NAFTA’s other partner
Exciting economic changes afoot in Mexico.
Mexico is growing faster than Brazil and exports as many finished goods as the rest of Latin America.
Piña coladas and watching the sunset? Mariachi music in the local taverna? Endless beaches in Baja California? Or drug violence, kidnappings, corruption and massive emigration to el norte? Whatever your first impressions of Mexico, these stereotypes are rapidly becoming out of date. It’s changing, and Canadian exporters should take advantage of the many opportunities that are becoming available.
Our NAFTA partner since 1994 has signed international trade agreements with 43 other countries, including Japan and the European Union, and is very much “open for business.” In fact in terms of per capita GDP at around US$10,000 it’s ahead of the South Korean economy (surprised?), is growing faster than Brazil, and exports as many finished goods as the rest of Latin America combined. As the eleventh largest economy worldwide (GDP), and the second in Latin America with relatively low inflation (4.2%), a competitive wage structure, a population of 114 million and an increasingly open economy, Mexico is looking exciting as a country with which to trade and invest.
This change is due to a number of factors. First, China’s position as the “world’s manufacturer” is being eroded by wage and transport cost increases, and international corporations are even looking at moving facilities from China to a more competitive environment closer to the huge North American markets. Already, according to The Economist Mexico has the “world’s biggest exports of flat screen TVs, Blackberries, and fridge/freezers, and is rapidly climbing up the rankings in cars, aerospace and more.” Check out their report at www.economist.com.
Another change is the movement of people. As the economy improves, northward emigration has dropped significantly, and there are now as many people returning as moving to the US (helped of course by tight US border controls and a faltering economy there). Over the period 2005-2010 returns to Mexico matched those moving north, and whereas in 2000 there were 1.6 million failed (intercepted) border crossings, these had fallen to 286,000 by 2010.
Security is still an issue especially in some areas of the country. The Canadian government has no general advisory except to “exercise a high degree of caution” but has some area-related “avoid travel to” recommendations, particularly for the northern states. Check them out at www.travel.gc.ca. Most of the violence is drug gang related and the government’s steps to combat this are having some effect.
Other concerns are corruption levels and excessive red tape, especially for small businesses. The World Bank reviews countries in terms of ease of doing business at www.doingbusiness.org. Its most recent report noted that Mexico’s bureaucratic challenges varied from state to state, and that if current best practices in individual states were introduced throughout the whole country, its ranking would improve dramatically. As it is, in terms of ease of doing business it ranks 53rd out of 183 countries and 75th for start-ups. This compares interestingly with the US (4th ), Japan (20th), Chile (91st), Argentina (113th ) and India (132nd). The World Bank expects Mexico to improve to level 36 in 2013 as modifications to red tape and simpler bureaucratic procedures are put in to effect. Their new one-stop shop for start-ups (www.tuempresa.gob.mx) should help – provided you can read Spanish!
Canada has had close relations with Mexico for many years, and bilateral business has increased significantly since NAFTA was signed in the mid nineties. Apart from that special partnership, Canada and Mexico get together regularly at the North America leaders summit, and the new president-elect Peña Nieto was welcomed in Ottawa by Prime Minister Harper last November, following which a Canadian government and business mission visited Mexico taking in the inauguration of the new president. Export Development Canada (www.edc.ca) notes that bilateral trade was US$33 billion in 2011, and that Mexico was Canada’s fifth largest market. Main exports (and opportunities) are in aerospace, automotive, agriculture, mining, oil/gas, plastics/chemicals, power generation and ICT. Mexico is more open than it was to imports and foreign investors in all markets except energy (where Pemex reigns supreme) and telecoms, but relatively inefficient private sector monopolies control many of the main industrial sectors including bread, TVs and cement. The new president says he has plans to break them up. Veremos!
In terms of Foreign Direct Investment (FDI), Canadian companies have invested more than US$11 billion in Mexico during the past decade. According to EDC, Canada is Mexico’s fourth largest investor and has 2,500 Canadian affiliates operating in the country.
The Canadian Chamber of Commerce in Mexico (www.canchammx.com) helps with networking and advocacy for Canadian companies, and hosted a visit by EDC’s chief economist Peter Hall in January. It has 400 members and representation in Mexico City, Monterrey, Guadalajara and Matamoros. Other useful business organizations in Mexico can be found at www.canada.gc.ca under the Trade Commissioner Service. EDC has a report on “Doing Business in Mexico,” which is free upon registration at their website. PWC has 280 pages on the same subject at www.pwc.com.
Canadians can still enjoy piña coladas and mariachi music in Mexico, but there is now much more to tempt the international trader to take another look at this growing and closeby market.
Mark Drake is former president of Electrovert Ltd. and the Canadian Exporters’ Association. E-mail email@example.com.
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This article appears in the July/August 2013 edition of PLANT.