Why should I invest in Mexico?
Mexico has established itself as one of the biggest emerging markets in the world today. It has exhibited many of the signs of a high growth economy, offering several advantages to prospective investors. Some highlights of the Mexican economy include single-digit inflation, a balanced public budget, real economic growth (presently at a rate of 12 percent), a deregulated economy and a favorable investment climate etc. Mexico also possesses a strategic geographic location as a gateway to Latin American markets.
Mexico is among the fastest- growing export markets for the United
States. In 1985, Mexico became the third largest market for total U.S. exports, behind Canada and Japan. In 1992, Mexico surpassed Japan as the second largest export market for U.S. manufactured goods. Mexico now has become the second most important U.S. trading partner after Canada. U.S. exports to Mexico have grown at double-digit annual rates in every year since 1995, culminating in an astonishing 28 percent growth in 2000. U.S. exports to Mexico grew from $46 billion in 1995 to more than $112 billion in 2000 — more than our 3rd and 4th largest trading partners, Japan and the U.K., combined, and more than double the value of U.S. exports to the entire European Community.
U.S. export growth to Mexico has been buoyed by strong growth in Mexican GDP. The Mexican economy grew a remarkable 7 percent in 2000. Growth declined sharply in 2001, however, in concert with the economic slowdown in the United States. Projections for 2001 have been scaled downward from an initial 5.5 percent to a second quarter estimate of 2.5 percent, and are likely to go lower still. This could be the first year since the inception of NAFTA that U.S. exports to Mexico fail to grow at double-digit rates.
Political developments in Mexico have contributed to the country’s long-term market potential. On July 2, 2000, voters elected a more plural Congress and chose Vicente Fox of the opposition PAN party as President, ending 71 years of one-party rule by the PRI at the federal level. It is difficult to overestimate the importance of Fox’s victory, which marks the first opposition presidency in Mexico’s modern era, and symbolizes Mexico’s march toward increased pluralism and more open democracy. Fox’s priorities include expanding legal avenues for Mexicans seeking employment in the United States, reaching a lasting peace in Chiapas, enhancing foreign trade and investment, and reforming Mexico’s fiscal policies. But perhaps what most Mexicans expect from a Fox Administration is a vigorous attack on corruption and crime, which would greatly benefit U.S. business interests in Mexico as well as the general citizenry. Fox’s commitment to sound economic policies and improving U.S.-Mexico relations across the board bodes well for the U.S.-Mexico commercial relationship. U.S. companies interested in capitalizing on these developments should keep the following points in mind when evaluation Mexican market opportunities:
Broad and complex, the U.S. – Mexico relationship is a paramount bilateral relationship for both countries. It is also a tapestry of cultural differences, economic disparities, mutual interests, shared problems, and growing interdependence. The two countries cooperate on trade, finance, narcotics, immigration, labor, environment, science and technology, and cultural relations. Both countries also maintain a bilateral dialogue on human rights issues. Beyond those diplomatic and official contacts, extensive networks of commercial, cultural, and educational ties flourish, especially along our 2,000-mile border where state and local governments as well as citizens’ groups interact closely.
A strong and economically healthy Mexico is a fundamental U.S. interest. Since 1981, bilateral discussions on ways to improve cooperation on a range of bilateral issues have been formalized in the unique U.S.-Mexico Bi-National Commission (BNC), which is composed of U.S. and Mexican Cabinet members. The Commission holds annual plenary meetings, and its many subgroups meet at various times during the year to discuss myriad topics, such as trade negotiations, migration, law enforcement, cultural relations, education, border cooperation, and the environment.
The most outstanding feature of our bilateral relationship in recent years has been the North American Free Trade Agreement (NAFTA), which created a free trade zone for Mexico, the United States, and Canada. NAFTA, which includes parallel agreements on the environment and labor rights, also created the North American Development Bank to help finance border infrastructure and environmental projects.
