionally in the same year are created the Banco Mexicano de Chihuahua (Mexican Bank of Chihuahua), el Banco de Chihuahua (Bank of Chihuhua) y el Banco Minero (Miners Bank). For 1888 in the state of Yucatan are set two banks of issue as well as several more in the capital of the Mexican Republic.

For 1897, the Mexican Banking System consisted of three models of banks: Banks of Issue (those deposit banks and discount but with the power to issue banknotes), Repairable Banks and Mortgage Banks. This meant that a little before that arose the Mexican revolution of 1910, the structure of the banks is as follows: there were 24 banks of issue, only two of them had tickets that could circulate throughout Mexico, this is the Banco Nacional de México (National Bank of Mexico) and the Banco de Londres, México y Sudamérica (Bank of London, Mexico and South America). Therefore, the rest of the banks to issue banknotes were issued that they could only move in the state in which they were located. In addition to these there are 5 Repairable Banks and 2 Mortgage Banks. In total there were 31 banks which at that time constituted the Mexican Banking System.

It is as well as start to prosper the banks in Mexico. Currently (2013) there are 43 commercial banks and such as can be seen through the banking authority in Mexico, which is the National Banking and Securities Commission (CNBV, by its Spanish acronym for Comisión Nacional Bancaria y de Valores) then presented the list of all of them, sorted by the Index of Capitalization.

Nr. Financial Institution Capitalization Index (%)
1 The Bank of New York Mellon 215.65
2 UBS 144.96
3 Bank of Tokyo-Mitsubishi UFJ 108.83
4 The Royal Bank of Scotland 62.39
5 American Express 44.29
6 J.P. Morgan 43.68
7 Banco Base 36.42
8 Compartamos 33.77
9 Bank of America 22.50
10 Agrofinanzas 22.50
11 Actinver 22.32
12 Deutsche Bank 22.19
13 Consubanco 21.83
14 BanCoppel 20.62
15 Monex 20.38
16 Inbursa 20.16
17 Barclays 19.58
18 Multiva 19.12
19 Banco Credit Suisse 18.98
20 Ve por Más 17.89
21 Interacciones 16.37
22 Bansí 16.08
23 Invex 16.05
24 BBVA Bancomer 15.84
25 Scotiabank 15.77
26 Autofin 15.74
27 ING 15.62
28 ABC Capital 15.60
29 Ixe 15.52
30 Banamex 15.04
31 Santander 14.78
32 Banorte 14.75
33 Inter Banco 14.73
34 Banregio 14.64
35 HSBC 14.46
36 Afirme 14.12
37 CIBanco 14.03
38 Banca Mifel 13.79
39 Banco del Bajío 13.40
40 Banco Wal-Mart 13.08
41 Banco Ahorro Famsa 13.08
42 Volkswagen Bank 12.63
43 Banco Azteca 12.50

The above data were taken from the National Banking and Securities Commission (CNBV, by its Spanish acronym for Comisión Nacional Bancaria y de Valores), where the Index of Capitalization (ICAP, by its Spanish acronym for Índice de Capitalización) reflects the performance of the banks faced with unexpected situations, because of this, the ICAP is measured on a monthly basis and must be higher than 12%. As shown in the table above, all existing commercial banks in Mexico are above the threshold value you are asking the CNBV.

The evolution of the Mexican Banking System has been very interesting since the colonial days until our days, is a very important industry for economic activity in Mexico, they are the ones who are in any way they can generate or prevent the financial crisis, due to this, is of the utmost importance to be able to take into account the signals that they send us to be vigilant about any situation that would be present in the economy of Mexico. I hope that the signals at this time are sending are of prosperity and growth and should not be presented complicated situations in Mexico. We will have to see…

 

16 February 2013

Index of Sustainability and Social Responsibility

A news story that really struck my attention was that the Index of Sustainability and Social Responsibility (ISRS, by its acronym in Spanish for Índice de Sustentabilidad y Responsabilidad Social) of the Mexican Stock Market (BMV, by its acronym in Spanish for Bolsa Mexicana de Valores), in this last year reached a performance of 35% in contrast with the Index of Prices and Quotations (IPC, by its acronym in Spanish for Índice de Precios y Cotizaciones) of the Mexican Stock Market, which just won a performance of 22% in the same period of time, the above was due to the 23 firms that formed the ISRS had a much higher performance than the companies that shape the IPC of the BMV.

The Mexican Stock Market (BMV, by its acronym in Spanish for Bolsa Mexicana de Valores) began in August of 2010 the project to generate the Index of Sustainability and Social Responsibility (ISRS, by its acronym in Spanish for Índice de Sustentabilidad y Responsabilidad Social), which is also called Green Index or IPC Sustainable (in Spanish IPC Sustentable). The main goal that seeks the BMV with this project of the ISRS is that companies have a greater incentive to improve their environmental performance, social, corporate, due to the fact that are taken into account mainly three aspects, proper management and use of natural resources, social responsibility with their main interest groups (employees, suppliers, customers, and community in which it played) and good Corporate Governance practices.

The selection criteria for shaping the displays of the ISRS as the BMV are:

1. Be located in or above the national average of the qualification of joint environment, social responsibility and corporate governance of the publicly traded firms in the Mexican stock market and were evaluated by independent raters, the BMV mentions that for this year are taken into account 70 companies.

2. The firms selected to conform to the ISRS must have a minimum of 30% of shares floating (good marketability), and/or the value of capitalization float is greater than 10 billion pesos in the time that they are selected.

3. The firms of the sample should be placed in the first places in terms of liquidity, which will be verified through the filter of the factor of rotation within the selection criteria for the Composite Index (IPC CompMx).

The above criteria shall evaluate two entities hired by the BMV for that purposes, one of them is the English company Experts in Responsible Investment Solutions (EIRIS) and the other one is Universidad Anáhuac del Sur. Analyze reports, systems and principles of the companies under the three major axes: Environmental Impact (50% of the rating), Social Responsibility (40%) and Corporate Governance (10%).

Therefore the BMV said that the primary objectives of the formation of the IPC Sustentable are:

1. Offer an investment vehicle of referencing to the index for all kinds of investors.

2. Integrate a liquid portfolio companies, whose commitment to social and environmental sustainability is remarkable at the international level.

3. Position to the Mexican Stock Market and to Mexico within trends in sustainable.

4. Projecting to the sustainable companies at the global level.

It was not until December 8th, 2011, when the project is concrete and finally left the stock market the ISRS, in such a way that Mexico is positioned within the global trends with the objective of promoting between firms with greater social responsibility, greater care for the environment and Corporate Governance best practices. The ISRS or IPC Sustainable has a value of total capitalization of 3.2 billion pesos, which represents 22% of national GDP. The IPC of the Mexican Stock Market has a value of capitalization of 5.6 billion pesos and represents 40% of the national GDP. The sample was composed of the following 23 companies:

Nr. Issuer Key Serie Nr. Shares weight
1 Arca Continental, S.A.B de C.V. AC * 402,815,894 2.00%
2 Alfa, S.A.B. de C.V. ALFA A 3,602,200,000 5.37%
3 América Móvil, S.A.B. de C.V. AMX L 20,898,867,419 14.54%
4 Grupo Aeroportuario del Sureste, S.A.B. de C.V. ASUR B 207,787,500 0.80%
5 TV Azteca, S.A.B. de C.V. AZTECA CPO 1,031,808,707 0.74%
6 Grupo Bimbo, S.A.B. de C.V. BIMBO A 1,175,800,000 2.73%
7 Cemex, S.A.B. de C.V. CEMEX CPO 8,682,268,202 4.70%
8 Controladora Comercial Mexicana, S.A.B. de C.V. COMERCI UBC 399,898,964 0.67%
9 Compartamos, S.A.B. de C.V. COMPARC * 914,310,487 1.34%
10 Fomento Económico Mexicano, S.A.B. de C.V. FEMSA UBD 2,161,177,770 13.10%
11 Corporación Geo, S.A.B. de C.V. GEO B 498,878,267 0.70%
12 Grupo Financiero Banorte, S.A.B. de C.V. GFNORTE O 1,977,404,115 6.41%
13 Grupo México, S.A.B. de C.V. GMEXICO B 3,892,500,000 12.10%
14 Grupo Modelo, S.A.B. de C.V. GMODELO C 539,215,380 3.96%
15 Desarrolladora Homex, S.A.B. de C.V. HOMEX * 218,166,033 0.58%
16 Empresas Ica, S.A.B. de C.V. ICA * 546,621,824 0.82%
17 Kimberly-Clark de México, S.A.B. de C.V. KIMBER A 1,388,643,184 3.01%
18 Coca-Cola Femsa, S.A.B. de C.V. KOF L 454,920,107 2.70%
19 Mexichem, S.A.B. de C.V. MEXCHEM * 945,000,000 2.42%
20 Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. OMA B 153,147,387 0.29%
21 Industrias Peñoles, S.A.B. de C.V. PE&OLES * 99,368,937 5.05%
22 Urbi Desarrollos Urbanos, S.A.B. de C.V. URBI * 537,044,907 0.73%
23 Wal-Mart de México, S.A.B. de C.V. WALMEX V 5,316,478,460 15.24%

Now the BMV with its ISRS will be in harmony with the global stock markets, due to the fact that there are already several Sustainable indexes in various equity markets, among them I can mention to the following: Dow Jones Sustainability Index (United States), FTSE4Good (England), Bovespa-IFC Sustainability Ltd (Brazil) and Johannesburg (South Africa).

Investments in sustainable enterprises is not new, the first sustainable investment fund was the Pax World Fund created by the company Pax World Management LLC, established in 1971 in Portsmouth, New Hampshire, United States, by Luther Tyson and Jack Corbett, both of whom had worked in the peace, housing and related actions with the creation of jobs in the United Methodist Church. The objective of this fund is to make the investors make their investments in accordance with their values related to the care of the environment and social responsibility, by what the majority of the companies in this investment fund are fully integrated into the criteria of Environmental Social and Corporate Governance (ESG).

The sample that conforms to the ISRS will change once a year, according to the BMV, the new sample will begin on the first working day of the month of February of each year. The weights will be analyzed quarterly with the aim of the issuing companies that do not exceed 15% in individually.

In accordance with the above, to the initial sample of December 8th, 2011, added 5 more, to form a ISRS of 29 firms. The new sample will be effective from February 1st, 2013 and until January 31st, 2014. The companies that now entering the ISRS are: ALSEA, AXTEL, HERDEZ, LAB, SORIANA and TLEVISA. According to press releases that has published the BMV mentions that “was described as 70 companies, 29 fims shown below are those that exceeded the national average rating joint environment, social responsibility and corporate governance, and also met the criteria of percentage of shares floating, market value and liquidity float minimum required”.

Nr. Issuer Key Serie Nr. Shares weight
1 Arca Continental, S.A.B de C.V. AC * 402,815,894 1.78%
2 Alfa, S.A.B. de C.V. ALFA A 3,602,200,000 5.00%
3 Alsea, S.A.B. de C.V. ALSEA * 309,491,574 0.42%
4 América Móvil, S.A.B. de C.V. AMX L 20,898,867,419 15.18%
5 Grupo Aeroportuario del Sureste, S.A.B. de C.V. ASUR B 207,787,500 1.44%
6 Axtel, S.A.B. de C.V. AXTEL CPO 929,219,614 0.15%
7 TV Azteca, S.A.B. de C.V. AZTECA CPO 1,031,808,707 0.42%
8 Grupo Bimbo, S.A.B. de C.V. BIMBO A 1,175,800,000 1.76%
9 Cemex, S.A.B. de C.V. CEMEX CPO 8,682,268,202 5.48%
10 Controladora Comercial Mexicana, S.A.B. de C.V. COMERCI UBC 399,898,964 0.84%
11 Compartamos, S.A.B. de C.V. COMPARC * 914,310,487 0.82%
12 Fomento Económico Mexicano, S.A.B. de C.V. FEMSA UBD 2,161,177,770 13.50%
13 Corporación Geo, S.A.B. de C.V. GEO B 498,878,267 0.34%
14 Grupo Financiero Banorte, S.A.B. de C.V. GFNORTE O 1,977,404,115 7.89%
15 Grupo México, S.A.B. de C.V. GMEXICO B 3,892,500,000 8.39%
16 Grupo Modelo, S.A.B. de C.V. GMODELO C 539,215,380 2.65%
17 Grupo Herdez, S.A.B. de C.V. HERDEZ * 216,000,000 0.39%
18 Desarrolladora Homex, S.A.B. de C.V. HOMEX * 218,166,033 0.31%
19 Empresas Ica, S.A.B. de C.V. ICA * 546,621,824 0.95%
20 Kimberly-Clark de México, S.A.B. de C.V. KIMBER A 1,388,643,184 2.25%
21 Coca-Cola Femsa, S.A.B. de C.V. KOF L 454,920,107 4.16%
22 Genomma Lab Internacional, S.A.B. de C.V. LAB B 789,562,070 1.04%
23 Mexichem, S.A.B. de C.V. MEXCHEM * 945,000,000 3.09%
24 Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. OMA B 153,147,387 0.30%
25 Industrias Peñoles, S.A.B. de C.V. PE&OLES * 99,368,937 2.82%
26 Organización Soriana, S.A.B. de C.V. SORIANA B 248,672,373 0.56%
27 Grupo Televisa, S.A.B. de C.V. TLEVISA CPO 2,445,199,226 7.92%
28 Urbi Desarrollos Urbanos, S.A.B. de C.V. URBI * 537,044,907 0.18%
29 Wal-Mart de México, S.A.B. de C.V. WALMEX V 5,316,478,460 9.97%

It can be seen that the total of the companies that conform the sample of the ISRS, 38% are related to the consumption, the industrial sector is represented in a 27%, the materials industry is 19%, and telecommunications and banking system are represented by 8% each.

