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September 17, 2015

Conversation with Rodrigo Alpizar, President, CANACINTRA (Mexico's National Chamber of Industrial Companies)
Authored by: Alma Aguirre and Marianna Rossell

Our Binational Member, Duane Morris LLP, hosted the National President of CANACINTRA, (Mexico's National Chamber of Industrial Companies),  Rodrigo Alpizar on September 17, 2015.   CANACINTRA is a nationwide association of industrial companies in Mexico with more than 50,000 members. It covers a vast spectrum of industrial sectors, such as automotive, chemical, food & beverage, metal-mechanic, medical devices, paper, construction. It’s recognized as one of the key players in the development and implementation of the industrial policy in Mexico.

Currently CANCINTRA is participating in programs and initiatives such as the implementation of the energy reform and the advantages that the reform represents for the industrial sector in Mexico;  the increasing participation of the Mexican industrial sector in the energy sector and partnerships with foreign investors and companies, and the strengthening of the supply chain and its deeper integration with international markets.

Alpizar explained that the perspective foreigners and nationals have of Mexico pre and post the Ayotzinapa tragedy is quite different, however the macroeconomic indicators remain stable with minimum inflation despite lower oil exports, the fall in the price of oil and the depreciation of the Mexican currency.  Alpizar emphasized that the initiative to repatriate capital will assist in placing a greater inflow of foreign currency into the nation as a way to inject the U.S. dollar into the economy.   Avoiding the peso from depreciating further will ensure the creation of a more conservative budget which will give the economy a more stable nature.   

While discussing the financial reform, Alpizar advised that this has not yet caused much effect because interest rates still remain high for long-term credits, however, the energy sector will present Mexico with better income opportunities. Currently Coahuila has a very interesting structure with security projects for more economical wells that looks quite promising.

Regarding security, Alpizar explained that CANACINTRA trains management teams so that they are able to support the entrepreneurs and he advised the importance of forming alliances with Mexican companies in order for these to continue to grow. 

October 2, 2015

Mexico's Monetary Policy & Economic Outlook: A presentation and conversation with Manuel Sanchez, Vice Governor of Mexico's Central Bank (Banco de Mexico)
Authored by: Alma Aguirre and Marianna Rossell

Our regional member, Santander, hosted Manuel Sanchez, Vice Governor of Mexico’s Central Bank (Banco de México) as he gave us a brief on Mexico's Monetary Policy & Economic Analysis.

Manuel Sanchez started the presentation explaining the key leverage of external demand. He mentioned that Mexico’s economic activity since 2013 has grown at rates lower than 2.2% compared to the long-term average 2.6%.  This, he says can be explained because the main driver of Mexico’s GDP growth has been external demand, which has recently softened derived of a slowdown in non-oil exports and linked to decreasing U.S. industrial production.

In relation to macroeconomic factors, private investment have responded to external demand, although slowly improving housing developers’ balance sheets.   Private consumption has followed suit, growing moderately. In addition, government expenditures continue to expand at a slow rate.  As a result, Mexico’ s Central Bank expects a measured economic growth in the third quarter  with a GDP growth forecast of 1.7 – 2.5% in 2015 and a gradual recovery in 2016 with a GDP growth forecast of 2.5- 3.5%.  There are downsides and risks to Mexican GDP growth which could predominate.   U.S. industrial production is weaker than expected, the decrease of oil extraction/price has caused fragility between consumers and producers.  

Manuel discussed the need for differentiation in the Mexican economy and advised that in order to confront financial uncertainty, Mexico should seek to stand out from other emerging economies. This differentiation is based on finding growth through high quality and deep implementation of structural reforms as well as improved rule of law and public security.  He went on to explain the flexibility of monetary policy actions, which has been cumulative  in the face of relatively soft economic activity. Upside risks to the inflation outlook must be monitored, especially given the possibility of second-round effects considering that the positive shocks seen in 2015 could revert, producing direct and indirect price pressures, besides given that potential growth output is an unknown variable, eventual pressures coming from aggregate demand cannot be ruled out.  Moreover, the persistence of exchange rate depreciation could fuel greater pass-through to prices affecting inflation expectations and unleashing other second-round effects.

