April 19th, 2012

Economy and Culture in MexicoDepartment of Biomedical Ingineering & Language CenterAalto UniversityOtaniemi Campus

Ambassador Agustín Gutiérrez-Canet

Forecast for Real GDP Growth 2010

(by date of forecast)

Mexico´s Economic Outlook•Mexico was hard hit by the 2009 world recession, with a GDP fell of 6.8%. However 2010 has proven the strength of Mexico’s economy with an increase of 5.4% in the GDP and a sustainable 3.9% for 2011.

•Expectations for growth in 2012 have risen steadily to 3.5% in 2012.

•The IMF forecasts significantly higher growth for Mexico in 2011 and 2012 compared to the U.S., Canada, Germany and Japan, to mention some.

•It is expected that by 2015, the GDP of Mexico will have an average annual growth of 2.3%

Source: Banco de Mexico’s Monthly Survey of Private Sector Economists

Source: IMF World Economic Update, January 2011

US CANADA MEXICO JAPAN GERMANY0%

1%

2%

3%

4%

5%

IMF Growth Forecasts

20112012

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

3.00%

3.20%

3.40%

3.60%

3.80%

4.00%

4.20%

Mexico: Forecast for Real GDP Growth 2011 (by day of

forecast)

Main strengths of the Mexican economy

1. Market size: Population of 113 million.

2. Large exporting base: One of the 15 largest exporter nations in the world.

3. Energy availability: Ranked 17th in proven oil reserves (Source-Pemex 2010).

4. Demographic bonus: Dependant population ratio will fall to 46% in 2025.

5. Ample network of trade and investment agreements: 12 free trade agreements with 44 countries (60% of the world’s GDP).

6. Biodiversity. Ranked 4th worldwide.

Strengths of the Mexican economy

Source: International Monetary Fund; for 2010

Rank Country GDP 2010(billion dollars)

1 European Union 14,900

2 United States 14,720

3 China 9,872

4 Japan 4,338

5 India 4,046

6 Germany 2,960

7 Russia 2,229

8 Brazil 2,194

9 United Kingdom 2,189

10 France 2,160

11 Italy 1,782

12 Mexico 1,560

13 Korea, South 1,467

14 Spain 1,376

15 Canada 1,335

16 Indonesia 1,033

17 Turkey 958

16 Indonesia 1,033

17 Turkey 958

Advantages

1. Competitive manufacturing costs. Mexico offers significant savings on labor costs when compared to other investment options in America, Europe and Asia. For example, transferring operations to Mexico can lead to savings of close to 90% in labor costs.

2. Same time zone and quick response toward opportunities in North American markets.

a. Manufacturing in Mexico makes “Just in Time” easy.

b. Door to door deliveries in less than a week, compared with China where it can take 6 weeks.

3. Low freight costs

Mexico is located in between the main global consumer markets:

Target Germany Brazil China Colombia Korea USA India Mexico Poland Turkey

New York 11 15 32 6 21 - 25 5 12 16

L.A 25 23 18 10 17 - 31 4 26 28

Rotterdam - 17 32 15 33 11 20 16 1 10

Yokohama 35 35 4 24 3 15 17 19 36 27

Source: Sea Rates

Sea freight days to main consumer markets

Advantages

1. The amount of time and procedures required to open a business are crucial to the success of international business.

2. In Mexico, investors only need 9 days and 6 procedures to open a business, and 105 days and 11 procedures to obtain a construction permit. This is significantly lower than what is required in India, China or Brazil.

Simplicity of operation

Source: World Bank, Doing Business, 2011

Real exchange rate advantage

Mexico´s exchange rate performance is expected to be more attractive for investment in the coming years than other countries.

• Mexico´s real exchange rate with the dollar and euro is expected to stay stable between 2008 and 2012.

• Countries such as China, South Korea and India are expected to post strong currency appreciation in real terms against these currencies, giving Mexican exports a significant advantage.

Mexic

o

Chin

a

South

K..

.

Taiw

an

Tailand

India

Austr

alia

Japan

South

af.

..

0.3%

6.1%6.6%6.6%7.3%

8.5%

9.8%

12.2%

13.9%

Source: ProMéxico, Global Insight data

Expected Real Exchange Rate variation; in respect to U.S market (2008-2012)

Expected Real Exchange Rate variation; in respect to euro market (2008-2012)

Mexic

o

Chin

a

Sw

itze

rland

South

Kore

a

India

Japan

South

afr

ica

-0.6%

5.1% 5.4% 5.6%

7.4%

11.1%

12.8%

Source: ProMéxico, Global Insight data

Legal Certainty for Foreign Investment

• Agreements on Reciprocal Promotion and Protection of Investments (RIPPA) are an important part of the government’s strategy to provide national and foreign investors a legal framework that offers stronger protection for foreign investment in Mexico and Mexican investment abroad.