The 10% of the overall investment criteria will be made with sustainable, this is in accordance with the principles of Responsible Investment of the United Nations Organization (UN). In addition, organizations such as the GRI, the OECD, the global compact and the UN itself generate criteria to evaluate the best performances in the field of environmental commitment, social responsibility and Corporate Governance. Therefore each year is assessed more than 3,500 firms under those criteria, establishing global averages. An important note is that the companies are well evaluated, stock markets traditionally rewarded their prices.

Since the sixteenth century, the Quakers took conscience and decided to avoid their investments in business related to racial discrimination, slavery or in sectors that were conducive to the flaw, by what is now apparently the Mexican investors are very interested in companies that shape the index, the social responsibility, the care of the environment and the best practices of Corporate Governance are the main concern, but perhaps this means that the trend toward the above-mentioned indicators will be the primary concern for Mexican investors, or only will be a passing fad like many that have been seen among investors, I hope it does not and that the trend is that all publicly traded firms in the BMV arrive to be in this ISRS because that would talk about a good performance for them. We will have to see…

 

14 January 2013

The global risks in 2013

Professor Klaus Schwab who in January of 1971 founded the World Economic Forum and since then he is the executive chairman of that, he argues “economic progress without social development is not sustainable, while social development without economic progress is impossible”, therefore, we have to keep in mind that the two concepts should be inseparable, in addition to that economic progress can only be generating by firms.

In firms was carried out a planned coordination of the activities of a group of individuals, where laying down hierarchies, and becomes a functional division of labor. This arrangement reflects the interest in obtaining shared goals rather than from individual interests. The companies have the fundamental objective of maximizing their profits by good management. The permanent search for firms to increase their productivity, competitiveness and production leads to the growth and economic progress.

If companies have a good performance, based on the best practices of Corporate Governance, ensure to a certain extent their stay in the market. This translates into employment for the families, which leads to social welfare and wealth for a particular country. On the contrary, if the firms do not achieve this favorable performance, they can reach to fail. Therefore, it gives rise to problems of unemployment, migration, and violence, which threaten the well-being of families and society. The previous situation tends to occur in the economic and financial crises, which may come from external factors to the firm and they directly influence the interior of that.

The economic and financial crises have harmful effects on society, like the corporate bankruptcy and consequently the unemployment. Unemployment, that which in turn decreases self-esteem. This generates family disintegration, and crime, as well as an increase in the rates of migration. (Dâvila, Martin, 2010, “Corporate Governance and Business Performance”, 1st edition, UPAEP Press)

The above makes it clear that the economic progress and social development can be threatened by several risks, these risks can be in several ways, both internal and external, in this way, the World Economic Forum publishes a report on the risks for the present year 2013. (Global Risks 2013. Eight Edition. http://reports.weforum.org/global-risks-2013/).

In words of Lee Howell, Editor in Chief and Managing Director of the Risk Response Network, of the World Economic Forum, “Resilience is the theme that runs through the eighth edition of this report. It seems an obvious one when contemplating the external nature of global risks because they are beyond any organization’s or nation’s capacity to manage or mitigate on their own”, by what in this report, the handled risks are: economic, environmental, geopolitical, societal and technological.

The theme to be addressed at the meeting of the World Economic Forum the next 23 to 27 January in Davos-Klosters, Switzerland, is the Resilience Dynamism, as well as the report on Global Risks 2013 was made on the basis of a comprehensive annual survey carried out in 1000 experts from around the world, and the fields of industry, government, academia and civil society, to which they were asked to make an analysis of 50 risks that are presented at the global level. The report now in its eighth edition serves to orient and inform decision-makers, which is trying to know the meaning of one increasingly complex and rapidly changing world. It should be noted that the information contained in this report, was obtained from sources that in the opinion of the authors is reliable and accurate. However, the information that comes from third-party sources, has not been verified independently by what we do not warrant the accuracy and integrity of that. In addition, the information in this report can be used to make current expectations of future events but based on certain assumptions. It is important to take into account that should not be placed too much faith in the information in this report, as the risks are changing, that the use of this information will be sole responsibility of the reader.

It seems to me that if I make a thorough analysis of this report, I would take many pages, besides the fact that each one of us could have a different vision for each of the risks presented, by what I think the most interesting is in the executive summary of the report.

If you look at the figure 6 on page 13, where there are the top five risks on a global level on the basis of their possibility of incident or of the impact they will have, in addition to that it makes a comparison in a time series of the 2007 up to what we think will be the 2013. First there are the risks by the possibility of incidence, there can be seen that the greatest risks is the economic scope with 42.85% of the entries, the risks that are mentioned are: asset price collapse, chronic fiscal imbalances, severe income disparity, slowing Chinese economy less than 6%, fiscal crises, oil and gas prices shock, retrenchment from globalization (emerging).

With the 20% of the entries, in the second place presents the social scope. The main risks that are mentioned are: chronic diseases in developed countries, water supply crisis, mismanagement of population ageing.

The third scope that is mentioned is the environmental, who won 17.14% of the entries, and will have the following risks: rising greenhouse gas emissions, meteorological catastrophes, hydrological catastrophes, climatological catastrophes, biodiversity loss.

The fourth scope with 14.29% is the geopolitical, the risks are: corruption, middle east instability, failed and failing states and global governance gaps.

And finally with 5.71% of the entries was in the technological scope with risks such as cyber attacks and breakdown of critical information infrastructure.

In second place are the main risks from the standpoint of the impact of these risks in the world we found that: 60% represents again in first place the economic scope with the following risks: major systemic financial failure, chronic fiscal imbalances, extreme volatility in energy and agriculture prices, fiscal crisis, asset price collapse, retrenchment from globalization (developed), slowing Chinese economy less than 6%, oil and gas price spike.

The societal scope was again in the second place with a 22.86% of the entries. Now the risks that are mentioned are: pandemics, chronic diseases, water supply crisis, food shortages crisis.

With a 14.26%, the geopolitical scope is in the third place, the risks are: diffusion of weapons of mass destruction, interstate and civil wars, geopolitical conflict, retrenchment from globalization (developed).

And in the fourth place was the environmental field with 2.86% of the entries and the risks that are mentioned are the climatological catastrophes.

The World Economic Forum’s Global Risks 2013, Eight Edition turned out to be very interesting, where one can see that the economic scope is the prevailing, both from a point of view in the likelihood that is occur and the impact that these risks will be in the world economy. However, I think it would be even more interesting that this same exercise, but for each of the countries, because every one of them faces different risks and diverse, so that this extra effort would be much more representative. It is noted that the report only shows the risks in a very general way and thinking that this would happen to all the countries in a homogeneous way. I might add that in Mexico the risks are for this 2013, would be more in the political scope, that in any of the other field. The return of the PRI to the presidency of the way it did without legitimacy or majority of the elections are a time bomb, it seems to me that the Mexican society would be watching very closely the performance that makes it the current president Enrique Peña, in such a way that if he commits a small error, the whole of society is not going to forgive and lead a political catastrophe, social and economic. It should be noted that other important risks for Mexico represent the high insecurity, corruption and drug trafficking that is lived day by day. In addition, those political risks permeate to society and the economy in a meaningful way, we therefore returned to the premise that I mentioned at the beginning, “economic progress without social development is not sustainable, while social development without economic progress is impossible”. We will have to see…

 

16 December 2012

The battle for Audi.

For the year of 2016, the Audi brand that belongs to the Volkswagen Group AG., will begin operations in Mexico. The factory will be built in an area of 400 hectares in San José Chiapa, which is located in the state of Puebla, this means that the state of Puebla has great preponderance in the automobile manufacturing and by strange circumstances, is now very oriented toward the cars of the Volkswagen Group.

Although the news was released from September 4th 2012, is still the date that this news continues to cause great rejoicing and euphoria at the enterprise level and especially in the state and federal government.

The situation above is due to the strategies that have been raised, on the one hand, the Volkswagen Group AG., and, on the other hand, the Audi Group AG.

Martin Winterkorn, Chairman of the Board of Management of Volkswagen Aktiengesellschaft, affirms that the positioning strategy 2018 the Volkswagen Group focuses primarily on what the group wants to have great prominence in the global economy and wants to be a leader in the care of the environment among car manufacturers of the world. According to this, we have defined four objectives based on the ecological orientation and in the profitability that are found in the cars of the brand to deal with adverse situations from a financial point of view, for in doing so, the Volkswagen Group the most successful and fascinating automaker in the world by 2018:

  1. Volkswagen intends to deploy intelligent innovations and technologies to become a world leader in customer satisfaction and quality.
  2. The goal is to increase unit sales to more than 10 million vehicles a year; in particular, Volkswagen intends to capture an above-average share of the development of the major growth markets.
  3. Volkswagen intends to increase its return on sales before tax to at least 8% so as to ensure that the Group’s solid financial position and ability to act are guaranteed even in difficult market periods.
  4. Volkswagen aims to become the top employer across all brands, companies and regions; this is necessary in order to build a first-class team (Extracted from the annual report of the 2011 Corporate of Volkswagen Aktiengesellschaft).

Likewise, the Audi Group AG., also has its positioning strategy 2020, in that Audi has focused its strategy on the challenges of the future. In 2011 is when he has taken the most strength, as well as in the strategy of Volkswagen AG., in which the environment is a fundamental point, so they are established the following points:

  1. We define innovation.
  2. We create experiences.
  3. We live responsibility.
  4. We shape Audi.

In addition, based on his vision “Audi - the premium brand”, and in its mission “We delight customers worldwide”, make the Audi Group AG. starts to look for new horizons Europe’s outside.

Due to the above, at the 122nd Annual General Meeting of Audi AG., was held on Thursday, May 12, 2011 at the Audi Forum Neckarsulm, in which Rupert Stadler, Chairman of the Council of Management of Audi AG., already toward emphasis on its aggressive strategy to look for new horizons for the plants for the production of their models, in addition to the celebration of the 125th anniversary of the manufacture of the first car, stated that: “We expect further grow in the long term, beyond 2015. This will go hand in hand with stable, extremely sound financial strength. All this inspires in us the confidence to continue expanding our product range, to push ahead with internationalization – including by creating plant capacity in the United States if necessary – and to show great commitment in driving forward innovations and tomorrow’s technologies so as to continue our -Vorsprung durch Technik - into the future”. How do you get to appreciate, the Audi Group AG., already had as its aim the construction of a plant in North America.

Well step one year and for the 123rd Annual General Meeting of Audi AG., was held on Thursday, May 10, 2012 at the Audi Forum Ingolstadt, Rupert Stadler emphasized, “If we want to make long-term gains in all regions, we will need more than just the appropriate sales channels. Sustainable success means anticipating customers’ expectations, understanding the market and, with our products, offering the exact solutions needed. But it also applies to the production of our models for the various markets. And it was for that purpose that the Supervisory Board of Audi and Volkswagen passed another key resolution three weeks ago: Audi is building a plant in Mexico! That is a fundamental strategic decision: First, for the North American market. We want to reduce our exposure to exchange-rate fluctuations. When manufacturing costs and sales revenues are both denominated in dollars, we minimize our risk. But it is also about growth opportunities in other regions. Mexico is part of several free agreements. This will allow us to ship our cars duty free to USA, Latin America and Europe. Consequently, with the successor of the Audi Q5, we will be manufacturing a model in Mexico for the entire global market. Mexico is already the world’s eighth-largest car manufacturing nation”.

