In an upswing, the Mexico economy finds itself on a steady rise. With strong industry sectors, solid international relations, and a much-desired beautiful landscape flooded with tourists, Mexico is one of Latin America’s best bets for any company looking to grow. With industries that have been around for some time, as well as rising sectors, Mexico has become a productive business center.
Trade agreements make Mexico a great asset for any company that deals with exports. Its low cost and positive foreign relations are ideal. And while Mexico has a reputation for having mass corruption, and it’s true, that’s an issue, the new political landscape shows a commitment to extinguishing crime and malpractice. Mexico is in a transition period of what looks like positive change. Still, it’s good to do some research.
Here, Mexico’s economy is laid out with money and exchange rate must-knows, key economic sectors, foreign and trade relations, as well as the political-economic outlook.
Doing Business in Mexico, What’s it Worth
With a steady 2% rise in the economy over the last several years, Mexico is growing. Inflation and interest rates are surprisingly low, as a result of a microeconomic stability.
Working in Mexico means dealing with exchange rates and navigating a new currency, the peso. Indicating a strong Mexican currency, the peso is the ninth most-traded currency in the world, and the third in the West.
But the fluidity of the currency means it’s critical to keep an eye on exchange rates. The peso is not as valuable as one think. But that’s not all bad news. While currently trading at about 19 to 1 to the U.S. dollar, for example, the peso’s low rate can actually be beneficial for businesses. That’s not just in terms of getting more for less money, although that is an obvious bonus, but exports are less expensive, which means they’re more competitive in the marketplace. In other words, you can sell more.
The low cost of domestic goods is also a draw for international tourism, which in turn helps foster the economy. One of the biggest sectors in Mexico, in 2017, tourism counted for 7.1% GDP, while in the same year the tourism industry provided 3.9 million domestic jobs, employing 7.5% of the Mexican population. Tourism fosters Mexican hotel and passenger travel, restaurants, local leisure activities, and travel agencies. For an international company, Mexico’s low rents and cost of daily business coupled with strong economic sectors makes the country a hard deal to pass up.
Mexico Economy: Where’s the Money?
As mentioned above, tourism is a major sector in Mexico. There are many others that fuel the Mexican economy. Oil is one of the largest sectors, with prices expected to climb, it serves as a major resource for the country. Industrial sectors are additional important elements to the strength of the Mexican economy. The automotive industry brought in some $23 billion of investments to the country over the past ten years.
Aerospace manufacturing is a rising sector that’s been profitable in Mexico. The industry grew 20% each year for the past five years. Due to open trade policies, NAFTA, and political reform, Mexico reigns as one of the top ten suppliers of aerospace materials in the world. E-commerce is on the rise, too, counting Mexico as one of the top e-commerce contributors in Latin America. And that’s saying something – worldwide e-commerce is growing exponentially. Brick and mortar shops all have an online presence, which is now a critical part of any retail business model. In recent years, improvements to websites incorporate mobile-friendly shopping features, which results in higher expenditures. Mexico’s contribution is apparent, having increased their market value at 28.3% per year since 2016.
Other high-yielding sectors include the food industry, electronics manufacturing, and the unique maquiladora industry, which entails imported raw materials to Mexican manufacturing plants, which then make goods that are exported on the behalf of foreign companies.
International Relations and Mexico
The export business is impressive in Mexico. They are the 9th largest economy of exports in the world. Not surprising, some of Mexico’s top exports are also within their largest sectors – so automobiles, cars, and petroleum are top goods that the country serves. That means, too, that foreign relations are strong, and vital. The United States, Canada, China, Germany, and Japan are all key nations that import Mexico’s goods.
As expected, trade alliances are a big reason certain countries do business with Mexico. Certainly NAFTA, now the USMCA, has a huge affect on Mexican exports with the U.S. and Canada. Free trade allows lower costs on exports, as the deal goes, but it also encourages larger quantities of those goods purchased, which in turn creates a nice profit for businesses. But the USMCA isn’t the only trade agreement that Mexico is aligned with. There are 13 agreements with 45 different countries around the world, and the benefit of this is that Mexico has access to 60% of GDP in the entire world.
Mexico’s Connectivity: A Rising Opportunity
What’s more, Mexico’s high internet connectivity among the population is an opportunity for international merchants. With 79.1 millions of Internet users (67% of the population), a 12% growth in comparison with 2016 – the country’s fast moving ascent into the digital sector allows for online and digital services to be done effectively, since mobile is the primary mode of ecommerce. High connectivity levels – among consumers as well as among companies – mean a robust internet that should attract SaaS for businesses with locations in Mexico.
The new President, Andres Manuel Lopez Obrador (AMLO), is the first left leader in Latin America’s second-largest economy in decades. This was not AMLO’s first run for president, and he was once the mayor of Mexico City. But it took until now for him to get elected as President. While many doubted President Lopez Obrador’s ability to do all he promised, and maintain a financial surplus, he did in fact present a viable budget in January that looks as solid as he’d said it would.
What this means is a country that is looking to build and change, to work to become a rising force. Any business looking to expand should pay careful attention to the Mexican political scene. It’s one that will aim to lure in international business, without question.
The economy in Mexico is varied. Money comes from old sectors and new, and the political environment is focusing on business prospects as well as domestic growth. This country is one of promise, but because it’s on the rise, a company investing in Mexico should be willing to stick it out for some time and remain informed on progressions in order to take advantage of all Mexico has to offer.