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After capitalizing on its proximity to the vast U.S. market to develop its manufacturing base, Mexico has signed 12 free trade agreements with 46 countries. Foreign direct invest- ment in the country was nearly US$26.8 billion for 2016. It is now an international trade hub and a top auto exporter. Oil exports accounted for 80 percent of total dollar income in the early 1990s, but today that number is just 20 percent;
growth and productivity and much more foreign direct invest- ment. This part of the country is home to most of Mexico’s infrastructure and industry.
Much of the southern half of the nation, however, exhibits a more traditional way of life. There is little economic devel- opment and an over-dependence on agriculture. Nine of Mex- ico’s 10 states with the highest rate of extreme poverty are in the south. Is there a way to incorporate these southern states
manufacturing exports are now the main income. The economy grew 2.5 percent in 2015 and a further 2.3 percent in 2016. In April 2017, the unemployment rate came in at just 3.5 percent.
source of foreign
STRUCTURAL AND PRACTICAL TRANSFORMATIONS
The moderate growth rate may not change soon. Chamber of Deputies member César Augusto Rendón García points out that Mexico feasted on its oil bonanza when
oil prices were high, allowing the country
to increase its reserves and fund govern- ment-sponsored development programs. “But now,” he says, “the oil revenue is not there, and we have to somehow tighten the belt and make sure we live within our means.”
The OECD recently put Mex- ico at the forefront of reform- ing countries, and President Peña Nieto has noted that economic reforms “have giv- en us the best shield against the challenges we are experi- encing.”
into the mainstream of Mexico’s economic success? The current ad- ministration says yes.
President Enrique Peña Nieto believes the answer lies in special economic zones (SEZs), or defined areas that are designed to draw in- vestment by offering benefits like lower taxes or more lenient regu- lation than the country at large. Three zones have been designated so far: the Tehuantepec Corridor, the narrow strip of land that runs between the states of Veracruz and Oaxaca; Port Chiapas, in the state of Chiapas; and the Port of Lázaro
Emilio Cadena, the President & CEO of Grupo PRODENSA, which assists foreign manufacturers setting up businesses in Mexico, says that the biggest challenge for manufacturing growth in Mexico is maintaining a competitive edge through the development of talent. The second challenge, he adds, “is logistics—the more we improve infrastructure and the faster we are to market, the more competitive we will be.” The third challenge? Infrastructure and energy. He notes that Mexico finally has “the legal framework for integrated energy and infrastructure markets” to allow investment in both sides by the private sector.
That legal framework Cadena refers to is part of President Enrique Peña Nieto’s series of reforms, begun in 2012, that are shaking up education, energy, taxation, and other sec- tors of the economy. The reforms are boosting productivity growth, and according to the OECD, have the potential to add one percentage point to GDP growth over the next five years.
A TALE OF TWO ECONOMIES
Is Mexico a booming manufacturing hub that is not afraid to get in the ring with the world’s major economies? Or is it a third-world country with terrible poverty and inequity that functions largely on an informal economy? Well, yes—to both.
Economists and social scientists frequently study what they call “the two Mexicos”—not one heterogeneous nation, but two widely divergent economies that often seem to have little to do with each other. The Mexican states that border the United States, as well as the Bajío region just to the south, belong economically to North America, experiencing higher
Cárdenas, which has broad economic impact on the states of Michoacán and Guerrero. More SEZs are expected to be an- nounced by the end of 2017. The hope is that the economies of these areas will diversify, reducing the gap between the two Mexicos.
WELCOME TO THE BOOMTOWNS
So where are the nation’s boomtowns? First and foremost is the capital, México City. Not only is it the world’s sev- enth-largest urban agglomeration, but it is also among the world’s richest cities, with a projected GDP of US$608 billion in 2020, a number that PwC forecasts will rise to US$745 billion by 2025. The capital city also stands as a cultural and educational center for Latin America.
Mexico’s second-largest city is Guadalajara. Known as the “Silicon Valley of Mexico,” the city is home to eight presti- gious universities. Up to 600,000 workers out of a population of 1.5 million are employed in IT in Guadalajara, and 52 per- cent of its exports are tied to the industry. Recently, 40 U.S. tech executives toured the city, considering whether to open or expand campuses there in light of U.S. President Donald Trump’s threat to freeze the visa program that brings highly skilled workers to the United States.
The third most populous city in Mexico is Monterrey, the capital of the northern Mexican state of Nuevo León. Long known as Mexico’s industrial hub, it is home to some of Mex- ico’s most iconic brands (CEMEX, FEMSA, and Banorte), as well as the most colleges and universities in the country on a per capita basis. It is no surprise that Monterrey is rated as the top city for competitiveness in the country by the Mexican
POPULATION: 128.6m (2016; UN estimate) | GDP: US1,046.5 billion (16) | GDP GROWTH RATE 0.7% (17) | UNEMPLOYMENT: 3.5% (17) GOVERNMENT DEBT to GDP: 47.0% (16) | FDI INFLOW: US26.7 billion (16) | PUBLIC DEBT: 54.0% of GDP | DOING BUSINESS RANK: 47 (17)
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