After reading the news and find information from several sources, I still have many questions. If the Audi Group AG., in 2011, aimed to foray into the construction of a plant in the United States, Why suddenly think of Mexico? From my humble point of view, if Audi has 6 plants in Europe, one in India and another in China, Why thinking in the United States or in Mexico? This decision makes me absurd, because in words of Axel Strotbek, member of the Board of Management of Audi AG., in the Committee on Finance and Organization, “We increased the Audi Group’s revenue by 17.8 percent to EUR 12.4 billion – a new all-time record for the first three months. We also grew our operating profit by 26.6 percent to a new record high of EUR 1.4 billion. The significant increase in sales and profits is largely due to a higher-value model mix. With the resulting operation return on sales of 11.4 percent, the Audi Group has achieved a two-digit margin for the seventh quarter in a row!”, Therefore, Why change the course? I believe that the most reasonable thing is to stay in Europe or to locate a new facility in any country in which already has presence.

Apparently, the explanation to my question comes from a higher level, that is, who really takes the important decisions is the Volkswagen Group Aktiengesellschaft. In accordance with the above and as shown in the order of the time, Why thinking in the United States? Perhaps it would suffice to recall that the May 24th 2011, has just opened an assembly plant at Chattanooga, Tennessee, United States, in addition, this country represents a large market for both Volkswagen as for Audi. The logical location therefore would be to build the Audi plant in Chattanooga or near this plant. However, in spite of the efforts that they were made to win the position, not achievement, in fact had been proposed in addition to Tennessee, other American states such as Alabama and Mississippi, but unfortunately did not convince the consortium Volkswagen.

In addition, the United States has a big disadvantage in regard to compete with Mexico, since the latter one has 44 free trade agreements, while the United States only has 19, as mentioned Jay Baron, Chief Executive of the Center for Automotive Research in Ann Arbor, Michigan. As a result, the manufacture of automobiles in Mexico can be exported to most countries in which Volkswagen would not have to pay import quota, the foregoing could increase the cost of the car up to 10%. Apparently this is the main reason why the consortium selected to Mexico instead of any city in the United States.

Once that is decided the country, Mexico in this case, the Audi Group began looking for the ideal place to locate the new plant for its model Q5. There were several states in dispute, including: Coahuila, Guanajuato, Jalisco, Nuevo Leon, Queretaro, Puebla and San Luis Potosi. The local and national press wrote that the best place was San Luis Potosi or ultimately Guanajuato, since the January 27th 2011 the first stone was laid to start the construction of a plant for the production of engines, in the city of Silao, that from mid 2013 will begin operations in the hope of building 330,000 engines per year.

However, despite all the efforts of the state governments of San Luis Potosi and Guanajuato their proposals and negotiations that were doing did not succeed. So it was that suddenly was selected in the city where it was finally located, San José Chiapa, Puebla.

The local press mentions that the decision was more due to the proximity would have with the assembly plant of Volkswagen located in San Lorenzo Almecatla, Cuautlancingo Puebla, and that has more than 45 years in that place. If that were not enough, the two plants are separated by a distance of 50 kilometers between them, so they would make economies of scale between them. An additional point is that almost two plants would be within walking distance of the capital city of the state that is Puebla, where according to the official comments are a great number of universities and technological institutes to take of highly skilled labor force to the new plant for Audi.

The details of the Audi plant are: the initial investment is USD 1,300 million, where it is intended to produce 150,000 units of the model of luxury SUV Q5. This investment will generate 20 thousand jobs in its construction phase. In the production phase will be hired to 4,000 workers, of which 3,100 would be for your production area and the rest would cover administrative activities. The indirect jobs provide by 50 suppliers of automotive parts that also will be installed in the population, of which 20 will be ready for the 2016, which would generate around 30,000 jobs over the next 10 years, of which 10,000 will be exclusively for the project of the Audi plant in Puebla.

The plant will be located in an area of 400 hectares of land donated by the government of the state, it is worth mentioning that are outside the scope of the influence of the active volcano Popocatepetl. This field is expropriated by the state government for the farmers members in the area by paying USD 610.00 per hectare. In addition to the Audi Group will be granted tax incentives such as the exemption of local taxes such as the payroll tax, property taxes and those corresponding to the formalities necessary for obtaining licenses for construction of the plant, in addition to the state government of Puebla also undertook to improve the infrastructure to connect the plant of Audi with the road Amozoc-Perote, that it will named “Audi autobahn”.

Finally, since it was confirmed that Matthias Müeller, who is currently the Chief Executive Officer of Porsche AG., will be the CEO for this new plant in Puebla.

After searching for information by all sides, that is to say, look for corporate information on the Volkswagen Group AG., information in the corporate Audi Group AG., local news from each of the States involved, press releases from the state governments, etc., etc., and in several languages, German, English and Spanish, it is not clear to me which were actually the selection criteria for the plant of Audi build here in Puebla, what if I'm clear is that this means a large economic stimulus for the region in which I live. I am very pleased about the decision, although does not understand, since it seems to me that Audi is an automobile manufacturing plant emblematic in the whole world. Only hope that later there are no technical barriers and bureaucratic obstacles and that the plant reaches the end to operate without setbacks in 2016. We will have to see…

 

12 November 2012

Codes of behavior in the Corporate Governance.

In my contribution of the last month, I found that the recruitment of administrators involves risky situations for companies. Recalling the theory of agencies, George Akerlof had already mentioned that the people possess private information, which is trying to take advantage generating asymmetries in information. Likewise, Keneth Arrow mentions that presents the problems of adverse selection and moral hazard resulting from the asymmetry of information. Based on the foregoing, the companies have to take measures to reduce these problems, it makes the generation of the internal and external mechanisms of Corporate Governance, precisely to try to eliminate the principal-agent problem, and because of this companies have issued their codes of behavior to translate principles and guidelines to be followed to the interior of the firms.

The Business Coordinating Council (CCE, by its Spanish acronym for Consejo Coordinador Empresarial), in 2010 issued by the Code of Corporate Governance best practices (Código de Mejores Prácticas Corporativas), to Mexican companies, regardless of whether or not these are listed on the Mexican Stock Market (BMV, by its Spanish acronym for Bolsa Mexicana de Valores), making a huge difference with other codes that are generated for other countries, as some of these codes are only for listed companies in their respective stock markets. The foregoing represents a response to the OECD Principles of Corporate Governance that emits the Organization for Economic Cooperation and Development (OECD) in 2004. The OECD document, serves as the basis for the companies of both the countries members of the OECD and non-members, build their own codes of conduct based on Corporate Governance. In addition, the OECD suggests that each country match these principles to their own idiosyncrasies, owing to the corporate culture and the regulatory framework are different from country to country.

In both documents, the OECD and the CCE, it is mentioned that each firm must set up an administrative structure through which they will have the authority to monitor the performance of the directors of the firm, reflecting the figure of a Board of Directors, which is conferred upon it very specific properties such as the monitor the operation, define the strategic vision, and approve the management of the company. The above functions are very different to those it will have the team of managers of the company, led by Chief Executive Officer (CEO), since the latter will be the administration and day-to-day management of the firm, as well as driving and execution of all processes of the company subject to the strategies and guidelines that have been approved by the Board of Directors.

In the document issued by the CCE, it is suggested that the Board of Directors, in turn, shall conform in committees that have very specific functions as they are: audit, evaluation and compensation, finance and planning, in such a way that these functions are done in a more efficient way within each of the Mexican companies.

On this basis, it appears the formation and characteristics of the Board of Directors. Many researchers who have written on the Corporate Governance mentioned some features that must have these Boards of Directors, such as size, and the independence or interdependence of the same. For example, in the size that they should have, some authors suggest that should be large, while others mention that there should be small. For the members, some authors mention that should be constituted by members exclusively internal and others mention that must be exclusively external members. Additionally, some authors find that all members must be shareholders and other authors mention that the shareholders should not conform to the Board of Directors. Therefore, in the document of the CCE provides very clear form of constitution which should have the Board of Directors in Mexico. The optimal size must be between 3 and 15 members. At least 25% of the members shall be external and between the external members and shareholders must bring 60% of the Board of Directors.

To be investigating the matter of the codes of behavior, I found that the European Corporate Governance Institute (ECGI) has a database of codes related to Corporate Governance best practices for several countries. The vast majority of them is based on the OECD document and is very similar to each other.

In addition to the foregoing, in Mexico, many of the companies listed on the BMV also have issued their codes of behavior and its internal codes of ethics for each one of these companies. I encounter that are also based on the two documents which I have already mentioned above, the OECD and the CCE, and are very similar to each other.

I had a doubt to be researching on this topic, the companies that are not listed on the BMV, will also make their codes of behavior? It must be remembered that the CCE suggests that for all the companies if they are not traded in the BMV, but in reality they will do so? And when they do, they really take effect? Or only is a fashion that has been given to latest dates.

Furthermore, a point that it seems to me it is not very clear in the codes that I reviewed, is the transparency and accountability that is must have in every one of the companies. Many of these codes mention it, but it is not specified beyond on that particular. I think that is a fundamental part of any firm that there is that confidence that the information that flows internally may be real and transparent. It must be remembered that one of the goals of the codes of behavior is that all stakeholders in the company, controlling shareholders and minority shareholders, managers, customers, suppliers, have the information in a credible and transparent manner, as this ensures that the company has a good performance and that with this profitability and remain on the market the company was assured.

I think that if the companies make good use of the transparency and accountability from the inside of the same, the culture will be created for that after a while we can demand that of other companies and especially the government, already here in Mexico that culture has been forgotten.

It also seems to me that in the codes of conduct that review for both Mexico and other countries, they think that Corporate Governance is nothing more the companies to have a Board of Directors, and that this only represents the link between the owners and administrators of the firm, however I think they are forgetting that the foregoing is only an internal mechanism of what the Corporate Governance represents, since it is also have to external mechanisms of control within the Corporate Governance, one of them represents the legal framework in which each company is immersed, and obviously that can only be given in a country where transparency and accountability represents “de facto” culture, what will happen to the business regulatory framework for Mexico? This new administration that begins on the first day of December will give us certainty? Now if you will generate an industrial policy and functional business? Or we will continue the obscurantism in Mexican business. We will have to see…

 

17 October 2012

Grupo Financiero Santander México.

The origin of the Grupo Financiero Santander México (GFSM) dates back to the date of August 1st 1864, that is when it start operations in Mexico D. F. (the location of their offices was in the corner that make up the streets of Bolivar and September 16th), the first private commercial bank, The Banco de Londres, México y Sudamérica, who was an English subsidiary of The London Bank of Mexico and South America, Ltd. The social capital to start operations is 2 and a half million Mexican pesos, equivalent to half a million British pounds of that date (nominal).

From there, over a period of more than a century, there have merged several financial institutions, as it were, on September 22nd 1932 with the Banco Mexicano, in 1941 with the Sociedad Mexicana de Crédito Industrial (Mexican Society of Industrial Credit), so for 1955 takes shares of the Banco Mexicano, and for 1958 they merged Banco Mexicano y Banco Español (formerly Banco Fiduciario, -Bank Trust-). The Banco de Londres, México y Sudamérica in 1970 merges to the Compañía General de Aceptaciones (General Company of acceptances), due to this operation was born Banco de Servicios Financieros Integrados (Serfin), so that by 1972 the Grupo Financiero Serfin was created. With the passage of time we arrived until 1979 when it was formed by the Banco Mexicano Somex and on March 11th 1992, the Group Inverméxico purchase Banco Mexicano Somex acquiring the name of Banco Mexicano.

For April 21st 1997 is created the Grupo Financiero Santander Mexico due to the purchase of the Financial Group Inverméxico (BAnco Mexicano) by Banco Santander, S.A. (Spain). In May of 2000 the Banco Serfin purchase to create the Grupo Financiero Santander-Serfin, in such a way that both banks work separately until the September 4th 2002 was eventually unite into a single bank going to be what we know today as the Grupo Financiero Santander Mexico.

The Grupo Financiero Santander México, represents the third largest financial group in importance to Mexico. Due to the expansion strategy of Banco Santander (Spain), the decision was taken to issue shares on the Mexican Stock Market (Bolsa Mexicana de Valores, BMV) and performs the placement of the 24.9% of the GFSM's capital, which represents 3,413 million euros (56,000 million Mexican pesos). This represented the most important operation of equity instruments for 2012 in Latin America and the largest that has been given in the Mexican stock market.

It is as well as finally to the September 26th 2012 they went out to the Mexican Stock Market (Bolsa Mexicana de Valores, BMV) under the ticker of SANMEX and the New York Stock Exchange (NYSE) under the ticker of BSMX, the GFSM’s shares. The reports of both BMV and NYSE mentioned that the demand for these actions were from 5 to 1, the foregoing accounted for the placement of 45,918.80 million of Mexican pesos (mdp) of its capital, which equates to approximately 3,532 million dollars (mdd), this was excluding the Green Shoe options, in such a way that if you were to take into account these Green Shoe options, this amount would be 52,806.60 million Mexican pesos (mdp) equivalent to 4,062 million dollars (mdd) approximately. The price of the shares in the BMV was in 31.25 Mexican pesos per share and the price of American Depository Shares (ADR) was 12.18 dollars per share in the NYSE.

