The Report: Mexico 2018
Driven by an ongoing process of economic opening since the 1990s, Mexico has established a solid macroeconomic base. Structural reforms have improved the country’s trade flows, helped to soften the impact of a gradual slowdown in hydrocarbons production and exports, and enabled manufacturing-led economic diversification and regional integration. While Mexico now faces a combination of unprecedented risks that continue to test its resilience to unfriendly economic headwinds, both at home and abroad, the economy benefits from a high degree of regulatory maturity and sound macroeconomic management.
Country Profile
The Mexico-US bilateral relationship has been strained as a result of President Donald Trump’s administration and aggressive discourse, including the demand that Mexico pay for a border wall, an insistence on renegotiating the North American Free Trade Agreement and the deployment of US troops to the border. Nevertheless, the recent volatility of its ongoing relationship with the US has sounded a warning bell for Mexico, encouraging it to diversify its trade links and seek out new markets, and to that end, the recent Comprehensive and Progressive Agreement for Trans-Pacific Partnership could serve it well. This chapter contains interviews with Angela Merkel, Chancellor of Germany; Sebastián Piñera Echenique, President of Chile; and Liam Fox, UK Secretary of State for International Trade.
Explore chapterEconomy
Driven by an ongoing process of economic opening since the 1990s, Mexico has come to establish a solid macroeconomic base. Structural changes have allowed the country to improve trade flows and helped to soften the impact of a gradual slowdown in hydrocarbons production and exports. Equally important have been the profound economic reforms initiated after 2013, with a reshaping of strategic sectors such as energy and telecoms. The energy reform alone is expected to bring in $180bn worth of new investment by 2030, as foreign companies expand their hydrocarbons exploration and development efforts. Although destabilisation of trade flows would have a heavy impact in the short term, the overall outlook for the Mexican economy remains strong. This chapter includes an interview with Juan Pablo Castañón Castañón, President, Consejo Coordinador Empresarial.
Explore chapterBanking
Mexico’s banking industry enjoys high capital adequacy ratios and is benefitting from robust profit margins. While some stakeholders have pointed to the sector’s conservative approach as a reason for the slow progress in increasing penetration levels, the sector is in fact expanding financial services to a broader share of the population. Relative to the size of the Mexican economy, the country’s banking sector remains fairly small, dominated by a handful of large international bank groups. Banking profits climbed by 31.5% in 2017 to reach $7.4bn, and domestic credit to the private sector, including banking and non-banking sectors, reached 34.2% as a percentage of GDP in September 2017. The sector has also been successful in implementing various Basel III regulations, with major banks adequately adhering to capital and liquidity requirements. This chapter features an interview with Alejandro Díaz de León Carrillo, Governor, Banco de México.
Explore chapterCapital Markets
While corporate bond issuances have only expanded at a moderate rate, Mexico’s sovereign bond market has long been a central component of the bourse’s activity, attracting a growing volume of foreign players. An assortment of new structured products launched over recent years has helped channel market investment towards infrastructure development in areas such as transport and energy. Despite external challenges, the Mexican Stock Exchange has proven effective at introducing innovative products and keeping investors interested in what is on offer. While higher interest rates expected over 2018 and 2019 may make some new products less appealing, the diversification brought about by special purpose acquisition companies, real estate investment trusts, first investment project certificates and development capital certificates is likely to attract new investors and help bridge the gap between capital market utilisation and financing the country’s economic needs. This chapter includes interviews José Oriol Bosch Par, CEO, Mexican Stock Exchange; and Santiago Urquiza Luna-Parra, President, Institutional Stock Exchange.
Explore chapterInsurance
The stable growth of the Mexican economy and the low level of insurance penetration in the country are likely to continue to drive growth in the sector over 2018 and 2019. In the absence of further natural disasters the loss ratio of insurers, which rose following the 2017 earthquakes, can be expected to stabilise in 2018. Nevertheless, the rise in incidents of car theft will likely require action on the part of insurers, with a more comprehensive product design. However, new regulations and a closer management of risk should support the industry in overcoming these challenges. Incorporating emerging technology into the design and distribution of products will be key for insurance firms to stay competitive. This chapter contains an interview with Manuel Escobedo Conover, President, Mexican Association of Insurance Companies.