Manuel concluded that the key risk to continued GDP growth in the short term stems from softer external demand but in the medium term, it will derive from stagnant productivity. On the other hand, in the face of increasing global financial volatility, Mexico needs to stand out from other emerging economies by improving its growth prospects and macroeconomic policy framework.  In addition, monetary policy must remain vigilant to any possible obstacle of consolidated convergence to the inflation target and should be adjusted at the right moment before problems arise.

October 14, 2015

Members Only Roundtable: U.S.-Mexico Relation/Trans-Pacific Partnership/Oil & Gas: Ronda Uno
Authored by: Alma Aguirre and Marianna Rossell

The United States-Mexico Chamber of Commerce Northeast Chapter organized a second bi-monthly members only roundtable.  We had a recap on the economic and business environment and the relation between both nations. The roundtable was hosted by our binational member, Duane Morris.  Topics that day included U.S. –Mexico Relation, Mexico’s oil & gas sector and the Trans-Pacific Partnership.

Our keynote speaker, Ambassador Sandra Fuentes-Berain, Consul General of Mexico in New York, presented an update on the United States - Mexico relation. The ambassador started talking about the last reforms approved by President Enrique Pena Nieto and how these reforms have promoted a growing economy besides the fact that these have increased the interest of the the private sector.  The ambassador made an economic comparison in relation to other countries and concluded that Mexico is not doing badly and when compared to the rest of Latin America, Mexico is progressing extraordinary well.  The ambassador advised one instance which has tarnished the image of Mexico was the one under the reign of the Human Rights Commission with the disappearance of the 43 students in Ayotzinapa in 2014.  This incident transformed protesting in Mexico as its natives fought for freedom of opinion.

Dr. Efraim Chalamish, NYU/IESE Business School & Partner at Forward Advisors discussed the recent agreement on the Trans-Pacific Partnership (TPP) and its potential impact on NAFTA. The multinational TPP covers around 40% of trade in American goods and 60% of trade in Asian goods. Dr. Chalamish explained that these kinds of trade deals could potentially hail a new role for sovereign investment institutions and have a significant impact on their commercial activities in the future.  Chalamish also mentioned that sovereign funds see trade agreements as an important tool for accessing new markets and exporting their knowledge and financial resources. They have increased their direct investment in foreign markets significantly in recent years.  Chalamish advised any new trade rule against anti-competitive measures could hamper state-linked corporations' ability to continue to provide liquidity for foreign markets.

Eliecer Palacios, CEO at PetroRockEnergy, offered an analysis of the second bidding results of Ronda Uno.  After doing a brief recap of the first bidding Round One in Mexico, Palacios described the second auction of Mexico’s oil and gas blocks through Round One, as successful and well received after a poor result earlier this year which put investor interests into question. Two of the five contracts relating to oil fields in the southern part of the Gulf of Mexico failed to find bidders. Palacios mentioned that the results of this auction strengthened the Mexican peso after a recent decline that significantly affected emerging market currencies while strengthening the U.S. dollar.

Our roundtable host, Eduardo Ramos-Gómez, President at U.S.- Mexico Chamber of Commerce Northeast Chapter and Partner at Duane Morris LLPthanked the attendees for their support and active participation, since all the members forming the Chamber of Commerce Northeast Chapter have driven its growth.

October 20, 2015

Fibra E & CEPRIS: New Vehicles for Financing and Investing in Energy & Infrastructure in Mexico
Authored by: Alma Aguirre and Marianna Rossell

On October 20th, 2015 the United States-Mexico Chamber of Commerce in New Yorkmade a conversation on FIBRA E & CEPRIS, having as host our Regional Member Shearman & Sterling LLP.

The conferenced had a mix of experts in legal, business and tax topics focused on FIBRA E & CEPRIS, which are new vehicles for financing and investing in Energy & Infrastructure in Mexico. Alexandro Padrés, Partner at Shearman & Sterling LLP moderated the panel which included Sid Banthiya, Director of Equity Capital Markets at Credit Suisse, Carlos de Maria y Campos, Partner at Galicia Abogados, Enrique Pérez-Grovas, Partner at E&Y and Julio Serrano, Executive Director of Investment Banking at Actinver.