In addition to the foregoing, the prestigious magazine specializing in banking and international finance, Euromoney (founded in 1969), has recognized the Banco Santander, S.A. (Spain) as the best bank global 2012. This recognition is the third time to obtain it in the last 7 years. In addition to that was recognized as the best bank in Argentina, best bank in Mexico, best bank in Poland (Bank Zachodni WBK), best bank in Portugal and best bank in the UK.

Fortunately for the Grupo Financiero Santander Mexico and in general for all the consortium of the Grupo Santander, the scandals of some of the members of the Board of Directors have been protagonists, not have obscured its current success and sustained growth that is taking in all the world.

Since 2002 Alfredo Sáenz is appointed 2nd vice president and Chief Executive Officer of Banco Santander, S.A. (Spain), also in conformity with the statutes of the bank, he can replace the President of the Board of Directors, who currently is Emilio Botín.

Alfredo Sáenz was involved in a scandal of accusation and false allegation committed in 1993 while he was president of Banco Español de Crédito, S. A. (Banesto) in Catalonia. Alfredo Sáenz along with Miguel Calama and external legal counsel Rafael Jiménez presented a false accusation of fraud against customers of Banesto: Pedro Olabarría, Modesto González y José Romero. These events are occurring due to that owed to the bank 600 million pesetas (3.6 million euros). This lawsuit was filed to the judge of Catalonia Luis Estevill, who issued the sentence and they were imprisoned.

It should be noted that the judge Luis Estevill was found guilty in 2005 of the crimes of extortion, bribery, prevarication and illegal arrests, in such a way that the Superior Court of Justice of Catalonia sentenced him to 9 years imprisonment without the right to bail and imposes a fine of 1’000,800 euros with the purpose of pay for the damages to all those who embezzled and damage. Jose Vargas, in his book “Jaque a la confianza judicial: El caso español del juez Estevill” (Checkmate judicial confidence: the case of the Spanish judge Estevill; can be downloaded from www.legal.unam.mx), narrates in detail who is in reality Luis Estevill.

The Provincial Court of Barcelona in 2009 condemnation of Alfredo Sáenz to 6 months in prison and fined 9,000 euros for the crime of false accusation. However, in March of 2011, the High Court of Justice of Catalonia reduced the sentence to 3 months' imprisonment and suspension of his profession as a banker at that time. The previous situation makes Alfredo Sáenz to have a criminal record, losing its quality of “good repute”, prerequisite that requires the Bank of Spain for all the officials of the Spanish banks. Despite all of the above, on November 25th 2011, the president of Spain, Jose Rodriguez and the Minister of Justice, Francisco Caamaño, they was awarded the partial pardon to Alfredo Sáenz, and is only granted an economic sanction by 6,000 euros, so that its quality of “good repute” he does not lose and he can continue in his post within the Grupo Santander.

Emilio Botín, chairman of the Board of Directors of Banco Santander, has been involved in legal scandals. In February 2008, the Supreme Court a procedure file open against Emilio Botín and other senior leaders of the Grupo Santander. At the same time the anti-corruption prosecutor, file a case filed after the merger in January 1999 with the Banco Central Hispano by compensation that had not been paid to Ángel Corcóstegui y José Amusátegui. In June 2011, Emilio Botín, his brother and their children are again investigated by an alleged scam and tax evasion, but in 2012 the Audiencia Nacional archives the case after a correct accounting regularization in the booty of the family.

It seems to me that the regulatory framework for financial institutions is very weak. The case of Alfredo Sáenz makes me think that, since it should have acted differently, already that inexplicably is gives you the forgiveness, additionally they stopped spending too much time. However, after reading the book of Jose Vargas, it is possible that the decision to pardon Alfredo Sáenz has been successful. Apparently Luis Estevill is who implement the entire case of false accusation to those customers, because it was only a situation to recover nonperforming loans they had with them. It seems that in the whole world there are individuals who take advantage of their public positions to enrich themselves at the expense of others. We ought to do something against these individuals, but I think it is very difficult in countries such as Mexico, I can only hope that someday we can have a transparent and honest politicians. We will have to see...

 

15 September 2012

Shielding of the Monetary Policy.

After the decision was announced last July 30th 2012, by the Electoral Tribunal of the Judicial Branch of the Federation (TEPJF, by its Spanish acronym for Tribunal Electoral del Poder Judicial de la Federación), which is ignored in all the proofs that are presented over the electoral fraud, the people of Mexico already does not trust or believe in the electoral institutions. In my humble opinion, it seems to me that all the institutions that have been created to organize the elections that are carried out in Mexico, as they are, Federal Electoral Institute (IFE, by its Spanish acronym for Instituto Federal Electoral); Specialized Prosecutor's Bureau to the Attention of Electoral Offenses (FEPADE, by its Spanish acronym for Fiscalía Especializada para la Atención de Delitos Electorales); and finally the Electoral Tribunal of the Judicial Branch of the Federation (TEPJF, by its Spanish acronym for Tribunal Electoral del Poder Judicial de la Federación), are completely useless, and so that makes me think that the “Mexican Democracy” is a simulation. Electoral institutions had in their hands the historic opportunity and commitment with the Mexican people to cancel the elections due to all the irregularities that were presented, however, was not as well, was legitimized and appointed president-elect to Enrique Peña, the candidate who was going by the coalition called “Commitment by Mexico” in Spanish “Compromiso por México”, composed of the Institutional Revolutionary Party (PRI, by its Spanish acronym for Partido Revolucionario Institucional) and the Green Party of Mexico (PVEM, by its Spanish acronym for Partido Verde Ecologista de México).

The foregoing has generated a series of reactions against this resolution, many civil society organizations, unions, students, citizens, and the left-wing coalition called “Movement National Regeneration” in Spanish “Movimiento Regeneración Nacional”, integrated by the Party of the Democratic Revolution (PRD, by its Spanish acronym for Partido de la Revolución Democrática), the Labor Party (PT, by its Spanish acronym for Partido del Trabajo) and Citizens' Movement (MC, by its Spanish acronym for Movimiento Ciudadano), headed by the presidential candidate Andrés López, have taken to the streets to protest. However, for September 9th 2012, the Party of the Democratic Revolution (PRD, by its Spanish acronym for Partido de la Revolución Democrática), took the decision not to back up more to Andrés López, so that the latter has decided to resign from his militancy in the party, even so, Andres Lopez continues his struggle with that if wish to support him and the pacific resistance against the failure of the TEPJF, which validates the elections and have not wanted to cancel it.

Unfortunately, in spite of the protests and marches, we know perfectly well that the next December 1st 2012, Enrique Peña will be crowned as the new president of Mexico and that with this his party returns to power after an interruption of 12 years that ruled the National Action Party (PAN, by its Spanish acronym for Partido Acción Nacional). This represents a step backwards in the “Mexican Democracy”. I think there are many people, that like me, who share my view on this lamentable situation that we are living in Mexico and what is worse, I still do not understand how it could be that the people, if it is true that there was no election fraud, has once again voted for the PRI, the party that has ruled for more than 70 years, in which Mexico has been very little progress in the political, economic and social issues.

Fortunately, there is good news for the Mexicans, Monetary Policy is shielded. The Central Bank of Mexico (Banco de México or Banxico) who is also responsible for the Monetary Policy is completely autonomous from the April 1st 1994, as it was decreed in the Bank of Mexico's Law promulgated on December 23th 1993.

When on February 5th 1917, was declared the current Constitution of the United Mexican States in its article 28, establish oneself for the creation of a Central Bank, which would have as one of its objectives of the issuance of the Mexican currency, unlike the situation that prevailed since the nineteenth century, in which any Commercial Bank issued its own banknotes and coins. At that time was brewing the creation of a Single Bank of Issue (Banco Único de Emisión in Spanish), which should be in charge of the Mexican government. However, due to the shortage of public funds, represented a major obstacle in order to obtain the necessary capital for the creation of this institution, with the result that they had to spend seven long years for the foundation of the Bank then called Single Bank of Issue (Banco Único de Emisión in Spanish).

It was not until August 25th 1925 when it was decreed the creation of the Bank of Mexico as a limited company, starting its operations as the Central Bank on September 1st 1925 (87 years ago). In order to obtain the necessary capital for the creation of the Bank of Mexico, budgetary efforts were made by Alberto Pani, the former Secretary of the Treasury and by Joaquín Amaro, the former Secretary of National Defense, and that is how it were able to have the necessary funds for its creation. The inauguration was provided by the former President of the Republic Plutarco Elías, designating as first Chief Executive Officer to Alberto Mascareñas and as first President of the Board of Members to Manuel Gómez.

One curious fact is that Manuel Gomez along with Efrain Gonzalez, Adolfo Christlieb, Rafael Preciado, Agustín Aragón and Gustavo Molina on September 14th 1939 (73 years ago), founded the National Action Party (PAN, by its Spanish acronym for Partido Acción Nacional), which is the main opposition party and a staunch opponent in all the elections that have been carried out since that date with the Institutional Revolutionary Party (PRI, by its Spanish acronym for Partido Revolucionario Institucional), which had held the presidential power until 2000, when Vicente Fox won the elections.

The early years of the Bank of Mexico were reasonably successful in terms of the promotion in the renaissance of the credit in Mexico, because that was granted the power to operate as an ordinary institution of credit and discount. However, for the operation of the same as Central Bank were complicated, since it had to promote a new banking system as well as the acceptance on the part of the population in the use of the new banknotes, because they do not all commercial banks accepted associated by the purchase of its shares.

Well it took 6 years, until the July 27th 1931 is enacted the Monetary Law of the United Mexican States, which gives the banknotes issued by the Bank of Mexico certain features of currency, as well as demonetize gold in Mexico. In addition, the April 12nd 1932, enacted the Organic Law of the Bank of Mexico, in which it removed all the powers of operation as a commercial bank, as well as mandatory to commercial banks to participate with the acquisition of shares by a 6% of its capital and the delivery of the 5% of their deposits.

These two laws, as well as the great shortage of banknotes that are lived at that time, they were originated that finally the banknotes issued by the Bank of Mexico were accepted by the entire population, in addition to the Bank of Mexico will be assigned functions of a central bank, i.e. it has influence on the regulation of the circulation of money, interest rates and exchange rates, in addition to being the Treasurer of the Federal Government, as well as centralizing bank reserves to become the bank of the commercial banks to be the lender of last instance for them. With all the above, it is guaranteed the stability, growth and development of the Bank of Mexico, achieving that in the next few years Monetary Policy would be in a favorable situation for the Mexican people.

However, under the organizational scheme that was, the Bank of Mexico was hierarchically below the Secretariat of Finance and Public Credit (SHCP, by its Spanish acronym for Secretaría de Hacienda y Crédito Público), so that in reality, both Fiscal Policy and Monetary Policy, would be borne by both the President of the Republic as the Secretary of the Treasury, which pointed to the Bank of Mexico in a very bad situation, this due to that, the Bank of Mexico had only a CEO, and this only receive orders and did not have great influence in the decisions of the Monetary Policy proposal.

On December 23th 1993 was promulgated the Bank of Mexico’s Law, in which gives it the total autonomy as Central Bank, so on April 1st 1994, starts the new era for the Bank of Mexico as it is completely free from the influence of the Mexican federal government.

The main objective with the autonomy of the Bank of Mexico, is that both functions as the administration of the same having neither the influence nor the political pressures from the federal government in turn. Therefore, no authority can compel him to grant credit, as this prevents an exaggerated expansion in the primary credit that gives the Bank of Mexico, which can be converted in the origin of strong inflationary pressures due to the inability that had the Bank of México to decide uniquely the amounts of credit needed to control inflation. Similarly, the autonomy, as mentioned above, performs a shield in the Monetary Policy due to various sectors of the society requested an increase in spending, what prevents an inflationary financing on public spending.

The Law establishes clear criteria on the administrative management in the development and adoption of the budget, as well as the audit procedures of the Bank of Mexico, which also eliminates the possibility of external influences. In addition, the Bank of Mexico is obliged to submit periodic reports to the Congress of the Union as well as the fact that the members of its Board of Governors are subject to the regime of responsibilities that all public server has, so they can reach to have impeachment due to the decisions of the functions and administration of it.

Another of the benefits that has the autonomy is that decisions on Monetary Policy are taken in a collegial manner by members of the Board of Governors, it is conformed by a Governor of the Central Bank, which is Agustín Carstens and by four Deputy Governors whom are Roberto del Cueto, Manuel Ramos, Manuel Sánchez and José Sidaoui. These decisions are made by voting, which have the same weight, so that the Monetary Policy does not depend on a single person.