By 1990 Mexico’s economic
growth rate returned to earlier levels. Mexico’s petroleum reserves are one
of its most valuable assets and this industry is operated by the government.
Farming is slowly becoming more modern and Mexico produces a large vari ety
of agricultural products including basic grains, sugarcane, citrus fruits,
cotton, coffee, and tomatoes. Livestock raising and fishing are important
sources of economic activity. Mexico is one of the world’s leading
producers of many minerals, such as silver, fluorite, zinc, and mercury.
Manufacturing includes iron and steel, motor vehicles, cement, refined
petroleum and petrochemicals, processed food, electronic products,
textiles and clothing. Mexico is also known for its handicrafts, especially
pottery, woven goods, and silverwork. Many foreign investors put their
money into factories in Mexico to produce finished goods because they take
advantage of the large, low cost labor force. Tourism is now Mexico’s
second greatest economic asset. Mexico’s main trade partners are the United
States, the European community and Japan. In 1994 Mexico joined Canada and
the U.S in the North American Free Trade Agreement (NAFTA) which has helped
the Mexican economy grow. Mexico was the first Latin American member o f
the Asia-Pacific Economic Cooperation (APEC). By 1996, some of Mexico’s
debt had been paid back and the economy was starting to recover. Inflation
unemployment and interest rates are well below previous levels and the Peso
exchange rate has stabilized. Another advantage to the Mexican economy is
the fact that Mexico is one of the world’s most strategically positioned
countries. It shares its northern border with the U.S and the southeast
with Guatemala and Belize. On one coastline, Mexico faces the fast-growing
markets of the Pacific Rim and on the other, Europe. The country’s
topography offers the international investor a wide range of locations. The
recent economic stability in Mexico has shown it as an up and coming world
economic power. Mexico reflects a shift from a primary-production economy,
based on mining and agriculture, to a semi-industrialized nation.
Today, the political system in Mexico is Federal Democratic. Mexico is
a representative, democratic and federal republic governed by three
branches of power: the executive, the legislative and the judiciary. There
are three levels of representative government: federal, state, and
The native cultures of Mexico each built a civilization, waged war,
traveled and explored, leaving behind a fascinating historical legacy. The
ruins of pyramids, palaces and temples witness to the highly developed
cultures of ancient Mexico. A nation has developed where a variety of
cultural traditions are still alive. Significant material progress marks
Mexican development. Since World War II the country’s foundation has
developed, industrial manufacturing sectors continue to expand, as well as
the agricultural production. However, several problems have shaped the
country’s last twenty years. These include rapid population growth, massive
internal migration from the country to the cities, a decline in rural
output, a huge foreign debt, and high inflation. Mexico has been
overshadowed by its neighbor to the north, the U.S. This has resulted in “
cultural borrowing”, for example, American music, films, fashion, etc, are
seen often now in Mexico. However, the people of Mexico still have a loyal
nationalism and desire to “protect” the motherland from foreign economic
and cultural domination. Recent economic stability has the people of Mexico
attempting to become a world economic power in the future.
The North American Free Trade Agreement and Mexico’s other trade pacts are continuing to play a significant role in creating new opportunities for Mexican businesses. A number of U.S. companies have chosen to create co-production partnerships with Mexican firms over geographically more remote partners in Asia because of Mexico’s proximity, modern infrastructure and industrious workforce. NAFTA is playing a key role in encouraging such partnerships. By reducing North American trade barriers, NAFTA is enabling firms which might otherwise manufacture in Asia to work with Mexican partners instead. The growth of business partnerships, along with Mexico’s ongoing economic, legal, judicial and political reforms helps to explain Mexico’s ability to attract long-term investment. However, the peso is currently in a tailspin against the dollar due mostly to currency speculators. If the Mexican government can stay with its current plans and programs with minor adjustment, the peso should rebound. The bottom line from Mexico is that its continued commitment to open markets and economic integration is paying off and will be reflected in the overall strengthening of the Mexican peso against the U.S. dollar in the long run.