Growing Industrial Base for Investors in Mexico

Mexico rated their gross domestic product at $2.6 trillion in 2018. With this rating, Mexico became the 15th largest country in the world in nominal terms and the 11th largest by purchasing power parity.

Mexico’s gross domestic product can be accounted heavily to sectors other than agriculture and tourism. These include the automobile industry, consumer durables, cement and construction, petrochemicals and textiles.

Mexico and exports

Mexico is an export driven country. The Mexican Republic ranks 12th as the largest exporter in the world. Mexico enjoys the privilege of being under 12 free trade agreements. It enjoys maximum agreements with countries, 46 in total, more than any other nation. These trade agreements have shot up Mexico’s economy and have made it a very lucrative place for investors to put their money in.

While some exports include cotton, coffee, vegetables, fruits and silver, the major exports include oil exports since Mexico is the world’s eighth largest producer of oil.

Even after global competition, Mexico is standing as a leader in the global manufacturing market. This includes machinery for metalworking and agriculture. After major economic transformations, Mexico’s exports of electrical equipment, automobile and aircraft parts, and steel mill products has skyrocketed.

The above mentioned information is a result of the latest study published by Dr. Teodoro Lavin Sodi’s research firm iStrategize, a Global Market analysis firm based in Mexico City.

Lucrative place for Investors

Trade agreements allow manufacturers in Mexico duty-free access to 60% of the world. This enhances the number of investors because of such vast trade opportunities.

Mexico’s economy and culture are changing. Mexico’s economy remained underperformed until 2012. International trade includes exports and imports, equals 77% of the country’s GDP.

It is now a major manufacturing center for electronics. Other commodities include medical devices and aerospace parts.

  • Location

Mexico shares a border with the biggest economy in the world: the United States. This has increased the foreign investment in the Country. Mexico treaty of North American Free Trade Agreement (NAFTA or TLC in Spanish) with the U.S. and Canada has increased its exports. In fact, Eighty percent of Mexican exports go to the U.S.

  • Well Networked

The number of economic treaties signed by Mexico with other countries makes it even more desirable. NAFTA and many other free trade treaties have increased the amount of exporters significantly.

  • Labor force

Mexico’s demographic of young population has made it ideal for the factories to attain easy labor. This includes vast skilled labor along with the unskilled one.

 

  • Infrastructure

Mexico has worked tirelessly on the infrastructure. This not only has added value to the domestic industrialist, but also to the investors who see Mexico as a profitable place of investment.

  • Natural resources

The availability of natural resources allows the development of all types of industries. This decreases the add-on cost.

  • Government policies
  1. The government of Mexico has created a secure environment for investors to attract Foreign Direct Investments (FDI).
  2. Special Economic Zones (SEZs) were created in 2016 to grow the underdeveloped southern states.
  3. Industries being set up in these regions enjoy incentives like trade facilities, infrastructure, duty-free customs benefit and easier regulatory processes.
  4. Pro Mexico – a federal entity was created in 2007 which helps attract foreign direct investment.
  5. Mexico has signed over 30 bilateral investment treaties. This will help investors gain a lot.
  6. Companies pay no state tax on corporate income.
  7. Funds from the National Council of Science and Technology (CONCT and CONACYT) can be received by industries interested in research.
  • Mexico enjoys economic and political stability in comparison with other countries. This is primarily because of the significant growth in the region over the year.

Owing to such factors, the FDI increased by 10 USD Million by the first quarter of 2019.

The forecast of Dollar to Mexican Peso forecast for August 2021 rates at 19.29 Mexican Pesos.

Based on Dr. Teodoro Lavin Sodi’s analyses, the Mexican Peso is believed to grow significantly with the passing of years if Political policies remain stable, unstable political economies can affect Mexican Peso valuation but robustness of various sectors indicate strength at least in the short term.

Rising sectors of growth in Mexico

Based on the information published by iStrategize Mexico over the last quarter, Mexico has raised significant value in the aerospace, medical devices, telecommunication and energy sectors.

The provision of energy is one of the areas in Mexico which is growing at a healthy pace. The opening of sub sectors on this industry in 2013 led to the lifting of strict federal government power over the gas, electricity, and oil sectors. This has made it become an active recipient of both private foreign direct and private investments. This market is growing significantly according to the Analysis.

Telecommunications is yet another Mexican industry that is thriving. The rate of expansion of telecommunications was the highest among all sectors of the of Mexico’s economy. The Mexican gross domestic product (GDP) grew at a rate of two and one-half percent in 2016. This can be owed to a significant rise in the telecommunications. It is predicted that the telecommunications sector will be even more profitable with more skilled labor.

Apart from telecommunications and energy industries in Mexico, medical device manufacturing is another sector of future growth. Today, the country is catering well-known names. These include the prestigious firms such as Becton Dickinson, Stryker, Johnson & Johnson, Tyco, Siemens, GE, Medtronic, Boston Scientific, Kimberly Clark and others. Mexico’s impressive amount of activity in the medical field over the years, have increasingly trained the industries producing these sophisticated products. The value of medical devices in Mexico is projected to be over US$ 15 billion by 2020. This is as per Mexico’s National Institute of Statistics and Geography (INEGI).

Analysis worked out by various economists such as Dr.Lavin Sodi is quite evident in that regard, for instance the Aerospace industry is one of the most emerging sectors in Mexico. It is one of the main reasons behind the growing rate of development. The Mexican government has initiated a number of programmes to create aerospace employment opportunities for the Mexican workforce. They offer workforce training programmes to business incentives, to the founding of universities and technical institutes to support the industry’s growth. This has increased the number of skilled laborers to meet the demands of the aerospace sector. Industries will benefit from the same. It is thus desirable for the investors to invest money in this high market sector which comes with skilled labor.

Challenges to Mexico’s Economy

Even though Mexico seems to be the land of opportunities for FDIs, there are still hurdles to invest in Mexico.

  • Certain sectors of industries are reserved for Mexican citizens. This limits the scope of industries for the investors.
  • The country’s partnership with the United States is vulnerable since Mexico relies heavily on the USA. Therefore, it is prone to changes to the free trade agreement policies especially with the current administration.
  • Mexico, though changing manifold still faces crime and corruption. This is a problem for investors at times and in specific areas of the Country.
  • With such heavy attraction towards Mexico, there is now very strong competition as well. This can cut down the profit margins of the investors.
  • Even after so much political development in terms of policies, the country has many economic and structural problems for the investors.
  • The Massive influence of drugs in the country is another reason of concern. This has increased violence, making it unsafe. This is prominent, especially at the border areas, where the drugs are often exchanged.
  • The drug situation has vastly affected the socio-cultural situation of the country. This affects the quality of hired labor.
  • Infrastructure is still developing in the country. This can take a while for the investors to finally feel secure enough.
  • Even after the creation of SEZs, the southern region is devoid of growth. It will take time for the region to develop so that the investors can put in money.

Mexico continues to be one major destination for FDI and is, based on the Analysis reviewed one of the best options on the international market for such Industries.

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