The selection criteria for each of the members of the Board of Governors are very clear in the Bank of Mexico’s Law, the President of the Republic appoints the individuals who will be ratified by the Senate or by the Standing Committee of the Congress of the Union, that is, the governor of the Governing Board has a period of 6 years and starts in the middle of the six-year period of government (Agustin Carstens start functions on January 1st 2010 and ends on December 31st 2015), the Deputy Governors have an administration of 8 years and his replacement is given every two years alternately, starting the first, third and fifth year calendar corresponding to each period of six years of the President of the Republic. The best thing about this is that the members can be dismissed only for serious reasons and not in a discretionary manner, in such a way that the President of the Republic can only reach to promote to the half of the Board of Governors during his six-year period of management.

The Bank of Mexico will be responsible for the growth, development and the progress of the country is maintained as have been in recent years. I just hope they do not pass anything extraordinary, I would like to say, that the president-elect does not wish to completely control the Monetary Policy and changes both on the constitution or in the Bank of Mexico’s Organic Law, if this were to happen, I wish him a very black horizon for the Mexican economy. We will have to see...

 

11 August 2012

Corporate Governance, Banking and Money Laundering.

The Corporate Governance, as many authors mention, is a set of internal and external mechanisms that use the firms to alleviate the problem of agencies that is presented, this facilitates the smooth operation of any company. In the research I have done, I have focused on non-financial firms, however, due to the current events that have been raised in Mexico, I have concentrated my efforts in the effects of the Corporate Governance mechanisms within the Mexican banking system.

The Permanent Subcommittee on Investigations (PSI) of the Senate of the United States, which is headed by U.S. Senator for Michigan, Carl Levin, the past July 17th 2012, presented a detailed report on the investigation that was conducted with the English bank that operates in Mexico, The Hongkong and Shanghai Banking Corporation (HSBC), as well as its subsidiaries in the United States and other countries. This report mentions the alleged involvement of the financial institution on what is the crime of Money Laundering that was presented between the years 2004 to 2007.

The process through which anybody hides the source of the funds generated by an illegal activity (such as corruption, tax fraud, drug trafficking, among others) is what is called Money Laundering. With the Money Laundering seeks to ensure that these illicit funds are posing as if they were generated funds for legal activities or as a result of profits from business perfectly well identified as legal, so that moving without problem in the financial system in any country.

Carl Levin argued that the financial group HSBC-Mexico is the main exporter of dollars back to HSBC-United States, since the year 2007 were transferred 3,000 million US dollars and in the year 2008 were transferred 4,000 million US dollars, these huge amounts of money could only be achieved if they include operations related to illegal activities. Additionally, in 2008 HSBC-Mexico in its subsidiaries in the Cayman Islands had nearly 50,000 accounts opened with around 2,100 million US dollars in assets, the research found that were not being and offices or employees in the Cayman Islands, everything is handled from Mexico.

Levin also emphasizes that HSBC-Mexico, has a long history of deficiencies in the mechanisms to combat Money Laundering, as well, there are no well-established policies on the part of the bank with the purpose of knowing customers opening accounts in their offices, in addition to that the monitoring system of accounts is dysfunctional, and if that were not enough, the executives of the bank were reluctant to close accounts in spite of the fact that there was evidence that the customers had suspicious activities and/or with a high profile that they were involved in drug trafficking.

In spite of the fact that in 2008 HSBC-Mexico apparently corrected the anomalies that found Levin, the National Banking and Securities Commission (CNBV, by its Spanish acronym for Comisión Nacional Bancaria y de Valores) also had already become aware of unsafe practices and some shortcomings in the systems adopted to combat Money Laundering by HSBC-Mexico, which led to the CNBV will punish this banking institution. On July 25th 2012 finally HSBC-Mexico paid the amount of 379 million Mexican pesos for the violations against Money Laundering, as they have informed the president of the CNBV, Guillermo Babatz, this sanction was due to HSBC-Mexico reported late 1,729 unusual operations in Mexico. In addition, no reported 39 of these transactions and incurred 21 administrative offenses. The sanction mentioned above, represents for HSBC-Mexico 51.5% of its net profit reported at the end of December 2011.

Likewise, Guillermo Babatz, mentions that, "if it is a sanction that is too high, the highest that has been imposed in the history of the Mexican financial system. The highest it had to do with the case of Comercial Mexicana (by 49 million Mexican pesos in 2009) and this is much higher, more than half of the profits of the bank. It is a very punitive sanction".

In spite of the sanction and the scandal about the alleged Money Laundering, HSBC-Mexico reported that in the first half of 2012 net profits increased by 46.9% compared to the same period of 2011. This means that Banking continues to be a very good business in Mexico and that the scandals do not affected at all, even when David Bagley, head of the department of control of the bank, he decided to resign the past July 17th 2012, due to the flaws in the controls that they found the investigations by Carl Levin. This waiver may be regarded as an internal mechanism of Corporate Governance, due to the turnover of some executives could represent a sign that the people who have deficiencies in their functions could be removed from their positions and would be a kind of blame them for the internal situations of the company and would serve to clean the good name of the bank. Some Corporate Governance authors call this the theory of the “scapegoat”.

Under the designation of International Bank (Bital, by its Spanish acronym for Banco Internacional), this financial group was formed on July 22nd 1941. Have past many interesting events since its foundation that does not mention on this occasion, what is relevant is that the November 22nd 2002, the Financial Group Bital (GFBITAL) was acquired by HSBC Holdings plc, buying 99.99% of its equity value. It is as well as from October 1st of that year, Alexander Flockhart assumed the position of Chairman of the Board of Directors and Chief Executive Officer (CEO) of HSBC Group until December 31st 2010.

The Permanent Subcommittee on Investigations (PSI) of the Senate of the United States, said that HSBC Holdings plc knew that GFBITAL had "substantial problems" to combat Money Laundering in Mexico, since it was acquired in the year 2002, which means, that probably from years ago and still GFBITAL had been washing money of Mexican drug traffickers and that when he became HSBC-Mexico, the situation should not change, that is, its customers were still washing money but now in a bank of international stature, what they should be even more, because the scope of their funds would be greater.

The above is just one example of how at firm’s interior can fail the mechanisms of Corporate Governance. Both the PSI as the CNBV, emphasized that HSBC-Mexico is not an accomplice of organized crime, were simply failures to its internal control systems, in addition, these failures did not generate negative effects in terms of profitability and credibility to the financial institution.

Some other financial institutions are being watched very closely because the electoral fraud and scandal that was presented in the past presidential elections. Authorities mentioned to MONEX and SCOTIABANK as intermediaries between the government of the state of Mexico and deviations of public funds toward the campaign of Enrique Peña by around 50 million Mexican pesos, in addition, it is known the links that Enrique Peña has with the drug trafficking, such is the case of Rafael Celaya a close friend of him that was just arrested in Madrid, Spain by the presumed link with drug cartels in Mexico.

This makes us think that indeed, the financial institutions have serious deficiencies in their internal controls against Money Laundering. The investigations of these situations are being carried out by the Electoral Tribunal of the Judicial Branch of the Federation (TEPJF, by its Spanish acronym for Tribunal Electoral del Poder Judicial de la Federación). I only hope that this agency really do their job well and to annul the elections because of these irregularities in the electoral process. However, seeing as there are things here in Mexico, I don't think that will clarify things well and that on the contrary, they hide such anomalies.

I think that the mechanisms of Corporate Governance should be better developed in countries such as Mexico, and especially in the financial institutions. The authorities as the CNBV and the Bank of Mexico should impose greater sanctions for the situations that have been submitted. I hope that this is not a signal that other banks are in similar situations since it would be catastrophic and generate from inside a complicated situation of credibility and to join the political scandal that prevails in Mexico. We will have to see…

 

10 July 2012

Mexican elections.

It is inevitable that on this occasion my monthly contribution to VIPsight do not focus on the elections which took place in my country the past July 1st, and the most importantly, what I believe will be the impact of these elections in the next 6 years for Mexico, its businesses, its society and its economy.

The past July 6th, the count of all the polling stations that is performed by the Federal Electoral Institute (IFE, by its Spanish acronym for Instituto Federal Electoral) has been completed, so that the outcome of that contest was as follows: the candidate of the National Action Party (PAN, by its Spanish acronym for Partido Acción Nacional), Josefina Vázquez, obtained 24.40% of the votes; the candidate Enrique Peña, who heads the coalition called “Commitment by Mexico” in Spanish “Compromiso por México” (composed of the Institutional Revolutionary Party (PRI, by its Spanish acronym for Partido Revolucionario Institucional) and the Green Party of Mexico (PVEM, by its Spanish acronym for Partido Verde Ecologista de México), achieved 38.15% of the votes; the coalition candidate called “Movement National Regeneration” in Spanish “Movimiento Regeneración Nacional” (integrated by the Party of the Democratic Revolution (PRD, by its Spanish acronym for Partido de la Revolución Democrática), the Labor Party (PT, by its Spanish acronym for Partido del Trabajo) and Citizens' Movement (MC, by its Spanish acronym for Movimiento Ciudadano)), Andrés López, obtained 31.64 % of the votes; and finally Gabriel Quadri by New Alliance (NA, by its Spanish acronym for Nueva Alianza), obtained 2.30 % of the votes.

The above numbers indicate to us that the candidate of the coalition “Commitment by Mexico” in Spanish “Compromiso por México” (composed of the PRI and PVEM), Enrique Peña, is the winner of the Mexican election, so in short it will be given the act of majority to him, namely, he will be declared president of the Republic of the United Mexican States in Spanish “Estados Unidos Mexicanos”. The “Perfect Dictatorship” has returned to govern Mexico!!!!!!!

Mario Vargas had already mentioned, Peruvian writer who in 2010 won the Nobel prize for literature, 20 years ago said Mexico who lives in a “Perfect Dictatorship”, due to the fact that for more than 70 years PRI has ruled the country, election after election always won and there was no real opposition of any candidate and much less of any political party, so at this moment we can say that again will govern to Mexico the great dictator who is the PRI.

If that were not enough, I had never seen a candidate to the presidency of Mexico is opposing groups of people, in such a way that will they manifest against Enrique Peña and they want he renounce to his nomination. In addition, once known the trends of the votes as well as the final tally, again there are demonstrations against which it is winner of the contest. These marches and demonstrations are taking place in all the cities in Mexico, even to my already happened to me, several times in the last week, due to the closures of the streets and the demonstrations which have been carried out, I've been stopped in traffic. I hope that this does not happen to higher, but I think now that the social discontent is going to take different styles to the previous elections, I hope I am wrong but I reiterate, these closures of streets and massive demonstrations had never seen before in against a candidate first and now for a president-elect.

In addition to what I mention above, Andrés López the contender for the PRD (in the year 2006 contested the presidency by the same party PRD, and that he lost, after a careful count of votes) is once again decided to demonstrate and take to the streets, as well as their intention to impugn the election, since he mentions that there was a great election fraud in Mexico, as is the purchase of votes, polls that were filled with ballots in favor of the PRI, theft of ballot boxes by armed persons, etc., etc., these accusations are being specialized prosecutor's office to the attention of Electoral Offenses (FEPADE, by its Spanish acronym for Fiscalía Especializada para la Atención de Delitos Electorales) to be analyzed and gather evidence of the facts mentioned above. Once it have finished this instance the resolution will take after to the Electoral Tribunal of the Judicial Branch of the Federation (TEPJF, by its Spanish acronym for Tribunal Electoral del Poder Judicial de la Federación) who is the final institution who will determine a position on the elections, and ruled the legitimacy or otherwise of the same. In times like these we have to wait to know the failure of these institutions, however I believe that it is not going to change absolutely nothing and that finally the PRI will be designated the winner of the last Mexican election.

When being looking for information on the count and the percentages that I mentioned up I met with an important fact that is necessary to highlight. Near 40% of the Mexicans they didn't vote, that here in Mexico it is called “abstencionismo” (abstentionism, people that don’t want to vote). This situation is for it that so much the political parties and IFE have worked and they made a lot of invested money and effort so that people will vote. This means that they exists many people that the same as I think that it is a loss of time go to vote. The concept of “Democracy” that is managed in Mexico is obsolete, they question the existence of the political parties and of the same politicians, as well as of its performances in the economic and social politicians that have taken, something important that to mention is that they are read and acts of corruption are listened in government's levels and of all the political parties, none survives. Joel Mokyr (Professor of Economics, Northwestern University) sustains a quite interesting hypothesis about the corruption and the poverty. It assures that the corruption generates poverty, this is, the poorest countries are the most corrupt countries, people that working hard don't have incentives in continuing making it because it will arrive somebody that takes off it without the most minimum effort, that it makes that the countries are poor. Mokyr will be in the right thing with this hypothesis? Will Mexico be the exception to this?

If the numbers of the count that makes the IFE we adjust with all those people who don't vote, the numbers would change to the following:

Josefina Vázquez obtain 16.27%.

Enrique Peña obtain 25.43%.

Andrés López obtain 21.09%.

Gabriel Quadri obtain 1.53%.

