Mexico: Country Profile

Euromonitor International 21 December 2012

about 13% of the work force is underemployed.9% are forecast for 2013. High rates of capacity utilisation suggest a recovery in fixed investment. The real value of private final consumption rose by 5. The Chamber of Deputies has 500 members. Chinese wages are expected to overtake those of Mexico in five years. The resilience of Mexican exporters reflects their advantage of geographical proximity to the USA. Mexican labour has managed to maintain its competitive advantages against China and other international competitors with labour costs in assembly and manufacturing today only 15% higher than those in China. The landscape is partly volcanic and is subject to earthquakes.0%. In November 2012. The Chamber of Senators has 128 members. elected for six-year terms. Political Structure Mexico is a parliamentary democracy with an executive president. 300 members are elected in single-seat constituencies and 200 members are elected by proportional representation. It has coastlines on both the Atlantic and the Pacific and embraces a wide range of territorial types. KEY POINTS Mexico’s economy will perform reasonably well in 2012 with real GDP growing by 4. 96 members are elected by plurality vote in multi-member constituencies and 32 are elected by proportional representation. Congress passed sweeping labour reforms that eliminate many archaic laws and make it easier for firms to fire workers.Mexico’s econmy is performing better than expected. while favourable credit conditions and sustained employment growth should support consumption. The nominal value of remittances is still below pre-crisis levels. However. Domestic demand should maintain its momentum. a feature which has become more important as the price of oil (and thus transport costs) has risen. The informal sector is much larger than in other countries such as Brazil or Chile. Mexico’s rapidly expanding middle class now represents a majority of the national population.4% in 2012 and gains of 4.8% in 2013. The informal sector is much larger than in other countries such as Brazil or Chile. Parliament has two chambers. The economy must grow by at least 6% on a sustainable basis to absorb new entrants to the labour market.5% are forecast for 2013.000km from its northern border with the US down to the boundaries with Guatemala and Belize in the south. Capital Mexico City GOVERNMENT Head of State Enrique Peña Nieto (2012) Head of Government Enrique Peña Nieto (2012) Ruling Party The Institutional Revolutionary Party (PRI) leads a coalition. FACTS Area 1. Public and private monopolies dominate much of the economy.972.545 square kilometres Currency Mexican new peso (NP = 100 centavos) Location Mexico extends for well over 2. while favourable credit conditions and sustained employment growth support consumption. Mexico’s ke y competitor in the US market. The economy must grow by at least 6% on a sustainable basis to absorb new entrants to the labour market. elected for threeyear terms. The president is elected for a single six-year term by universal suffrage. High rates of capacity utilisation suggest that the recovery in fixed investment will continue. underpinned by sustained business and consumer confidence.9% in 2012 and it will drop to 4. Gains of 3. . Unemployment was 4.