Explore chapterEnergy & Utilities
As several important segments of the country’s energy industry open up for competition, widespread energy reform is leading to significant changes that go well beyond the sector. New investments and private operators are helping to change the economic structure of the country, in a sector often highlighted for its significant potential. The energy sector is well positioned to receive additional private investment and technical know-how for its future development, but for ongoing reforms to be successful in the long term, continuity of the regulatory framework will be an essential component. This chapter includes interviews with Carlos Treviño Medina, CEO, Petróleos Mexicanos (Pemex); Ivan Sandrea Silva, CEO, Sierra Oil and Gas; and Miguel Ángel Alonso Rubio, CEO, Acciona Energy.
Explore chapterIndustry & Mining
Performance in Mexican industry is heavily dependent on the particular segment in question and its current economic position. The automotive and aeronautics manufacturing sectors, concentrated mostly in the Bajío region of Mexico in the states of Querétaro and Guanajuato, are driving demand for inputs like light-weight polymers, while strong growth in agro-industry across different regions of Mexico is pushing up demand for petrochemicals and chemical fertiliser products. Export growth and the domestic market consolidation of the beer industry are pushing production of barley and malts upwards, contributing to more efficient farming practices and greater agricultural yields. While the mining industry has been suffering from low worldwide commodities prices for over five years, the sector’s growth potential is expected to make a rebound in the coming years. This chapter includes an interview with Guilherme Loureiro, Executive President and CEO, Walmart México.
Explore chapterAutomotive & Aerospace
While renegotiations of the North American Free Trade Alliance (NAFTA) have led to an environment of uncertainty for Mexican industry, the automotive sector remains solid and on track for further development driven by rising vehicle production, local sales and export demand. Mexico is home to 24 carmakers, with manufacturing facilities in 24 states, producing cars, light and heavy trucks and tractors, as well as component parts. In addition, with exports averaging a 15% annual growth rate over the past decade, Mexico is positioning itself as a global leader in the aerospace industry. While ongoing trade negotiations between Canada, the US and Mexico over the future of the NAFTA could potentially have an effect on manufacturing as a whole, major sector stakeholders remain committed to moving forward by strengthening supply chains and integrating production processes. The sector thus looks set to remain on track for further sustained investment. This chapter includes interviews with Mayra González Velasco, President and CEO, Nissan México; and Juan Carlos Corral Martin, President, AeroClúster de Querétaro.
Explore chapterNuevo León
Posting a GDP growth rate of 3.9% in the first half of 2017, Nuevo León outpaced the national economy, which grew at a rate of 2.5% over the same period. Despite a challenging year of slow growth in 2016, the manufacturing sector remained the main driver of the state’s economy in 2017. Though the US continues to be Nuevo León’s largest trading partner, the state has pushed to diversify its economy and ensure long-term growth by expanding beyond export-oriented industrial production. The state government actively supports mining and agricultural production, the construction of energy and transport infrastructure, and the enhancement of competitiveness and productivity through investment in research and development. Nuevo León’s reputable universities and its high level of formal sector employment are additional assets that should help the state prepare for the future. This chapter features interviews with Fernando Turner Dávila, Secretary of Economy and Labour, State of Nuevo León; and Omar Díaz, President, Neoris.
Explore chapterHidalgo
With a rich mining history, an unrivalled location both for exporters and companies serving the domestic market, and escaping relatively unscathed from the drug-trafficking violence that afflicts other parts of Mexico, Hidalgo has the tools to flourish, despite being one of the less developed states in the country. Hidalgo’s current government has looked to accelerate efforts to attract investment since taking office, launching a package of reforms designed to ensure that being next door to one of the world’s largest consumer markets is an asset for the state and its people. With plenty more investment in the pipeline, the task now facing Hidalgo’s government is to ensure that the benefits are felt across the state’s broader economy and remain localised. This chapter includes interviews with Omar Fayad Meneses, Governor of Hidalgo; José Luis Romo Cruz, Secretary of Economic Development, State of Hidalgo; Elías Massri Sasson, CEO, Giant Motors; and Mauricio Leyva Arboleda, CEO, Grupo Modelo.