How someone can govern a country with only 25% of the acceptance of the population? This is not “Democracy”, the PRI won the largest number of votes of the people who decided to go to vote, but not most of the acceptance by the population of Mexico. I think that we need to take into account this situation. It is something serious to let it go long. They did not?

Let's leave the politics to one side, now let's look at some interesting data. For a start, the index of prices and quotations (IPC, by its Spanish acronym for Índice de Precios y Cotizaciones) of the Mexican Stock Market (BMV, by its Spanish acronym for Bolsa Mexicana de Valores) has been declining throughout this first week after the Mexican elections. Last Friday June 29th (before the elections) had again reached a level above the forty thousand points to be located in 40,199.551 points. To my surprise, on Monday July 2nd closed at 40,108.992 points and the Tuesday July 3 th reached a historic high level of 40,434.711 points, after this it began to fall to reach the Friday July 6th, where the IPC closed at 39,831.648 points, this represents a decline of 1.49% with respect to the data that had highest IPC. I believe that eventually the stock market and investors reacted and punished both in the elections, as well as to the results of the same, so I don't doubt that, in the following days this downward trend will continue to prevail and more by the post-election problems that are occurring. This is only the beginning.

Even more interesting data for 2011, the Gini index for Mexico is 48.3 according to the World Bank (WB) and the Organization for Economic Co-operation and Development (OECD). It must be remembered that the Gini index shows the difference in the distribution of income or consumption expenditure that occurs between individuals in an economy with respect to the ideal situation that would be equality of opportunities by all economic agents. The value of 100 represents a situation in which a country has a total inequality while a value of zero shows a total equity. In addition, the WB and the OECD reported that the GDP per capita for Mexico is 9,133 USD. If we compare this data, for example with Germany, who have 40,116 USD, we are aware of the long lag in income and the distribution of the same.

Likewise, Gonzalo Hernandez, who is the executive secretary of the National Council for evaluation of the Social Development Policy (CONEVAL, by its Spanish acronym for Consejo Nacional de Evaluación de la Política de Desarrollo Social) mentions that in Mexico, there are currently 46.2% of poor people. How many more will be added together in the following management which will begin the next December 1st?

It seems that Mexico will have a very complicated period with the return of the “Perfect Dictatorship”. I am still surprised by the results of the election, I don't explain to myself because many of my compatriots have decided to vote for this individual, after all that is known that he made in his management as a Governor of the State of Mexico. The consequences will be catastrophic and truly I wanted to make a mistake. The numbers up suitable I would like that they changed in a positive way in the following years, although I don't believe it. We will have to see…

 

7 June 2012

The Financial Contagion “De Facto”.

Much has been written about what are the Financial Contagion and the impact on a given country. In a very simple explanation, a Financial Contagion is given with plain news or any event that affects the financial system of a particular country or region, this can be transmitted through external shocks that generate similar situations in the financial systems of other countries or regions. A negative aspect that leads to a financial crisis is that it can trigger a crisis at the level of the real economy, that is, it can affect the level of employment, in the same way the household consumption is affected, as well same could affect levels of exports and imports or it can also reach to affect sales or profits on non-financial companies that are reached by the contagion effect of any financial crisis that has been generated anywhere in the world.

In the month of April, in the contribution I made for this magazine, I mentioned that Mexico was apparently was completely isolated from the external shocks that were being created in other parts of the world, in Europe-specific, however, and very unfortunate in my opinion there have been recent events in the United States and in Europe that have finally come to Mexico's financial markets.

Some examples of the above mentioned are: the Mexican foreign exchange market and the Mexican stock market.

At the beginning of the month of May, the exchange rate was a value of 12.9626 (pesos per USD), but for the last day of the month of May, that value was in 14.3949 (pesos per USD), which represented a depreciation of the 11.0469 % in just one month!!!!!! For the closing of this article, the exchange rate is located in 14.1247 (pesos per USD, June 6th).

Something very similar is happening with respect to the euro, at the beginning of the month of May the value was in 17.0268 (pesos per euro), at the end of the month of May, the quote was in 17.7435 (pesos per euro). This represented a depreciation of the 4.2092 % also in a single month!!!!!!! For today June 6th the exchange rate is 17.6339 (pesos per euro).

Since the beginning of the year, the trend of the Mexican burse index (Índice de Precios y Cotizaciones IPC, by its acronym in Spanish) of the Mexican Stock Market (Bolsa Mexicana de Valores BVM, by its acronym in Spanish), pointed out that the Mexican economy was in a very stable situation and even of a situation, which as I mentioned earlier, very favorable and away from the European financial turmoil. This was already evident that for the May 7th reached its historic peak and broke the psychological barrier of the 40 thousand points, reaching 40,045.512 points. The BMV and investors were euphoric with that fact. However, the external shocks that made the next day, rather than continue to rise, the IPC started to crumble in the consecutive days, in such a way that the May 18th reached a value of 36,875.328 points, which represented a fall of 8.579 % in just 2 weeks!!!!!!

The BMV is currently in a very unstable situation from that black Friday, the IPC has not recovered, in such a way, the current value is located in 37,274.789 points, very far from the values that were yielding since the beginning of the year.

Finally the Financial Contagion it has become obvious to Mexico and that demonstrate the quantities mentioned above. The Mexican newspapers specialists in both economic and financial mentioned that Mexico has been reached by the financial and economic crises that are living in both the United States and Europe.

The United States situation is with reference to employment, that is, the recovery of the US economy was marred due to the growth of employment declined compared with the situation of the previous year, since it is only 69,000 new jobs were created, which represents the lowest number since the same period of the year 2011, this is reported the US Department of Labor, while the expectations by analysts in the United States had predicted that 150,000 jobs would be created to work in non-agricultural jobs.

The same US Department of Labor mentions that 49,000 jobs were created less than what had been planned in the months of March and April, this represented an increase in the unemployment rate to reach the alarming amount of 8.2%.

We have to remember that as in Mexico, in the United States is experiencing an election year, so that the employment situation is concerned to Barak Obama and especially to their intentions of re-election, also, these numbers are used by his Republican challenger Mitt Romney, by what lashed to the economic policy of the President Barack Obama. What perhaps give a substantial number of votes in favor to Mitt Romney.

In the case of the European Union, several events led to the collapse of the Mexican indicators. It is not yet clear what will happen with Greece, the debate continues on the permanence of Greece within the European Union, this is, you will leave Greece of the euro zone?

What happens in Spain? Apparently the economic policy of the Spanish President Mariano Rajoy has not been the most effective and that has brought about a financial crisis, economic and banking. In addition, there is the situation that presented in Bankia, in which the governing council of the bank has taken the blame for the entity has been nationalized and obtain a rescue for more than 24,000 million euros.

France has changed its president by the socialist Francoise Hollande who came to power the last May 15th, what are the expectations of the European Union with regard to this new French leader?

Therefore, the stagnation and the economic recession that has already been made evident in Europe have an impact on Mexican firms that have a strong presence as well as operations and exports to the eurozone. The particular case it is observed on several of the companies that make up the sample of the IPC, such as: Alpha, Bimbo, Cemex, Gruma, Grupo Modelo, Femsa, Mexichem, Televisa and Vitro.

A typical example of the above represents the Mexican firm Mexichem. This Mexican petrochemical company, the last May 7th acquired 87.42 per cent of the Dutch firm Wavin. This acquisition represents 44 factories in 23 European countries, of which currently gets about 20% of their profits. Although many of the operations it has with the countries most affected by the economic crisis as are Greece, Italy, Portugal and Spain. However, and despite the crisis, the owners of this firm have positive expectations of growth with this acquisition freshly cooked.

May has been a pretty tough month for the Mexican financial markets. Some financial analysts predict that June will still be a month with great volatility, because statistically the IPC presents negative profits from 10 years ago. If you add to the European external factors the internal factors of the upcoming elections on July 1st, I would not like to give my personal prediction with regard to what might happen in June. Mexico will astern of this global financial crisis????? We will have to see…

 

6 May 2012

Creating Shared Value and Corporate Social Responsibility.

I live in the city of Puebla, which is located to 130 km. (approximately 2 hours on the highway) from the capital city of the Mexican Republic, the Federal District (Distrito Federal, DF). Here is one of the 94 plants that consortium Volkswagen has around the world. Volkswagen de México, S.A. de C.V. has a workforce of 13,937 employees. There are assembled some models: Jetta, Golf and Beetle. After the Brazilian plants, this plant represents the consortium for the second country in importance to the area of America. My dad worked there, this was the reason why we arrived to live in this city of Puebla. In fact I myself worked in Volkswagen. This means that for the region that is around the plant, represents a great source of income and employment for the population, and same for the whole state of Puebla, since it represents 25% of the state of Puebla’s Gross Domestic Product.

Michael Porter was in Puebla last April 27th 2012, the reason for his visit to this city was because he has been awarded with a Honorary Doctorate from the Universidad Popular Autónoma del Estado de Puebla, A.C. (UPAEP) (where I currently working). After receiving this prize, to all those attending the event he gave us an interesting conference.

The conference took place at the beginning with the concept of competitive advantage and its diamond of the 5 strategies by which companies obtain and ensure that competitive advantage, this concept represents the work that he has been performing for more than 35 years. Likewise, focuses on the economic growth that is achieved with competitive enterprises in a country and especially in a region, in addition begins to mention that one way of achieving this is through the formation of clusters, in specific for the city of Puebla, representing the clusters of the automotive industry (that's why my mention of Volkswagen in the first paragraph), the textile industry and the tourism industry. The latter is due to the fact that Puebla is a colonial city with great historical tradition, cultural and gastronomic delights. The novelty of his lecture was when he started talking about the topic concerning Creating Shared Value (CSV) that along with Mark Kramer has developed from a few years ago and which has been spreading in the whole world.

He gave us the definition for the concept of Creating Shared Value is as operational practices and public policies are aimed to improve the competitiveness of a company and at the same time promote the economic and social conditions in the regions where they are present. This means that the civil society and the economic progress must be find connected, that is precisely what has as main objective of Creating Shared Value.

Therefore the main premise is that Creating Shared Value is understood in the sense that the economic and social progress must be addressed through principles of value (the value concept is very similar to the concept that we have the interior of the companies on the value chain). Michael Porter mentioned the value of benefits with respect to costs, and not only the benefits for themselves. For a long time in the firms has recognized the idea of Value Creation, in which the benefits are represented by the income that the firm get from the sale of their products and that it have to subtract the costs of products manufacturing. However, companies rarely have raised situations related to civil society from a perspective of value, on the contrary the situations have been treated as very distant to the companies. This has represented a major obstacle in the related links between the economic and social interests.

Thinking in terms of value for the social sector is even less common. Both the Government and social organizations measure the success of its existence through the benefits achieved or the costs that have been made. In accordance with social organizations and governments displayed their strategies with the concept of value, be aware that the relationship and collaboration with companies inevitably grow.

Michael Porter said the situation in which the problems of the society may not be resolved through solutions of shared value. However, the fact that the companies share the concept of value, offers a great opportunity to use the companies of their knowledge, resources and management capacity, this will cause both social and economic progress. In this process of sharing the value will allow the companies finally gain the respect of society.

Capitalism according to Michael Porter, is the best way to meet human needs, one reaches the point efficiently, and best of all, is the means by which generate employment and wealth. But an erroneous perception of capitalism has prevented the companies have been unable to make all its potential to meet broader challenges to society. The possibilities have been present, but have been overlooked. The companies act as companies, and not as charitable entities, are the engine that could lead to the society to obtain more and better situations of economic strength and growth. Now is the time to have a new conception of capitalism; the needs of society are large and becoming increasingly prevalent, companies are expected to increase the potential of wealth generation, that is what customers expect, employees, and a new generation of young people.

Finally Michael Porter concluded that “The purpose of the corporation must be redefined as Creating Shared Value, not just profit per se. This will dive the next wave of innovation and productivity growth in the global economy. It will also reshape capitalism and its relationship to society. Perhaps most important of all, learning how to create shared value is our best chance to legitimize business again”. In addition to the above, he emphasized the idea of “Business and society have been pitted against each other for too long. That is in part because economists have legitimized the idea that to provide societal benefits, companies must temper their economic success. In neoclassical thinking, a requirement for social improvement—such as safety or hiring the disabled—imposes a constraint on the corporation. Adding a constraint to a firm that is already maximizing profits, says the theory, will inevitably raise costs and reduce those profits”.

I thought the speech was excellent I even moved to tears, but when I turned to see the reality of Mexico I realize that it will be very complicated to put in practice everything that Michael Porter mentioned.

My first paragraph I was talking about the situation in this region. Volkswagen is a great company however is far to be reached to think that it has in mind the concept of Creating Shared Value (CSV) by this great company, on the contrary, it makes one think that the objectives of the company are completely different even to what the concept of Corporate Social Responsibility (CSR) represents.