Panelists began by describing FIBRA E as a trust through which CBFEs are issued through the Mexican Stock Exchange to finance energy assets and infrastructure that’s already established.  It is based on the American MLPs which originated in 1981. FIBRA E has a strong corporate governance, fiscal transparency and- due to the type of assets- a long term investment horizon.  According to the American regulation and the type of vehicle that constitutes U.S. MLPs will be able to invest in the FIBRA E, thus enhancing the flow of resources to this sector.

Julio Serrano mentioned that FIBRA E will take part in a wide range of sectors both in energy and infrastructure, and he believes that there is great potential for placing various FIBRA E in the market. 

Panelists advised that the S&P500 within the energy sector is 2.6x greater than REITs, hence FIBRA E in Mexico could be at least 2x the size of the real state sector.

Enrique Pérez-Grovas discussed the tax implications and explained that FIBRA E provides fiscal transparency and has a fiscal shield.   Alienation of stocks from promoted companies are not subject to corporate taxes on dividends and returns on capital.   There are retentions on distributions for foreign investors and a retention of 30% for Mexican residents on dividends but there are no retention for Mexican pension funds on distributions. Only Mexican investing companies are subject to tax retention on the sale of CBFEs.

Carlos de Maria y Campos discussed the regulatory and legal framework and advised that FIBRA E has solid corporate governance based primarily on: a) the General Meeting of Holders interfere in the investment policy and financing and the removal of the administrator with 66% of the votes; b) the investor has minority rights; c) the Technical Committee must have a majority of independent; and d) there is a Conflicts Committee.

The requirements for a FIBRA E were described as being quite simple to comply with and include: a) Promoted Societies must be residents in Mexico for tax purposes; FIBRA heritage E must be invested have 70% of investments in promoted companies and 30% in government securities and there is a two years from the placement date in order for this parameter to be met; FIBRA E can only be public and must distribute at least 95% of taxable income.

The presentation ended with time to open questions to the attendees, who showed wide interest on the topics and concluded the upcoming success in these new instruments in the financial market.

October 30, 2015

Impact Investing in Mexico: Reality Check, Challenges & Opportunities
Authored by: Alma Aguirre and Marianna Rossell

Our regional member, A.T. Kearney, hosted a conference to discuss Impact Investing projects in Mexico.  Our panel’s first speaker, Mary Rose Brusewitz, Partner & Chair of International Practice at Strasburger & Price LLP, kicked off the conference by explaining the basic characteristics of Impact Investing.  She explained this kind of investment is growing and that the countries in which projects are unfolding must be analyzed individually due to the diverse variables including political, social, economic, regulatory, legal and security challenges – all unique to each place.  Investors' expectations for returns and the ability to execute projects would reflect these factors, which are in constant flux.  Projects take many years to plan and execute and the price tag in riskier environments could be unsustainable if commercial returns are expected.  Impoverished people and struggling industrial sectors may be unable to pay the basic tariffs to 'guarantee' sufficient returns in riskier environments.  Regulatory, political, economic rationality and stability are expected for the commercial private sector and, increasingly for multilaterals and development institutions to be willing to participate.

The second speaker, Raul Solis, Head of Investment Banking at Nacional Financiera (Mexican Development Bank, NAFIN) explained how NAFIN supports and structures innovative projects.  NAFIN complemented by other financial institutions and development banks offer Mexican corporations long-term loans to finance needs in renewable energies which contribute to environmental sustainability, reducing costs and improving productivity.  NAFIN acts as promoter of the energy reform and transition by supporting projects with a high priority and strategic projects seeking economic viability, as well as sustainability for the environment and job creation.  NAFIN also contribute to the development of the private equity industry in Mexico through the Mexican Corporation of Investments in Equity (CMIC of Fund of Funds).  This fund seeks investments in social enterprises meaning businesses with primarily social aims and whose profits are re-invested back into the services of the community.  NAFIN created a program to achieve the gradual conversion and massive use of natural gas in vehicles (taxis and buses, initially), which is environmentally friendlier than diesel, LPG and gasoline.   With the use of a simple and economic electronic chip, the correct installation, operation and maintenance process in vehicles can be easily controlled. The initial phase of the program will have hybrid cars using natural gas and gasoline.

Francisco Barnes, Executive Director at the Mario Molina Center discussed the social impact investments in the electricity sector in Mexico. Barnes explained that Mexico just passed structural reforms in its energy sector, allowing for competition in oil & gas and electricity sectors.  As a result, the challenge for Mexico is to meet the growing energy demand and economic growth, ensuring energy security while reducing emissions and thus significantly avoiding damage that could be caused by climate change and air pollution in the future.  Barnes mentioned that the implementation of a low emissions development strategy may result in faster economic growth and job creation.