8% of the vote while Josefina Vazquez Mota took 25. Government Finance Mexico’s spending rose significantly during the recession. In 2011. Manufacturing accounts for 17. Volkswagen’s car plant is already the largest in North America. Between 400. Major exports are citrus crops. coffee and sugar cane. Car makers are the backbone of the sector representing about 30% of all manufacturing activity.285 billion. The level of violence and the number of kidnappings is on the rise throughout the country and threatens to spill over the border with the USA.000 Mexicans leave Mexico each year for the US. In the Chamber of Deputies the Institutional Revolutionary Party (PRI) and its ally. Tourism provides employment for more than 13% of the work force. Mexico is rapidly becoming the preferred centre of other multinationals looking to supply the Americas and beyond. won 226 seats. Mexican authorities fired almost 10% of the federal police force in an effort to halt the bribery and widespread corruption that has been nurturing the country’s drug trade and violence. The government’s aim is to become one of the world’s top . In the southern part of the country three in four are in poverty. followed by spending on education (21. equivalent to 43. This financial obligation makes it difficult for Pemex to make the necessary capital expenditures. the Green Party. the PAN received 38 seats. The cross-border transfer of funds is a primary means of evading taxes. Relations with Guatemala are strained owing to its contacts with the Chaiapas rebels in the southern part of that country. The government admits that only about 5% of all farms are efficient and profitable. tomatoes. Production and exports by the automobile industry have rebounded sharply with domestic demand 16% higher in 2011 than the pre-crisis level. In addition. Billions of dollars in illegal money leave the country each year.7% of the work force. Poverty has been reduced but one in two Mexicans still lives in poverty.5%.4% of the work force.4%). drug cartel members have moved into agricultural operations. Mexico will face fiscal challenges resulting from diminished oil revenues and age-related spending. In August 2010. The major source of tension is the various proposals to tighten immigration controls in the US. The real value of tourist receipts rose by 0.0% of the vote. peppers. The Party of the Democratic Revolution (PRD) took 141 seats. public debt amoun ted to Mx$6. The budget deficit is modest and falling slowly. the National Action Party (PAN) won 122 seats and the New Alliance captured 11 seats. The three cartels – based in the border cities of Tijuana and Juárez and on the Gulf coast – reap profits of more than US$13 billion per year. Peña Nieto won the office with 38.4% in 2011 and an increase of 3.9% in 2012. cotton.Last Elections Presidential elections were held in July 2012. Most of this is in the form of ransoms paid by businesses or extortion quotas to organised crime. Elections to the Chamber of Deputies and Senate were held at the same time. Spending on general public services represented 37. The government expects Mexico to become the world’s thir d largest automobile exporter and the seventh largest producer of cars by 2017. Government aid to the sector is slanted significantly in favour of large farms but it is the many small farmers who face the most problems. the Confederation of Mexican Chambers of Industry (Concamin) calculates that heightened insecurity has cost 7% of GDP. Investment in new automobile projects will total US$15 billion in 20082014.1% is expected in 2012.000 and 500. In the Senate the PRI garnered 61 seats. According to recent reports. In addition. Oil generates over 10% of the country’s export earnings and 40% of all government revenue.7% of all government expenditure in 2011. In real terms. Pemex. Receipts are expected to rise by 2. the PRD took 28 seats and one seat went to a smaller party. Mexico is preparing to take legal action against Argentina at the World Trade Organisation after Buenos Aires suspended an automobile trade agreement.0% in 2013. Pemex’s real problem is that the constitution forbids it from entering joint ventures – a stipulation that has stifled investment. International Issues Mexico has several problems with Washington. The government plans to reduce public debt to about a third of GDP by 2015. Political Stability and Risks The government is fighting a desperate war against powerful drug cartels. Andrés Manuel López Obrador received 31. In the longer term. depriving the government of tax revenues crucial for providing public goods.7% of GDP. ECONOMY Economic Structure and Major Industries Agriculture employs 11.2% of GDP and employs 15. the state oil company. is the world's fifth largest oil company. public debt rose by 8. Mexico's federal government relies on Pemex for approximately one-third of its budget.

