This week's Wiki-Wednesday topic is the Mexican Economy. An excerpt of the topic is below, but you can read the full article on Wikipedia's page by clicking here.
This topic is relevant because of the growing role of Mexico in nearshoring, and the increased interest in nearshoring over traditional outsourcing. If you happened to miss our webinar notes on last week's live event from Mexico city, click here to read them: “US Companies and Global Opportunities: A Perspective on Strategic Sourcing from Mexico” sponsored by Source One. You can also click here to read our Additional Notes and Resources on Nearshoring.
The economy of Mexico is the 13th largest in the world in nominal terms and the 11th by purchasing power parity, according to the World Bank. Since the 1994 crisis, administrations have improved the country's macroeconomic fundamentals. Mexico was not significantly influenced by the recent 2002 South American crisis, and maintained positive, although low, rates of growth after a brief period of stagnation in 2001. However, Mexico was one of the Latin American nations most affected by the 2008 recession with its Gross Domestic Product contracting by more than 6%. Moody's (in March 2000) and Fitch IBCA (in January 2002) issued investment-grade ratings for Mexico's sovereign debt. In spite of its unprecedented macroeconomic stability, which has reduced inflation and interest rates to record lows and has increased per capita income, enormous gaps remain between the urban and the rural population, the northern and southern states, and the rich and the poor. Some of the government's challenges include the upgrade of infrastructure, the modernization of the tax system and labor laws, and the reduction of income inequality.
The economy contains rapidly developing modern industrial and service sectors, with increasing private ownership. Recent administrations have expanded competition in ports, railroads, telecommunications, electricity generation, natural gas distribution and airports, with the aim of upgrading infrastructure. As an export-oriented economy, more than 90% of Mexican trade is under free trade agreements (FTAs) with more than 40 countries, including the European Union, Japan, Israel, and much of Central and South America. The most influential FTA is the North American Free Trade Agreement (NAFTA), which came into effect in 1994, and was signed in 1992 by the governments of the United States, Canada and Mexico. In 2006, trade with Mexico's two northern partners accounted for almost 90% of its exports and 55% of its imports. Recently, the Congress of the Union approved important tax, pension and judicial reforms, and reform to the oil industry is currently being debated. According to the Forbes Global 2000 list of the world's largest companies in 2008, Mexico had 16 companies in the list.
The annual Mexico Investment Summit takes place in Mexico City covering the development and investment opportunities and challenges across Mexican private equity, venture capital, infrastructure, real estate, agriculture, tourism, energy and natural resources evolving in the country's economy.
Mexico's Gross Domestic Product (GDP) in purchasing power parity (PPP) was estimated at US $1.463 trillion in 2009, and $874.8 billion in nominal exchange rates. As such, its standard of living, as measured in GDP in PPP per capita was US $13,200. The World Bank reported in 2009 that the country's Gross National Income in market exchange rates was the second highest in Latin America, after Brazil at US $962.076 billion, which lead to the highest income per capita in the region at $8,960. As such, Mexico is now firmly established as an upper middle-income country. After the slowdown of 2001 the country has recovered and has grown 4.2, 3.0 and 4.8 percent in 2004, 2005 and 2006, even though it is considered to be well below Mexico's potential growth.
The Mexican currency is the peso (ISO 4217: MXN; symbol: $). One peso is divided into 100 centavos (cents). MXN replaced MXP in 1993 at a rate of 1000 MXP per 1 MXN. The exchanged rate has remained stable since 1998, oscillating between 9.20 and 11.50 MXN per US$. Interest rates in 2007 were situated at around 7 percent, having reached a historic low in 2002 below 5 percent. Inflation rates are also at historic lows; the inflation rate in Mexico in 2006 was 4.1 percent, and 3 percent by the end of 2007. Unemployment rates are the lowest of all OECD member countries at 3.2 percent. However, underemployment is estimated at 25 percent. Mexico's Human development index was reported at 0.829, (comprising a life expectancy index of 0.84, an education index of 0.86 and a GDP index of 0.77), ranking 52 in the world within the group of high-development.
Mexico is an export oriented economy. It is an important trade power as measured by the value of merchandise traded, and the country with the greatest number of free trade agreements. In 2005, Mexico was the world's fifteenth largest merchandise exporter and twelfth largest merchandise importer with a 12% annual percentage increase in overall trade. In fact, from 1991 to 2005 Mexican trade increased fivefold. Mexico is the biggest exporter and importer in Latin America; in 2005, Mexico alone exported US $213.7 billion, roughly equivalent to the sum of the exports of Brazil, Argentina, Venezuela, Uruguay, and Paraguay. By 2009 Mexico ranked once again number 15 on World's leading exporters with US $230 billion (And amongst the top ten excluding Intra-EU countries). However, Mexican trade is fully integrated with that of its North American partners: close to 90% of Mexican exports and 50% of its imports are traded with the United States and Canada. Nonetheless, NAFTA has not produced trade diversion. While trade with the United States increased 183% from 1993–2002, and that with Canada 165%, other trade agreements have shown even more impressive results: trade with Chile increased 285%, with Costa Rica 528% and Honduras 420%. Trade with the European Union increased 105% over the same time period.