Explore chapterGuanajuato
Economic expansion in the north-central state of Guanajuato outpaced that of the nation as a whole in 2017, registering GDP growth of 4.5%, compared with Mexico’s rate of 2.1%. In order to ensure long-term growth, the state is diversifying its economy by boosting the production of metals, food products and leather goods, while also pursuing innovation, partly by strengthening ties between local industrial companies and universities. The state is also expanding its trade ties in response to broader political dynamics, with both Mexico and the US appearing uncertain about the future of US-Mexico trade relations. Guanajuato still sends the majority of its exports to the US for now, but the state is working to expand its commercial ties.
Explore chapterICT
Mexico’s telecoms sector is the second largest in Latin America after Brazil in terms of subscriber numbers, contributing approximately 2.4% to GDP in the third quarter of 2017. Penetration of products and services, such as mobile phones, broadband internet and pay-TV, are also on the rise, having ranked well below the global average until 2015. The rollout of a 5G network demonstrates Mexico’s expanding wireless and mobile data market, though it may take some time before 5G can be effectively monetised in a segment with little room for new subscriber growth. Furthermore, Mexico’s IT services and software sector reported a compound annual growth rate of 12% between 2010 and 2016, with its market value estimated at $11.3bn in 2016. In addition, Mexico placed 13th out of 65 countries in terms of the best locations to provide IT, business process outsourcing and call centre services. The uncertainty surrounding a new North America Free Trade Agreement deal and the slowdown of investment in certain sectors is unlikely to have a significant impact on IT and telecoms; however, the outcome of the elections may lead to uncertainty until Obrador’s new administration’s investment plans are unveiled. This chapter features an interview with Sergio Rosengaus, CEO, KIO Networks.
Explore chapterTransport & Logistics
Mexico’s transport sector is undergoing major expansion, providing increased investment opportunities. Among the ongoing projects is a $13bn international airport in Mexico City, which was originally slated for completion in 2020 but is likely to be delayed until 2023. Work is also under way on a new urban metro system in the capital, and upgrades to the railway and road system. In addition, freight capacity has been expanded at the Pacific seaports of Lázaro Cárdenas and Manzanillo, and major expansion projects are being undertaken at the port of Veracruz. While concerns remain over the impact of the North America Free Trade Agreement renegotiation, the outlook for the Mexican transport and logistics sector remains solid. Mexico has already achieved significant increases in capacity across all segments of its transport system, and while inefficiencies and security concerns will not be resolved overnight, there is momentum to overcome these challenges. This chapter includes an interview with Federico Patiño Márquez, CEO, Mexico City Airport Group.
Explore chapterConstruction & Real Estate
Traditionally a barometer of a Mexico’s economic health, the construction sector saw investment slow in 2017 as a result of a dip in public spending on infrastructure works and uncertainty among private investors over the possible outcome of the renegotiation of the North America Free Trade Agreement. This could further push up the already rising costs of materials brought by the February 2018 hike in interest rates to a nine-year high of 7.5%. Although the sector will continue to gain steam in 2018, such growth will be tepid, given that the factors impeding expansion remain. The real estate sector of Mexico saw record occupancy in 2017. Competitiveness as a manufacturing hub and job growth is fuelling a hike in demand for residential properties and retail space. The expanding population is also driving continued growth in housing demand, as the housing shortage remains above 25%. These factors are all solid indicators of a market that is far from saturated, demonstrating substantial opportunities for investment and growth. This chapter contains an interview with Luis Gutiérrez Guajardo, President, Prologis Latin America.
Explore chapterEntrepreneurship + R&D
While renewed interest in promoting research and development has meant Mexico is performing well on global indices, lower budgets in 2017 and 2018 mean the government will be looking to continue incentivising private investment, while encouraging universities to maintain their work to advance the sector. While Mexico has a strong background in innovation, fostering new research and auctioning new ideas may require structural change. As the incoming administration of Andrés Manuel López Obrador, of the National Regeneration Movement, takes office in December 2018, entrepreneurs will be hoping that the new government recognizes the significant contribution that innovation and technology make to economic development. This chapter features an interview with Enrique Cabrero Mendoza, Director-General, National Council of Science and Technology.