Mexican labour has managed to maintain its competitive advantages against China and other international competitors with labour costs in assembly and manufacturing today only 15% higher than those in China. there is growing evidence that the flow of Mexicans to the USA began to slow – and was perhaps reversed – during 2012. Remittances have long been a major support for private consumption in Mexico. exports rose by 6. up from the tenth place currently. Prices rose by 4.4% in 2012 and gains of 4. underpinned by sustained business and consumer confidence. High rates of capacity utilisation suggest that the recovery in fixed investment will continue. export earnings from energy exports represented 15. In addition. The informal sector is much larger than in other countries such as Brazil or Chile. about 13% of the work force is underemployed. .8% in 2013.8% are forecast for 2013. The USA is by far the country’s most important trading partner.25%-4. Nearly 7% of all Mexican professionals are thought to have emigrated to the USA over the past decade. Retail sales have performed well in recent months. Exports represented 30. The economy must grow by at least 6% on a sustainable basis to absorb new entrants to the labour market.6% of a ll Mexican exports went to the USA. Migrants send home about one-quarter of their earnings – as well as accumulating savings during their stay in the USA. Exports of machinery and transport equipment (especially cars) accounted for 52.five tourist destination by 2018. In contrast. The central bank’s ceiling for acceptable price increases is 4%. Mexico and the USA finally reached agreement allowing Mexican trucks to cross the border and deliver to the US markets quickly. Chinese wages are expected to overtake those of Mexico in five years. Private bank credit is less than 20% of GDP but is growing as the recovery proceeds. Most exports to the USA are produced in factories (maquiladoras) just across the border in order to minimise transport costs. the country suffered its worst annual slump since 1932. 78.8% in 2013.7% in 2013. Real GDP should grow at an average rate of 4. In dollars.9% are forecast for 2013. structural reforms of the past fifteen years. Congress passed sweeping labour reforms that eliminate many archaic laws and make it easier for firms to fire workers. However.6% of all exports in 2011.9% of the total during 2011. while favourable credit conditions and sustained employment growth should support consumption. Unemployment was 4. Chinese exports take between 20 days and two months to get to the USA. In June 2011. Unskilled migrants typically earn six times as much in the USA as they would at home. Domestic demand should maintain its momentum. Mexico’s key competitor in the US market.5% of GDP in 2012 and it is expected to widen to 0. However.6% in 2008. Impediments to economic progress have included violence related to the crackdown on drug cartels. In 2009. This is more than any other major exporter. Evaluation of Market Potential The economy should continue to strengthen in the medium term.0%. Exporters have also managed to diversify by cutting the American share of exports by more than 10% over the past ten years. Mexico’s rapidly expanding middle class now represents a majority of the national population. Mexican-made goods can be delivered to the USA in a week and usually just two days. The current account deficit was 0. suggesting that domestic demand is improving. Mexico has negotiated 11 tariff-reduction accords and has trade agreements with 44 countries. was an instrumental part of the rebound. the task of addressing fiscal challenges from oil revenues and age-related spending will require changes in taxation and spending policies. The resilience of Mexican exporters reflects their advantage of geographical proximity to the USA.9% in 2012 and it will drop to 4. up from 26. As a result. including entry into NAFTA. In November 2012. Economic Prospects Mexico’s economy will perform reasonably well in 2012 with real GDP growing by 4. the country now has preferential access to twothirds of the global economy. The economy staged a rebound in more recent years.75% per year over the next ten years.1% in 2012 and inflation is expected to be 3. Gains of 3. The nominal value of remittances is still below pre-crisis levels. Foreign Trade The export-GDP ratio has been slowly rising over time.5% are forecast for 2013. However. In the long term. supported by both external and domestic demand.7% in 2012 and gains of 9. More than ten million Mexicans – equivalent to one-tenth of the country's population –work in the USA. The real value of private final consumption rose by 5. Overview of the Economy Mexico’s economy grew slower than most other large Latin American countries for more than a decad e. have not produced an unambiguous rise in productivity growth. Since joining NAFTA in 1994. a free-trade agreement with countries in the Asia-Pacific region. Mexico has benefited from the relatively good performance of the US manufacturing sector and achieved a strong recovery of its market share in that market.2% of GDP in 2011. especially in the automotive sector. a feature which has become more important as the price of oil (and thus transport costs) has risen. significant tax evasion and trade disputes with the USA. In June 2012. Since the crisis. A continued inflow of FDI into manufacturing. In 2011. Mexico was invited to join negotiations on the Trans-Pacific Partnership.

