Reasons Mexico's Economy is Poised For rebound

The global financial crisis has taken its toll on Mexico’s economy. According to Mexico’s Finance Secretary, Agustin Carstens, Mexico’s GDP could contract by 4.1 percent this year due to a decline in exports to the US and the national shutdown in response to the swine flu outbreak. However, despite the current recession, there is a lot to be optimistic about for Mexico’s future as an emerging economy. In this article, Alfonso Galindo, of Mexico Acquisitions & development Group in Merida, Yucatan Mexico, describes some of the positive developments that are occurring right now in Mexico that could help Mexico emerge stronger than ever when the recession ends.


What country has enhanced its position in global manufacturing and design for appliances to aircraft parts? Mexico. Surprised?

The drop in the peso against the dollar since August has made Mexico an even better bargain for business and tourism than before.

True, foreign investment was down 46% in 2008 to $18.6 billion. The economy in January shrank 9.5%. The country is expected to loose up to half a million jobs in the first half of this year.

The question is this loss of market related to economic mismanagement or the global recession as a whole? Manufacturing is down in China and India, everywhere. Even when the border towns in Mexico had issues with drug-trafficking and violence, business investment continued until the global financial meltdown. Question answered.

A sleeper: In the past Mexico has had troubles competing for business development because of the lack of standards met for international competitiveness. Things have changed. Mexico has boosted its ability to compete by studying successful models in Europe, Asia and the US. Local governments have collaborated with universities and private industry to upgrade their research and development, customer service, and train their workforces. For example, Mexican exports of aerospace products have almost tripled to three billion US since.

President Calderon visited France and met with French President Nicolas Sarkozy recently. In March, 2009, Sarkozy announced that Eurocopter would invest $550 million to manufacture helicopters in Queretaro. Queretaro is now becoming a production and engineering center for General Electric and Bombardier.

Mexico can absorb global shocks since its maturation in fiscal and monetary policy after the 1994 financial crash. IMF (International Monetary Fund) worked with Mexico to adopt stricter standards of monetary policies. One of the basic rules is for member countries not to print more money to control inflation.

Mexico should also benefit from a change in thinking of US manufacturers who have relied on Asia and now are re-evaluating staying in North America for its production plants. Cost of transportation is just one of the concerns; the time delay for delivery also affects what money is tied up in inventory.

In Mexico, US companies can better control their day-to-day operations if they are closer, as well as, be less concerned with piracy, failure of quality standard, and contamination of products.

A recent survey of US manufacturing companies indicated that more are planning to expand in Mexico and fewer to cut back. These decisions are in contrast to their strategy to cut back production in China.

Mexico’s violence in the drug war is mostly related to specific groups in border towns. This concern is not as scary to manufacturing companies as disease outbreaks in China, policy shifts in Moscow, or riots in South Africa.

The electronics sector: Beijing’s Lenovo division (purchased from IBM) is opening a new manufacturing plant in Monterrey to produce up to 5 million PC’s a year. An electronics manufacturer from Florida has more than doubled its staff to 8,000 at its Guadalajara plant. Taiwan has expanded its Mexican factories in electronics manufacturing. US companies such as Skyworks Solutions from Massachusetts moving to Mexico to manufacture semiconductors for mobile phone and PDA’s.

The high-tech industry should take off in Mexico because of the lower cost of wages, including benefits, compared to China. There is opportunity in crisis.

Why Go to Mexico:

There is less technology theft, travel costs, quality issues, and delays due to miscommunication.
Skill levels are up from collaboration between state schools and industry.
Because of the drop in the peso compared to the US dollar, wages and rents are more attractive compared to cost in the rest of North American or China.
Shipments arrive more quickly than from Asia, a big concern to importers as they reduce inventory costs and lead times.
Even though NAFTA has been controversial, this trade agreement and others with Europe, Japan and Latin America have given Mexico duty-free access to more markets than any other country.
Mexico ranks ahead of the emerging economics of Brazil and Russia in the most recent Global Competitiveness Index by the World Economic Forum. Mexico is Latin America’s second largest economy. Chile is Latin America’s largest economy according to the WEF Global Competitiveness Index.

Work still needs to be done to make Mexico a stronger economy and financial partner in North America. There is need for: much improvement in reform of labor practices, an increase in the integrity of public institutions, and education to give skills to the population in general.

Direct Investment in Mexico, source: “Mexico Investor Digest 2009”

Chinese cars to be assembled in Guanajuato.
Q-Cells to build a new solar cell plant in Mexicali.
Cargotec to relocate factory from US to Mexico.
GM shifts cars production to stay in Mexico.
Ford announces a 3 billion dollar investment.
Chinese company to develop copper project.
Audi seeks more share of the market.
Mexico to produce biofuels from seaweeds.
Jatco expands factory in Mexico.
Mexico is currently the world’s top retirement location.*

Continued improvement in the quality of life for its residents is tied to the economic health of the country itself. Without jobs and income for its citizens, there can be no quality of life for these people as well as for those who choose to buy and live in Mexico. People buy real estate in Mexico every year. They will continue to do so.

*International Living