Explore chapterTourism
Recording consistent growth since 2011, Mexico’s tourism sector has continued to expand steadily. According to government counts, more than 39m foreign tourists visited the country in 2017. Demand for Mexico’s medical tourism has recently picked up and is forecast to grow further, largely as a result of the changes made to the US health care system. Mexico’s natural beauty has long attracted tourists, but now the country is working to fully harness its broad potential. New transport links have been built and further projects are under way, which should boost the flow of tourists. However, there is room for improvement in terms of infrastructure at tourist centres and international perceptions of security. Whether the sector maintains or loses momentum under the new administration remains to be seen.
Explore chapterAgriculture
Mexico has posted strong agricultural export growth since 2013, turning around a deficit in the country’s trade balance of agriculture products that reached nearly $4bn in 2012. Growth in recent years has been driven by high-value berry and avocado exports, as well as the expansion of large-scale agro-industrial complexes in the central part of the country. Experts note that many advantageous conditions have been external, meaning that little to no control can be exercised over them in upcoming years. Such factors included the good exchange rate against the US dollar, and bumper crops of berries and avocados due to favourable weather. Other circumstantial advantages in recent years have even included a drought in the California growing region of the US, which directly competes with Mexico. The extent to which the Mexican agriculture industry can react with force and flexibility if one or more of these positive factors if removed in the future will demonstrate the sector’s true growth and resilience. This chapter contains an interview with Adrián Iturbide Mejía, Former President, Mexican Association of Avocado Producers and Exporters.
Explore chapterHealth
Steady progress has been made in the expansion and modernisation of Mexico’s health care sector in recent years. Some of these improvements have stemmed from the sector increasingly turning to public-private partnerships, with the private sector playing a larger role in operational management, outsourced services and construction. Major steps have also been taken to support the expansion of the country’s pharmaceutical industry. Although the country is very close to achieving its goal of universal coverage for all citizens, as per its constitutional mandate, some obstacles still remain, such as the gaps in insurance coverage between sectors. In particular, the rise of chronic illnesses and non-communicable diseases, combined with the added needs of the country’s ageing population, appear set to place additional stress the country’s health system, which is still not currently capable of tackling these emerging health issues. The sector will need to balance private and public actors, while at the same time boosting its domestic profile and attracting important international investment in key segments of the industry. This chapter includes an interview with Pablo Escandón Cusi, President, Mexican Health Foundation.
Explore chapterEducation
Since enacting a constitutional change defining the right to education in 2013, Mexico has been working to implement sector reforms to enhance the national school system. As the domestic economy is primarily focused on technical export manufacturing, the reforms aim to strengthen the primary and secondary education system to increase the flow of skilled candidates to university and into the workforce. Education reform continues taking the first basic steps towards advances to modernise curricula and reduce bureaucratic inefficiencies. Successes include securing the long-awaited support of the teachers’ unions for the integration of a testing system that will hold public school teachers to a higher standard. Experts agree, however, that continuity and support for the reform process must be maintained if these steps are going to be reflected as lasting gains in the system. This chapter features an interview with David Calderón Martín del Campo, President, Mexicanos Primero.
Explore chapterTax
This chapter provides an overview of Mexico’s tax regime, covering areas of particular interest to investors such as individual and corporate tax liabilities, tax treaties, free trade agreements, and other investor considerations. This chapter contains an interview with Ricardo González Orta, Partner, Deloitte México.
Explore chapterLegal Framework
This chapter provides an overview of Mexico’s legal framework, covering a range of topics from fiscal reforms to national water laws to ensure sustainable development. In addition, it features a viewpoint by César Maillard Canudas, Managing Partner, Maillard, Cerbón, Canudas, Argumedo, Palma y Asociados.
Explore chapterThe Guide
This chapter contains information on hotels, government agencies and other listings, as well as useful tips for visitors on a range of topics such as visa requirements, currency and transportation throughout Mexico.
Explore chapterTable of Contents
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