• Mexico has signed 27 of these agreements:

Country Year Country Year Country YearSwitzerland 1996 Austria 2001 Panama 2006Argentina 1998 Sweden 2001 Iceland 2006

Netherlands 1999 Korea 2002 Australia 2007

France 2000 Italy 2002 Trinidad & Tobago 2007

United Kingdom 2000 Uruguay 2002 Spain 2008

Portugal 2000 Greece 2002 India 2008Denmark 2000 Cuba 2002 Slovakia 2009Finland 2000 Belgium 2003 China 2009Germany 2001 Czech Rep. 2004 Belarus 2009Source: Ministry of Economy 2011

Mexico has one of the most competitive labor costs in the world. This turns the country into an excellent export platform for North American and European markets.

Competitive labor costs

Source: United States Department of Labor (International Labor Comparisons 2009)

Note: Index includes raw materials, labor, overhead (energy costs, plant and equipment, taxes), freight, duties, inventory, and exchange rates. Source: Alix Partners February 2010

Source: KPMG “Competitive Alternatives” 2010

Average cost advantage /disadvantage relative to the US (27

input items applied to 12 industries)

Competitiveness findings:1. Mexico has a business cost

advantage of 18% average (of 12 industries) relative to the US.

2. There are also advantages in industrial construction costs, land, rent, and taxes.

Brasil México India China

96%

82% 82%74%

Brasil México India China

112%

75%76%

80%

Manufacturing cost index relative to the US. (2005)

100%

100%

Manufacturing cost index relative to the US. (2009)

Manufacture costs

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

18%

5%4%

2% 2% 2%0% 0%

-3%

-8%

Additionally, Mexico has a better manufacture costs profile than countries such as Canada, China, India and Brazil

Sectors with proven success in Mexico

Automotive Industry

Mexico’s automotive industry: Among the largest in the world

1. 10th producer of motor vehicles in the world.

2. Mexican production surpassed 2.26 million units in 2010. They are exported to more than 100 countries, 80% is exported to United States.

3. Companies such as Ford, VW, GM and Fiat announced investments for more than $5 billion USD in 2011. Between 2008 and 2010, the investments from OEM’S in Mexico, figured more than $9 billion USD**.

4. Car production in Mexico will increase from 2.26 million in 2010 to 3.1 million in 2015 according to Business Monitor**.

** FDI Markets *** Estimated in 2011

Renewable Energies

Mexico has approximately 1,925 MW of installed power capacity based on renewable energies.

• We are enforcing the transformation of the national energy market in a wide range of sectors (residential, commercial, industrial and governmental) to encourage the consumption of renewable energy trough programs and projects in order to boost the internal market.

• By the end of 2010, investments of more than 6.2 billion dollars were announced for various projects, from the building of the world’s largest electric power bank (Rubenius), to the development of more wind parks in La Ventosa in the state of Oaxaca. By 2024, 35 percent of the installed capacity for electric power generation is expected to be from renewable sources.

• In addition to promoting investment in renewable energies, Mexico is working on a plan to promote investment in equipment and sparing components, specifically Compact Fluorescent Lamps (CFL's). SENER together with the United Nations and the World Bank defined a program intended to substitute traditional lamps for energy saving lamps in a period of 30 years, starting in 2009.

Other industries with great opportunities

• Competitive advantages in smaller delivery times, qualified labor force, high quality-high yield production, flexibility.

• 18 Fortune 500” firms operate in Mexico.

• Between January and October 2010, the sector recorded exports of $76 billion dollars.

Electric and Electronic devices

IT Services

• Mexico climbed to the 6th place in the overall Index Service Location 2011, published by ATKearney .

• Mexican IT companies exported $3.7 billion USD in 2009.

• Out of 51 Fortune 5000 companies with international operations, 36 operate in Mexico.

• More than 6.5 million Americans live outside the US; out of those 1.2 million live in Mexico.

• International Living magazine has ranked Mexico as the best country to retire to for two straight years out of 29 nations.

• For the second year in a row, Mexico was granted the Agents’ Choice Award 2009 as the best winter tourist destination

Second Homes

Mexico’s Security Status

• Mexico is the main pathway to introduce drugs to the United States, which is the largest drug consumer market.

• The same geographic proximity that makes Mexico an attractive investment destination also makes the country highly desirable for drug trafficking • From the beginning of President Calderón administration strong measures have been taken as part of a vital effort to disrupt and dismantel drug cartels.

• Since then the pressure has been steadely increased to the point that there are now aproximately 45. 000 military personnel along with elements from the federal and state police.

• Local police are being reorganized, retrained and purged of corrupt elements, and changes have been made to streamline criminal trials.

•The result has been an unprecedented number of arrests, extraditions, prosecutions and large-scale seizures of drugs, weapons, cash and assets.