I fully agree with the ideas of Michael Porter and Mark Kramer, already they mention that Creating Shared Value must take precedence over Corporate Social Responsibility in the sense that guiding the investments made by companies in their regions. The programs of Corporate Social Responsibility are concentrated in its greater part of the reputation and only have a limited connection to the company, therefore, this makes it difficult to justify and sustain in the long term. In contrast, Creating Shared Value is an integral part of the company for the generation of both profitability as a competitive position (In both cases, compliance with laws and ethical standards and reducing harm from corporate activities are assumed). This is due to the fact that takes advantage of the surplus resources and the expertise of the firm to create economic value, which translates to end of accounts in social progress, in the theory looks good, but putting it into practice, it is what is really needed by all economic actors, businesses, academy, government and civil society. I still have a doubt as to whether one day be agreed to by all these actors? We will have to see…

 

6 April 2012

Mexican survival in the face of the global financial crisis.

Starts the second quarter of 2012 and Mexico has been surviving the global financial crisis. The expectations that reported the experts from the Central Bank of Mexico (Banco de México), they are good in general terms. Inflation is being controlled in close to the 3.78% due to the target rate of inflation is 4.5%. The international reserves of the Mexican Central Bank reached a historical high the past March 30th 2012, are located at 150,264.10 million US dollars. The exchange rate is stable below 13 pesos per US dollar. While the expectations for the Gross Domestic Product (PIB by its Spanish acronym for Producto Interno Bruto), in which the experts say that will grow to 3.43%.

Some interesting facts that have been presented in both the national and international scope are: the general strike in Spain that was the last March 29th 2012. In which several Spanish unions protested by the labor reform of the current president Mariano Rajoy and the Popular Party. While in Greece still live the uncertainty about the economy of that country, in spite of the financial assistance, the president of the European Central Bank (ECB) Mario Draghi, whom mentions that does not rule out a difficult situation for Greece in the coming months, even with the restructuring of the Greek banking system.

In Mexico, on March 30th 2012, the candidates for the presidency of the Mexican Republic began their political campaigns with the target to the presidential succession and with the primary objective of gaining votes for its “noble cause” the next July 1st 2012. Therefore, I believe that a number of people share my opinion on the candidates, there is not a viable option for whom to vote, in addition, the advertising on television and radio is exaggerated, it will be that each time the elections will be more expensive in Mexico?

The candidates were formed in the following manner: Josefina Vazquez by the National Action Party (PAN by its Spanish acronym for Partido Acción Nacional); Andres Lopez by the coalition named “Movement National Regeneration” (“Movimiento Regeneración Nacional”, integrated by the Party of the Democratic Revolution, PRD by its Spanish acronym for Partido de la Revolución Democrática, Labor Party, PT by its Spanish acronym for Partido del Trabajo, and Citizen Movement, MC by its Spanish acronym for Movimiento Ciudadano); Enrique Peña by another coalition called “Commitment by Mexico” (“Compromiso por México”, composed of the Institutional Revolutionary Party, PRI by its Spanish acronym for Partido Revolucionario Institucional, and Green Party, PVEM by its Spanish acronym for Partido Verde Ecologista de México); and finally Gabriel Quadri by New Alliance (NA by its Spanish acronym for Nueva Alianza). By the way, this last party NA, had begun the electoral process in coalition with the PRI and the PVEM, it is not known why which broke the coalition.

To my surprise, the index of prices and quotations (IPC by its Spanish acronym for Índice de Precios y Cotizaciones) of the Mexican Stock Market (BMV by its Spanish acronym for Bolsa Mexicana de Valores) did not lose the winning streak of the past two weeks. Still this Monday March 2nd and Tuesday March 3rd the IPC kept on rising, reaching a peak on Tuesday to be located in 39,924 points. The BMV was euphoric as well as investors, since the expectations were that by Wednesday, 4th April 2012, the IPC will exceed 40,000 points, however, fell by 1,318% to be located in 39,398 points. What represented a fall fairly strong since last March 6th 2012. We will have to wait until the next Monday April 9th, as there is a recess for the holy week here in Mexico.

This misfortune that suffered the BMV was due to the fact that the past April 3rd 2012, released the meeting’s minutes that had the Central Bank of the United States (Federal Reserve System). The Federal Open Market Committee (FOMC by its acronym in English) in its meeting of the March 13rd 2012, in which Brian Sack the manager of the System Open Market Account (SOMA by its acronym in English) reported on developments in the financial markets both in the United States as foreign ones, in which, since the meeting held on January 24th and 25th 2012, the FOMC, which reported that economic activity was growing moderately. Labor market conditions continue to improve, and the unemployment rate fell even more, though still high. The headline consumer price inflation was relatively moderate in recent months. More recently, the price of crude oil and gasoline increased considerably. The long-term measures of inflation expectations remained stable. Non-agricultural jobs increased significantly faster at an average pace in January and February of 2012 compared with the fourth quarter of last year, and a decrease in the total government employment has slowed in recent months. The unemployment rate declined to 8.3% in January 2012, the same thing happened in February 2012. The manufacturing production increased significantly in the month of January 2012, and the rate of manufacturing capacity utilization has been intensified. The production in the factories was driven by a considerable expansion in the production of vehicles, but there were also solid profits and generalized in other industries. In the month of February 2012, the situation was very similar to that reported in the month of January 2012, so it is expected that at the end of the first quarter, the industrial activity being favored by this inertia submitted by the manufacturing industry.

In general terms, the economy of the United States have symptoms of recovery, so that the FOMC, concludes that it will continue to support an economic recovery and therefore to ensure that the inflation is controlled. By the monetary policy will be highly accommodative. In particular, the FOMC decided to keep the target range for the federal funds rate at 0 and 0.25% and in the currently anticipates that the economic conditions as the low rate of use of resources and a bleak forecast for inflation in the medium-term is likely to warrant exceptionally low levels of the federal funds rate at least until late 2014.

At the same time investors were visualized a bad and apathetic in bear auction bonds of Spain and also by who predict a slowdown in the services sector in the United States market for the month of March.

What will happen in Mexico for the next few months? The International Monetary Fund (IMF) has right? In the sense that the financial system in Mexico has stood the test of the global financial crisis of 2008 and that should take care of a possible contagion, which, although it has been limited due to the fact that Mexican banks are profitable and are well capitalized, it cannot be ruled out of a possible financial contagion in the medium term. We will have to see…

 

5 March 2012

Urgent Measures to Mexican stocks.

With date of February 1st 2012, the National Banking Commission and Values (CNBV by its acronym in Spanish of Comisión Nacional Bancaria y de Valores) through its Vice President of Stock Monitoring and the General Directorate of Market Monitoring, issued a press release to inform the progress that has the implementation process of the International Financial Reporting Standards (IFRS), which are issued according to the guidelines presented by the International Accounting Standards Board (IASB) that must be observed by non-financial companies listed on the Mexican Stock Exchange (BMV by its acronym in Spanish of Bolsa Mexicana de Valores).

In the press release, the CNBV makes mention that, in January 2009 issued a regulation on a mandatory basis and irrevocable, which would take effect from the first day of the year 2012. This regulation requires all non-financial firms are listed on the BMV to prepare their financial statements in accordance with IFRS mentioned earlier.

In spite of the mandatory that has this agreement, as well as the that the CNBV requested all non-financial firms from April 2010 presented as a complement to its quarterly information, a report which includes the percentage of progress in the activities of its projects to comply with the requirement to develop their financial reports in accordance with the new rules, this is with the aim of knowing the degree of progress that these stations had been achieved in the implementation of IFRS.

However, this process of adoption of such standards maintained a slow progress during the third quarter of 2011, as far as the date the status of implementation of the rules shown below.

Of the non-financial firms listed in the BMV is taken into account 131 of them. Only 16 adopted early the IFRS, which are: América Móvil (AMX), Farmacias Benavides (BEVIDES), Bolsa Mexicana de Valores (BOLSA), Internacional de Cerámica (CERAMIC), Gruma (GRUMA), Hilasal Mexicana (HILASAL), Empresas Ica (ICA), El Puerto de Liverpool (LIVEPOL), Grupo Industrial Maseca (MASECA), Mexichem (MEXCHEM), Grupo Aeroportuario del Centro Norte (OMA), Industrias Peñoles (PE&OLES), Grupo Radio Centro (RCENTRO), Red de Carreteras de Occidente (RCO), Telmex Internacional (TELINT) y Teléfonos de México (TELMEX).

Of the 115 remaining, only 4 firms have been completed to 100% its process of adoption of the IFRS which are: Citi Structures México (CITIMEX), Dine (DINE), Grupo Pochteca (POCHTEC) y Vinte Viviendas Integrales (VINTE).

The report requested by the CNBV did not submit 3 non-financial firms: Copamex (COPAMEX), Grupo Mac Ma (GMAGMA), Grupo La Moderna (GMODERN).

Four firms were delivered incomplete its report: Grupo Aeroméxico (AEROMEX), Consorcio Aristos (ARISTOS), Cmr (CMR), y Promotora Ambiental (PASA).

At the same time, there is had a progress report less than 60% for 16 of above mentioned issuing non-financial firms, such they are: Corporación Moctezuma (CMOCTEZ), Controladora Comercial Mexicana (COMMERCI), Edoardos Martin (EDOARDO), Facileasing (FACILSA), Grupo Azucarero México (GAM), Gas Natural México (GASN), Grupo Gicsa (GICSA), Grupo Mexicano de Desarrollo (GMD), Gmd Resorts (GMDR), Megacable Holdings (MEGA), Ohl México (OHLMEX), Bio Pappel (PAPPEL), Grupo Posadas (POSADAS), Pure Leasing (PULSA), Tiendas Comercial Mexicana (TCM) y Corporación Tapatía de Televisión (TV5).

The foregoing apparently will represent an additional effort to comply with in time with the obligation to present its financial information based on the IFRS from the first quarter of 2012.

The rest of the companies have a progress of the 84%, which could be categorized as acceptable in terms of its delivery of reports that would is requesting the CNBV.

However, for the total of all non-financial firms that are listed in the BMV, has a progress reported to the date of around 73%.

It is important to highlight and emphasize that the CNBV not give out any extension to the adoption of the IFRS beyond 2012.

What does pursue with this process of implementation of the IFRS? The CNBV mentioned that it has a commitment to the general public and especially with investors in the field of transparency within the stock market as well as the proper functioning of that. In this way, the CNBV in conjunction with the BMV join efforts to reach the goal in the fulfillment of the rules as well as increasing the quantity and quality of the information that is available to all those who require it.

Likewise in accordance with the IASB to develop in favor of the players in the international financial markets a single set of standards for the financial information that is based on clearly articulated principles, that is understandable, enforceable at the highest possible quality as well as the to be accepted worldwide.

Therefore the IASB to achieve this objective, it has been working in close cooperation with interested parties throughout the world, including investors, to the standardization bodies in each country, with regulators, auditors, academics, and others who have an interest in the development of high-quality global standards.

This has meant that there is a great convergence project at the global level to adopt the IFRS in the near future. This has become such that large economies have established lines of time with the primary goal in converge toward the implementation of those so called IFRS. In this way, in September 2009 the Group of 20 (G20) met in the city of Pittsburgh, USA. For that meeting was a consensus that there was a global convergence for June 2011. This through the request very particular to the IASB to redouble the efforts on the adoption of the rules set forth above.

We are very close to the first quarter of 2012 to reach the agreed date. Will be in Mexico the non-financial firms listed in the BMV to reach the target proposed by the CNBV? We will have to see…

 

5 February 2012

Uncertainty in Mexico.

Despite the fact that the past Friday, February 3th 2012, the Mexican stock exchange (Bolsa Mexicana de Valores, BMV) had a profit of 1.01% in its Stock Price Index (Índice de Precios y Cotizaciones, IPC) for achieving the 38,092.81 points, which represents its biggest mark in the last 10 months. In addition to this, the peso-dollar rate had a significant recovery, the appreciation that has the Mexican peso holds it below the 13 pesos per dollar, this is, it was 12.6775 pesos per US dollar, which represents a value that had not reached in 4 and a half months. Even with these indicators I believe that it is still too early to be able to say that economic activity in Mexico shows signs of recovery and that the feeling that the recession has passed, and the Mexican economy go upward from here onwards. My main argument is based on the 2012 is an election year, so this is going to be a determining factor for the recovery of the industrial activity of this beautiful country. The Mexican economy is subject with pins.

In the same way that happened to Mexico, many of the world's stock exchanges recorded strong increases. European stock markets are the ones who recorded the largest gains. Examples of this: In the Milan stock exchange, the FTSE-MIB index rose 1.00% to be located in 16,439.62 points. In Spain, General Index of the Madrid Stock Exchange (Índice General de la Bolsa de Madrid, IGBM) was a marginal gain of 1.06% which represented that at the end of the day will be with 891.40 points. In Brussels, index BEL-20 reported a gain of 1.43%, with 2,304.58 points in the trading day. Despite the fact that Belgium is the first European country to register technically a recession, this is due to a decrease in the GDP of 0.2% in the fourth quarter of 2011.

