A huge entrepreneurial tradition, along with Mexico’s geographical location and an almost 3,200km border with one of the economic and industrial superpowers of the world, have helped Mexico produce some of the most important and influential businessmen in the world. The country’s business tycoons are key figures in the country’s industrial development. A large part of Mexico’s GDP depends on their investments. The challenge is to transfer and permeate the success of the business elite to the ever more stable middle class.
The banking and finance sector in Mexico have experienced 17 years of uninterrupted growth and now represent 17.6 percent of the country’s GDP. Despite the growth, the Mexican market faces a number of challenges, mostly related to the country’s banking level, which is shy of 50 percent of the population -- too low compared to other countries in the region. Another problem is the large number of people in informal jobs, which prevents banks from providing credit to a large percentage of the population, as well as digitalization and financial stability.
With new technologies shaping economies and new businesses, having a strong telecommunications’ backbone has become a priority for Mexico. The implementation of the Telecommunications Reform and the completion of badge projects such as the Shared Network will provide the country with a new face and promise to transform Mexico in a hub for technologic development. The Digital revolution and the transformation of traditional productive industries offers important opportunities for Mexico, that for too long has depended on mere manufacturing activities.
In a country with over 120 million inhabitants the possibilities offered by the retail sector are endless. Whether it is personnel objects, clothes, furniture, office supplies, cars or home repair equipment, the retail sector plays an important role in the country’s economy. In light of external turbulences that have impacted the economy such as a drop-in oil prices, the US dollar appreciation and the instability generated by NAFTA’s renegotiation, domestic consumption has been one of the country’s main growth engines in the past years.
Starting with the import-substitution industrialization policy, Mexico has developed in over 5 decades, a strong manufacturing calling. It has been this manufacturing calling and expertise what has enabled the country to successfully insert itself in a global manufacturing dynamic fueled by globalization and free trade. This combined with the country’s privileged position makes Mexico a manufacturing hub not only for North America but for the world.
Mexico aims to become a key player in the global aerospace supply chain thanks to its competitiveness as a manufacturing platform, 46 free trade agreements and a highly skilled workforce. The country is increasingly becoming a hub for aerospace investment and a magnet for companies interested in maintaining their competitiveness while lowering manufacturing costs. Mexico is now home to over 300 aerospace companies and the country has set its sights high as it aims to enter the Top 10 of aerospace manufacturers by 2020.
The Energy Reform has brought a new range of possibilities to the country. The sector, key to the structural development of the Republic, has opened to private participation. Although many of the possibilities brought about by the new legislation have not yet materialized, the reform still presents a growth scenario for the sector that will be mainly based on the legal security of investors. The electricity market will be another major player thanks to the complete opening to private investment.
Mexico, a leader in the export of avocados, berries and one of the world’s leading tomato producers, faces a trade-off that must be solved in the next few years and is related to small farmers. Land use and the modernization of production systems should be a priority for entrepreneurs and politicians, as well as the improvement of infrastructure that can allow for better distribution of products in a country between the largest consumer in the world, the US, and one of the largest agricultural areas of the planet, Latin America.
While products such as avocados and berries have become synonyms of Mexico, the country also excels in other alimentary segment, industrial food and beverages. Due to its strategic location, production capabilities and logistics, Mexico has also become a growing hub for food manufacturing companies. The challenge ahead is to make this segment as visible as possible to further investment and further the appearance of new companies.
A middle class, with growing purchase power has allowed for the expansion of luxury products and services in the country. The growth lifestyle companies have seen in the past couple of years, has been boosted by the furthering of financial services and the offers associated to them.
In the past couple of years, Mexico has become host of international entertainment events such as the Formula 1, NFL and NBA games, as well as a wide range of concerts. The national sports sector has also grown in importance in the past years, with sporting events such as races attracting more people on a yearly basis. More than the economic revenue that arises from these events, they play an important role in the way Mexico is perceived abroad and add to the country’s image of a hub for world class sports and entertainment events.
Mexico and tourism have formed an indivisible alliance. The sector, one of the leaders impacting the national economy, has not stopped growing thanks to the country’s natural beauty, state intervention, and several investments. Today, tourism accounts for 9.5 percent of national GDP and generates 9 million direct jobs. According to the UNWTO, Mexico ranks 6th in the number of international tourists received. However, the challenges are many, including diversification of destinations, modernization of facilities and the construction of new infrastructure
Aviation plays a pivotal role in an increasingly globalized economy by increasing market access, facilitating trade and connecting people. Global air travel has grown an average of 5 percent yearly from 1980 and Mexico’s aviation sector is growing at an accelerated pace led by the take-off of local low-cost carriers and an increase in tourism. As the number of passengers increases, airlines, airports, service providers and MROs operators need to keep up to address this growth in demand, all while keeping up with rising standards of safety and
After Enrique Peña Nieto’s victory in the 2012 elections and the consequent approval of structural reforms targeting the country’s strategic economic sectors, legal and consulting firms now play a preponderant role. New laws, new regulators and the emergence of international investors have modified the Mexican status quo, marked by an endemic government bureaucracy, by the scarcity of the rule of law in some of the most productive regions of the country and by political corruption. The challenges are as great as the opportunities.
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MEXICAN BUSINESSES FACE UNCERTAIN TIMES
Despite bumps along the way, Mexico took further steps in 2017 on its path toward greater prosperity. The country’s central bank lifted its growth forecast for the year to between 2.0 percent and 2.5 percent. It had previously expected a 1.5-2.5 percent expansion. The optimism flies in the face of the uncertainty that plagued the country at the start of the year. At that point, rising US protectionism, a weakening peso and higher fuel prices had put a cloud firmly over the country’s economy. But you know what they say about clouds. The silver lining is the awakening effect these early difficulties have had on both the public and private sectors. When the US threatened to derail NAFTA, the first reaction south of the border was a ringing of hands accompanied by a rise in nationalism. But calmer minds determined that this could be just what the country needs. It is high time, many believe, for Mexico to reconsider its alliances and broaden its reach. With numerous commercial agreements already in hand, the conclusion of many industry insiders, both in the public and private sectors, is that now is the time to diversify and modernize. In the opinion of diverse political leaders and businesspeople, the dependence on a single commercial partner is simply no longer sustainable. The goal to diversify goes hand in hand with the need to modernize. Industries such as automotive and aerospace are racing to implement advancements that are reducing costs and improving performance, but other sectors are lagging due to lack of investment and competition. Still, the implementation of new technologies in sectors such as agribusiness, health, energy and oil and gas, could be game changers. While opportunities abound, the country also has its fair share of challenges to sort out. In particular, investors are wary of what the 2018 presidential elections will bring.
It is against this backdrop that the inaugural edition of Mexico Business Review 2018 is presented, offering a broad vision of the economy, with success stories, new projects and areas of opportunity. Through 14 chapters, the economy and its major players are brought to light, showcasing Mexico’s offer amid a murky global environment.