5 337 16. In or der to extract these reserves drastic changes in the country’s oil policy are necessary. 70-80% of the market is held by only one or two companies. could boost Mexico's GDP growth by 1 percentage point per year. Mexicans pay as much as 40% more than they should for basic goods and services. Doing Business presents quantitative indicators on business regulations and the protection of property rights .4 0. The government has proposed to raise the VAT to 16% and to broaden it to apply to food and medicines. Pemex reports “possible” new reserves of up to 54 billion barrels out in the Gulf. limiting competition and making the country less productive. especially small and medium-size domestic firms. There have been complaints that Pemex (the state-owned oil company) does not have sufficient funds available for exploration and investment.450 4 12 1. Table 1 Indicators of Business Environment: 2013 48 10. Pemex’s annual investment budget would have to double to more than US$20 billion.4 billion barrels in 2011.10 8 52.7 95 382. . The lack of competition prevents better products and services from emerging in the marketplace. owing to high financial burdens placed upon the company by the government.) Time for import (days) Cost to import (US$ per container) Protecting investors Strength of investor protection index (0-10) Resolving Insolvency Time (years) Cost (% of estate) Source: Euromonitor International based on the World Bank Note: Data is sourced from the World Bank’s Doing Business 2013.8 121.780 6.5 26.) Time to export (days) Cost to export (US$ per container) Importing Documents for import (no. The subsidies cost more than US$20 billion per year. Oil production amounted to 145.0 1. ENERGY Mexico has proven oil reserves amounting to 11. The data for all sets of indicators in Doing Business 2013 are from June 2011 until June 2012 (except for paying taxes data which refers to January–December 2011). BUSINESS ENVIRONMENT Critics argue that there are far too many tax exemptions and that the tax revenue base is too narrow. Rankings are based on data sets across 185 countries. Mexico's tax take is the lowest of all OECD countries.8 18 Ease of doing business rank (out of 185) Starting a Business Cost (% of GNI per capita) Time (days) Dealing with construction permits Time (days) Cost (% of GNI per capita) Getting Electricity Time (days) Cost (% of income per capita) Employing workers Minimum wage for a 19-year old worker or an apprentice (US$/month) Ratio of minimum wage to average value added per worker Standard workday in manufacturing (hours) Tax rate Total tax rate (% profit) Labour tax and contributions (% of commercial profits) Time (hours per year) VAT (%) Exporting Documents for export (no. Public and private monopolies dominate much of the economy. At 18% of GDP. According to the OECD.1 million tonnes of oil equivalent in 2011.1 9 69 322.Owing to a shortage in refining capacity. As a result. which had previously been entirely exempt. labour reforms.and their effect on businesses. In many important industries.0 5 12 1. together with tax and other changes. Mexico must import more than 40% of its oil which it sells to consumers at subsidised prices.

Mexican society is also undergoing an ageing process. . Mexicans account for a third of the foreignborn population in the USA. 11. Emigration is another important determinant of the demographic structure in Mexico. It stood at 28. The median age is rising rapidly.9% in real terms in 2011 and growth of 4.013 (US$6. The number of those over 60 years will increase substantially over the next two decades.4 trillion cubic metres in 2011 and production amounted to 47.2 million tonnes of oil equivalent in that year.8 births per female.4 million Mexican-born people lived in the USA in 2008.2% in 2011 and amounted to Mx$85. Together. Fertility has fallen by 50% since 1990 and presently stands at 1. as well as for permitting investment by foreigners.1% is expected in 2012.3 million.4 years in 2012 – 11. Population growth is decelerating over time. Energy officials have called for US$130 billion of investment in Mexico’s o il sector. Consumer expenditure per capita grew by 3. accounting for well over 80% of total energy consumed.1% in 2012. In 2012.1 years greater than the figure for 1980.3% per year. In 2011. it totalled 111 . Income and Expenditure Mexico’s savings ratio was 5.845). however. The size of families in metropolitan areas is smaller than in rural areas and the average age of the mother at first birth is higher. mainly to the USA. consumer expenditure per capita totalled Mx$81. Both production and consumption of natural gas are steadily rising. SOCIETY Population Mexico’s population has been growing at an average rate of 1.515). The decline began with the introduction of family planning in the 1980s but demographers argue that the real reason for the fall is a change in family values. The money would be used for capital improvements and a refinery upgrade.Natural gas reserves totalled 0. According to the US Census Bureau. Disposable income per capita grew at 3.120 (US$6.4% of disposable income in 2011 and it will slip to 5.roughly equivalent to 10% of Mexico's population. oil and natural gas will likely remain the dominant energy sources until 2020. The country has a long history of emigration.

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