 

The events described above are due to the manufacturing sector in the United States, China and Germany advanced, this makes believe that economic activity is now stabilizing. Another important new owes to that a data was published on the employment in The United States. In January was created 170,000 new jobs, although this represents less than the predicted, since it is actually expected to be generated from 180,000 to 200,000 new jobs, in the end, this data is not so bad, don't you think that way?

Returning to Europe, there was an event quite important that also generated optimism among investors both Mexican and European, I am referring to the expectation that Greece finally achieve positive agreements with its international creditors and with this will be resolved the problem on its sovereign debt.

Therefore, this weekend is critical for the resolution of the foreign debt of Greece. It all starts this Saturday February 4 th of the 2012, in which the Minister of Finance of Greece Evangelos Venizelos lead the negotiations for the solution to that problem. This is no easy task, financial assistance is subject to certain internal reforms of the country.

It follows from the foregoing that the negotiations have two fronts, on the one hand this debt renegotiation with international banks creditors. Greece reached an agreement with the director of the International Institute of Finance, Charles Dallara, representative of the international banking, which should be granted to Greece a removes 50% of its debt in addition to the form to recapitalize its banks after a planned debt swap. This represents that Greece will receive funds by 130,000 million euros for their rescue, as well as a cancellation of debt on the part of private investors to 100,000 million euros. Are expected to arrive in time, and because the country must pay 14,500 million euros in bonds that will mature in mid-March. However, in spite of all this effort it is estimated that there is a shortfall of 15,000 million euros (20,000 million US dollars) additional to the rescue plan financial before mentioned. This shortfall would be provided for the rest of the eurozone countries or by federal banks, such as the Caisse des Dépôts of France, such as is being managed by the European Commission, who is an executive branch of the European Union.

 

On another front is represented by the commitments and political compromises that must be reached. The negotiations with the “International Troika” (which are the representatives of the European Central Bank (ECB), the International Monetary Fund (IMF) and the European Commission) with whom The Greek Government should still resolve the issues related to a reform of labor and to new spending cuts. Specifically, the “International Troika” it requires to The Greek Government to reduce their labor costs by lowering the minimum wage and removing the bonds for holidays. Obviously, the political leaders are opposed to it. Therefore Evangelos Venizelos restart the negotiations in an attempt for achieving a consensus before the Prime Minister, Lukás Papadimos, meets with his coalition of Socialists, conservatives and leaders from the extreme right to ask for his support them to the political commitments in order to achieve that they grant financial help to them.

If this were not enough, the banks international creditors require additionally cuts in public spending with a value of close to 1 percent of GDP (something like 2,000 million euros). This includes cuts in health expenditure and to the expenses of the national defense. Health spending would be reduced by 1,100 million euros in 2012 while the expenditure in the national defense would be cut by 400 million euros this year and next.

Since this desktop all I seems to be so easy, investors also have done so see because that entrusted still in the international financial system and continue to buy shares with what is reflected in the widespread increases in the world's stock exchanges. What the future holds? We are not sure, the uncertainty makes the market risks is very profitable, let us hope that everything will be settled in the coming days. We will have to see…

 

5 January 2012

Macroeconomics and Corporate Governance.

From my humble point of view, the theory relating to the Corporate Governance as well as its control mechanisms should be applied to other areas not only in business. An example of this might be the implementation of Corporate Governance in the public administration, in particular, the management of a country. This hypothesis would be supported by the following arguments.

This is an election year in Mexico. In July 1st, 2012 we will elect the new President for the following 6 years, as well as the Deputies and Senators.

Currently in Mexico there are 7 political parties: National Action Party (Partido Acción Nacional, PAN by its acronym in Spanish); Institutional Revolutionary Party (Partido Revolucionario Institucional, PRI by its acronym in Spanish); Party of the Democratic Revolution (Partido de la Revolución Democrática, PRD by its acronym in Spanish); Ecologist Green Party of Mexico (Partido Verde Ecologista de México, PVEM by its acronym in Spanish); Labor Party (Partido del Trabajo, PT by its acronym in Spanish); New Alliance (Nueva Alianza, NA by its acronym in Spanish) and Citizen Movement (Movimiento Ciudadano, MC by its acronym in Spanish). It seems to me an endless list of political parties for a single country. Can you imagine that each one party had a candidate for the Presidency?

Fortunately not going to happen in this way, because the small political parties make alliances with the big ones in order to remain active. One of them is called “Commitment by Mexico” (“Compromiso por México” integrated by PRI, PVEM and NA); another of these alliances is the “Progressive Movement” (“Movimiento Progresísta” composed by PRD, PT, MC); and finally the party in power (PAN) faces the elections without alliance. Up to this time only the two alliances mentioned above already have with a representative for the elections, but I will be honest, none of the individuals mentioned to reach the elections are adequate to become a good President of Mexico.

 

In addition, the form alliances it would seem that the cost of the elections were lower, it is unfortunately not as well. Each of the political parties administered individually large amounts of money to be able to compete (in spite of belonging to an alliance). I think that what should be done is to allocate the money earmarked for the election campaigns in an equitable manner. If a party makes an alliance with others, that money would be the same as of a party which will independently. I have tried to investigate on the amounts that each party has at its disposal, but it is almost impossible to obtain such information. Any entity related to the elections or much less political parties published or publicized the information concerning the money that is used in the elections.

Transparency is needed in the use of resources because they are public, we the contributors who uphold the financially elections and political campaigns, because of this, we need a good accountability. Does not seem to them?

Since the October 11st, 1990 (this is just 21 years ago) the elections are borne by the Federal Electoral Institute (Instituto Federal Electoral, IFE by its acronym in Spanish), which, is the autonomous public organization responsible for complying with the role of the State to organize federal elections, this is the election for President of the Republic as well as the Deputies and Senators. The IFE therefore represents the maximum electoral authority in Mexico.

Previously the October 11st, 1990, elections were organized and carried out by the Secretary of the Interior. I think it is a great chance that the party in power (PRI) always won the elections, that is, was in power for around 71 years. Therefore, I ask myself about this, that it was a democracy in Mexico?

Democracy represents a form of organized between various groups of people. The main characteristic is that the power lies in the totality of its members, so the decision-making responds to the collective will that require members of a group. Will be that Plato and Aristotle to define the foundations of democracy they were thinking of the theory of Corporate Governance?

From a business point of view, the Corporate Governance represents the form of organization and operation to the interior of a company. The owners of it designated arbitrarily on the people who will direct the destinations of the firm. We do not need costly elections, or campaigns among the likely leaders of the company to sit in the “Presidential Chair” as a CEO (Chief Executive Officer by its acronym in English). Besides, the owners always think to increase their wealth (from the economic point of view, we would call it “welfare”) in this manner they choose the best people who believe they may carry the reins of the business in the best possible way.

Likewise, the mechanisms of control used in the Corporate Governance make the companies have a good performance and that in case of not having the results pre-established by their owners, then take corrective actions at the time that they are necessary and does not have to wait on the completion of the administration “elected”.

The companies require efficiency, productivity, transparency in accountability. In the event that are not achieved these objectives, the CEOs are replaced, here there is no “privilege” in the event that the accountability is not clear or they fall in fraud, the owners do not hesitate to carry to the prison to those dishonest people that could lead to bankruptcy.

We the contributors are the “stockholders” of the country, we need efficiency, productivity, economic and development growth as well as transparency in the accountability on the part of those that we should put at the service of the administration of our public goods. Therefore the current political system is already obsolete!

As an anecdotal data, according to the IFE, the latest presidential elections (2006) represented a large shed in public money is spent “officially” around 11,892.10 million of Mexican pesos, this is about 850 million of American dollars or 661 millions of euros. So that only have gone to vote on 49% of the people registered in the electoral roll! Every vote is prohibitively expensive.

Finally I would like to congratulate the EURO for its first ten years of life, I hope to make many more. We will have to see…

 

4 December 2011

Corporate Governance and Policy.

Europe is living one of the decisive moments for their survival in these last few weeks. The past November 20 of 2011, in Spain the elections are won by Mariano Rajoy of the Popular Party (Partido Popular, PP). This represented a major setback for the party in power, the Spanish Socialist Workers Party (Partido Socialista Obreo Español, PSOE), the candidate was Alfredo Pérez. The current Spanish president José Rodríguez no longer wanted to contest, perhaps by the premonition of not winning due to the severe crisis in what keeps Spain, in which there are nearly 5 million unemployed who represent an unemployment rate of 21.5 %.

In addition, in other European countries the elections they move forward. In Slovenia will be the December 4 of 2011, Greece will be the February 25 of 2012 and in Slovakia March 10 of 2012. While in Italy since the past November 10 of 2011 enters Mario Monti as Prime Minister after the resignation of Silvio Berlusconi.

All these events fall under the European summit of the next December 9 of 2011 and the bilateral summit France-Germany that will have its headquarters in Paris on December 5 of 2011. Angela Merkel, the German chancellor and Nicolas Sarkozy, the French president, seeking to advance the reform of the treaties of the European Union, which would allow for greater fiscal integration.

Investors rely on that European leaders to move ahead in solution against the debt crisis in these summits, this gender that this Friday, December 2 of 2011 the Ibex-35 (Spanish Index) will close the week with a gain of 10.24 %, is the best week since November 2008. Other European stock exchanges also increase, Lisbon, Milan, Frankfurt and London finally Paris which closes its best week since March 2009.

As in Europe was living a stock-market euphoria, the Mexican stock exchange (Bolsa Mexicana de Valores, BMV) also had this Friday, December 2 of 2011 its best week since mid-July 2009, reaching a cumulative return of 6.31%. The hope of the emergence of a prompt response to the debt crisis in Europe and also due to the fact that employment has improved in the United States.

United States is showing signs of acceleration in its economy. This is reflected in the creation of 72,000 additional jobs and in the decline in the unemployment rate to 8.6% in November compared with 9% of October. Figure that had not been taken in about two and a half years (since March 2009 which was period more severe recession), so this generates a new signal that the economy of the largest trading partner of Mexico is gaining momentum.

In addition, the Managing Director of the International Monetary Fund (IMF) Christine Lagarde in its step by Mexico, the past Tuesday, November 29 of 2011, made good commentary on the Mexican economy, at a press conference that took place in conjunction with the governor of the Central Bank of Mexico, Agustín Carstens.

That happened in the interior of the companies? All the events mentioned above make the companies begin taking new impetus to finish this year with growth in sales and their performances are increased. In my opinion, the companies that they have the best Corporate Governance practices are that will be best privileged in the sense that they may make better use of their strategic plans that have been proposed.

This will be the end of the global recession? We will have to see…

 

3 November 2011

The end of the year 2011 approaches.

The most recent events in Europe, they have also affected the American financial markets. Mexico has not been the exception.

The Greek Prime Minister George Papandreou announced this Monday October 31, a referendum on the acceptance of a new rescue package of the European Union in Greece. This financial aid package consists of a removes 50% of the Greek debt and an amount of 130,000 million euros. As interesting note, in 1974, it was the last referendum held in Greece, in which the Greek citizens voted in favor of the abolition of the monarchy. Be feasible a referendum for this case?

Immediately, the Tuesday, November 1st, the Índice de Precios y Cotizaciones (IPC in spanish for the Stock Price Index) for the Bolsa Mexicana de Valores (BMV in spanish for the Mexican stock exchange) falls on 1.154 % with respect to the previous day.

If that's not enough, the same Monday, October 31, Jens Weidmann (President of the German Central Bank) mentions that the confidence on the European countries has been affected and that therefore would cause a financial contagion to other countries, not only in Europe but from other latitudes of the world.

That will be thinking about Klaus Regling thereon? It will be beneficial for Greece this aid? Or whether it will extend the debt crisis to the entire world? Unfortunately, the only thing we have to do as beholders is wait.

Klaus Regling is appointed CEO of the European Financial Stability Facility (EFSF) in July 1st 2010. This fund for financial support for member countries of the Euro zone in conditions of economic crisis, was approved on May 9th 2010 by the 27 member states, whose headquarters are located in Luxembourg.

With all of the foregoing, I think that Mexican firms take their precautions toward the end of the year, thus, for not to be so affected by these events in Europe. I hope that the Mexican companies have learned the lesson of previous financial crises. On the basis of studies that I have done previously, the Mexican firms that have best practices in Corporate Governance are best prepared to deal with a nearby global crisis.

However, nobody knows for certain what will happen in the next two months that remain in this year.

Another red pushpin on the map, China. It will be a gradual slowdown? Or a sudden drop in the Chinese economy that have an impact on the entire world? We will have to see…