Mexico's Economy: Facts, Opportunities, and Challenges
More Americans immigrate to Mexico than vice versa
Mexico is an emerging market heavyweight. In 2019, its gross domestic product (GDP) was $2.6 trillion. Its output is much lower than its primary trading partner, the United States. It was also lower than its other North American Free Trade Agreement (NAFTA, now the USMCA) partner, Canada, whose GDP was $1.9 trillion. Mexico's geographic size is equivalent to Saudi Arabia's, but it supports nearly four times as many people while only exporting less than 17% of the oil.
Mexico's 2019 GDP growth rate was -0.1%, less than both the U.S. rate of 2.2% and Canada's rate of 1.7%. Mexico's standard of living, as measured by GDP per capita, was $20,582. That compares to $65,297 for the United States and $51,347 for Canada.
Mexico's Economy Depends on Exports
Mexico is the 17th-largest exporter in the world. More than 90% of Mexico's trade is under 12 free trade agreements. Mexico has agreements with 46 countries, more than any other nation. These trade agreements are a big reason for Mexico's success. In 2018, the United States received about 80% of Mexico's exports. Trade among the United States, Mexico, and Canada more than tripled in the 25 years after NAFTA's signing in 1994.
Mexico manufactures and exports almost the same amount of goods as the rest of Latin America combined. Its No.1 export is automobiles, followed by computers, delivery trucks, and telephones.
Mexico is the fourth-largest producer of oil in the Americas, at almost 2 million barrels per day. This puts it just behind Kuwait, outside the top 10 oil-producing countries in the world.
Mexico imports machinery for metalworking and agriculture. It also imports electrical equipment, automobile and aircraft parts, and steel mill products. The chart below shows a breakdown of the top 10 exports:
Why Mexico Is Attractive to Investors
Mexico's economy and culture are changing. Mexico is now a major manufacturing center for electronics. That includes most of the flat-screen TVs sold in the United States. It also makes medical devices and aerospace parts.
Mexico's trade agreements allow its manufacturers duty-free access to a large portion of the world. That benefit attracts foreign factories.
International trade, which is exports plus imports, equals 80.5% of the country's GDP. That's much higher than Brazil’s 29.1% or even China’s 38.2%. Mexican companies have access to the U.S. market. They also share a common language with the rest of Latin America.
This emphasis on trade makes Mexico's companies globally competitive. Gruma is the world's largest tortilla maker. Bimbo is the largest bread maker since it acquired U.S. baker Sara Lee.
Between 2010 and 2019, Mexico grew from the ninth- to the seventh-largest passenger vehicle manufacturer and the fourth-largest auto exporter. It's also the fifth-largest producer of auto parts.
Part of the change includes a new president, Andrés Manuel López Obrador. He was elected on July 1, 2018, to a six-year term. He promised to end corruption, reduce violence, and address Mexico’s poverty.
AMLO, as he is called, promised to review contracts for oil exploration awarded to foreign firms. Mexico's oil industry needs foreign expertise and investment. Since its peak in 2004, oil production has dropped from 3.5 million to under 2 million barrels per day.
At the same time, The Washington Post reported, AMLO wants to invest $9.4 billion in the state-owned sector. He would build two new refineries and renovate six existing ones. He would award the state-owned oil monopoly, Pemex, $4 billion for exploration. He believes it would boost production to 2.5 million barrels a day within two years.
The former president, Enrique Peña Nieto, awarded contracts to partly privatize Mexico's oil industry. Peña Nieto also strengthened the automobile industry by making it easier for foreign companies to build auto plants. His Pact for Mexico was responsible for convincing Congress to pass a number of major reforms. It tore down monopolies, reformed education, and revamped tax laws. It even passed a new junk-food tax to combat Mexico’s diabetes epidemic.
Prior administrations resisted privatization. Pemex sent all its revenues to the federal government. As a result, about one-third of the government’s income is dependent on oil. Instead of investing in developing new fields, the government treated Pemex like a cash cow, trying only to maximize short-term profit. As a result, production fell over 50%% in a 15-year period.
Mexico built up its infrastructure to enhance trade. That made Carlos Slim Helu, a Mexican telecom tycoon, the world's richest man in 2010. He retained that title until 2013 when Microsoft founder Bill Gates regained that position, which he later conceded to Jeff Bezos. Helu owns three companies: América Móvil along with stock in a number of other companies.
Challenges to Mexico's Economy
The biggest challenge to Mexico's economy is getting rid of the drug cartels. During his time in office, President Peña Nieto sought to combat this problem by shifting away from his militarized approach.
Peña Nieto replaced President Felipe Calderón-Hinojosa. His controversial crackdown on organized crime created an all-out war. The cartels retaliated against civilians, who blamed Calderon for the increased violence.
Calderon had reason to be concerned. After Colombia's crackdown, many of its cocaine operations simply moved to Mexico. Without stringent controls, the cartels took over local governments. Calderon cracked down to improve Mexico's economic competitiveness but unleashed a harsh war in the process.
Surprising Facts About Mexico and Immigration
Many Americans worry about illegal immigration from Mexico and supported President Donald Trump's immigration policies. These included a wall on the border, stepped-up deportation, and restriction of asylum seekers.
But Mexico is actually gaining immigrants itself. Between 2000 and 2010, the New York Times reported, its legal foreign-born population doubled to 1 million total. Many of these are Americans or Mexicans born in America. Some are retirees who appreciate the lower cost of living. As a result, more Americans have immigrated to Mexico over the past few years than vice-versa.