•These efforts have also led to increased violence as criminal gangs confront government forces and battle among each other for control of key territory. These events have been widely publicized.

Mexico’s Security Status

MEDIA COVERAGE OFTEN FAILS TO PROVIDE SUFFICIENT CONTEXT

A more comprehensive approach is needed to understand the current situation and its implications since the perceptions of Mexico as a place to live, work and do business are very often at odds with the reality.

Although the number of armed confrontations has increased markedly since the government’s enforcement efforts were implemented three years ago, the widely-reported death toll is confined to a relatively small region of the country.

The confrontations are concentrated in relatively few regions within the country. These areas tend to be along the drug trafficking corridors including the border cities of Nuevo Laredo, Reynosa, Ciudad Juárez and Tijuana.

Source: FBI Database, 2008

Detro

it

Was

hing

ton

Chica

go

Mia

mi

San

Fran

cisco

Méx

ico

(Nat

iona

l)

Los Ang

eles

New Y

ork

Seat

tle0

5

10

15

20

25

30

35

4033.8

31.4

1814.7 12.3

1210

6.34.8

Homicides per 100,000 Inhabitants

Mexico’s Security Status

Governments efforts have led to an estimated 50.000 casualties since 2006, however it is important to put these numbers in context About 90% of those killed are cartel members Approx 7% were soldiers, police or other government agents Roughly 3% involve civilian bystanders

Although any civilian loss is unacceptable, statistically speaking, in a country with over 110 million inhabitants, the risk of becoming a victim of drug violence is extremely small.

INSECURITY IS NOT A GENERAL PHENOMENON

Mexico’s Security Status

Mexico’s homocide rate during the 1990’s was above 18 per 100,000, while in 2009 the rate is situated at 14 per 100,000

Murder rate for Brazil in 2009 was 25 persons per 100,000. Colombia's murder rate has fallen dramatically, but in 2009 the rate was still at 36.

International comparison

Trade Mexico - EU

An Overview EU-Mexico FTA

The EU-Mexico Free Trade Agreement is one of the most comprehensive in the global economy. It covers trade in goods and services and has specific chapters on access to public procurement markets, competition, intellectual property rights and investment.

Bilateral trade of organic food increased by 63 % since its entry into force in October 2000 reaching a value of 1,311 million euros in 2009.

Mexican exports of organic food products to the EU have increase by 86% since 2000 and have managed to become among the three major providers for more than 25 organic food products in the EU.

Source: Mexican Ministry of Economy

Trade Mexico -Finland

Source: Mexican Ministry of Economy with data from Eurostat & Banco de México

/ 21 / © Finpro ry/ 21

Trade between Finland and MexicoTrade between Finland and Mexico has been growing during the past years. Currently the trade balance presents a surplus for Mexico. Currently Mexico counts for only 0,25 % of total exports of Finland.

Source: National Board of Customs

2002

2003

2004

2005

2006

2007

2008

2009

-100,000,000-50,000,000

050,000,000

100,000,000150,000,000200,000,000250,000,000300,000,000

Annual Trade between Finland and Mexico

Import ExportTrade Balance

/ © Finpro ry

Finnish companies established in Mexico

1. Ahlstrom2. Amer Group Ltd.3. Assa Abloy4. Comptel5. Elcoteq6. Glaston Corporation7. Filtros Larox8. Hiab9. Huhtamaki10. Kemira México11. KCI Konecranes12. Kone Industrial13. Kone México14. Luvata15. Metso Minerals16. Mirka17. M-real

18. Nokia Siemens Networks

19. Nokia México20. Outotec Mexicana21. Perkin Elmer22. Perlos 23. PKC24. Pöyry25. Savcor Group26. Stora Enso27. Rolls Royce Oy28. Tecnotree29. UPM Raflatac30. Vacon México31. Visko32. Wärtsilä de México

S.A. de C.V.

There are 32 Finnish companies established in Mexico, 13 of these have one or more production sites in Mexico:

ProductionSales

/ © Finpro ry

Location of the main Finnish production sites in Mexico

ChihuahuaNuevo Leon

Coahuila

Durango

Jalisco

Sonora

Tamaulipas

Tlaxcala

Guanajuato

State of Mexico

Final remarks

Final remarks

México: excellent opportunity for higher profits

1. Production turn Mexico into a solid alternative for higher profits.

This is crucial in a world economy characterized by intense global competition.

2. Mexico’s competitiveness is being enhanced by the government’s massive infrastructure programs, a growing human capital base and the development of high value added industries.

3. Among the world’s largest and most dynamic economies for the next decades (BRIC’s and N11), Mexico has a privileged place due to its location and the size of its domestic market.

4.It is because of this advantages that many analysts around the world, consider Mexico to be the excellent opportunity for solid, high yield, high profit operations.