Brian Cox, President at MFX Solutions talked about his experience with different clients hedging foreign exchanges.  Cox explained how the microfinance industry has addressed the issue of currency risk, stating that properly managing said risks may prevent the industry from achieving operational sustainability to impact the lives of low-income borrowers within their communities.  Cox emphasized that the hedging of local currency is critical to building sustainable and ethical investments in microfinance and other development sectors, and that these industry initiatives have been positive signs of the ability of donor agencies, investors and practitioners to turn their words into actions and set things in motion.
Marc Diaz, Managing Director at NatureVest (Nature Conservancy), spoke about the economic value in environmental projects, concluding that by creating an opportunity to invest in conservation alongside a financial return, we will be able to exponentially increase the impact of the effort’s core philanthropic funding.  This amplifying effect is what makes the impact investment opportunity truly transformational and the conservation investment market grow.

Finally, Fernando Albertorio, CEO at SUNU, a high-tech start up, described the perspective of the ecosystem in Mexico.  Albertorio, along with his colleagues, created a wrist band for the visually impaired that has sonars and ultrasounds and delivers vibrations to its users in order to determine how far or close an object is.  With this, users will be able to become more self-sufficient and not so dependent on canes, see and eye dogs, people, etc. exponentially improving quality of life.  Providing self-reliance is key and improvement is truly visible and measurable.  Albertorio is now trying to measure and determine the impact this product will have.  Albertorio is coupling with investors to create a subsidy in order to place said technology into the hands of people that need it but cannot afford it.  Raising capital and measuring this project to make it scalable and grow is the next step.   

December 3, 2015

The New role of Mexico's Anitrust Authority in Competition Enforcement and Procompetative Regulatory Decisions
Authored by: Alma Aguirre and Marianna Rossell

Our Regional Member, King & Spalding, hosted our conference titled The New Role of Mexico’s Antitrust Authority in Competition Enforcement and Pro-Competitive Regulatory Decisions.  Our keynote speaker was Eduardo Perez Motta, Partner at Agon Mexico and Former President of Mexico’s Federal Competition Commission and Ambassador of Mexico to the World Trade Organization.
Eduardo discussed Mexico’s bet competition policy. The first point was about Structural Reforms and he explained how the reforms offer the opportunity to redefine the strategies with the Mexican regulators when a competitive economic environment depends largely on competition law and on sectorial regulation.  Eduardo stated that inefficient regulation is likely to have negative effects on the market structure, such as low competition and incentives to address consumer needs.
In 2013, Mexican Congress passed ambitious reforms to address structural inefficiencies in the Energy Sector, Financial Services and Telecommunications Sector with the objective of redesigning existing institutions, pro-competitive regulation and strengthening the role and independence of regulators.  The energy reform has encouraged foreign investment and more competition, as well as opened up power generation to full private participation and investment. Now, Federal Government and Regulatory Bodies are posed with a challenge:  the implementation of a set of rules that guarantee fair treatment and ensure greater efficiency and value in the awarded contracts.

Eduardo advised Financial Reform has improved the consumer protection and mobility.  There are fewer limitations for foreign investment and more credit options targeted towards sectors lacking access to financial services.  The Telecommunications Reform has intended to reduce concentration and promote more competition.  By eliminating entry barriers, AT&T was able to enter Mexico and as a result, telecommunications in Mexico have been impacted.  This will be  mainly reflected by having a new war of prices in which consumers will benefit the most.

The second portion of the presentation focused on the new legal and regulatory framework for competition, which provides a new institutional arrangement, new powers to increase their efficacy, and new framework for judicial review through specialized competition and telecommunication courts to ease enforcement of competition law.  Eduardo recommended a new strategy to deal with regulatory authorities which is based on three key points: i) on the use of Economics, crafting and proving the articulating argument by disproving alternative lines, ii) a proactive approach to the law, basing cases on letter of law and precedent, complying with procedure, and iii) the strategic dimension, understanding and predicting agency’s preferences, restrictions, style and temperament.

Eduardo ended the presentation by answering questions asked by attendees. 

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