Mexico: Efforts to broaden international trade gain pace
Despite a slight easing of growth in the second half of the year and concerns about an over-reliance on the US market, Mexico’s economy expanded at around 4% in 2012, according to figures from the Ministry of Finance.
Weak US growth, which contributed to Mexico’s recession in 2009, also played a key part in last year’s deceleration, highlighting the need to continue to seek out new trading partners.
The Central Bank of Mexico has forecast GDP growth of between 3% and 4% in 2013, with international trade set to retain its place as a vital component of the economy. Together imports and exports to make up around 60% of Mexico’s GDP, with export-oriented manufacturing attracting significant investment, largely due to competitive labour costs, location and incentives.
Manufactured goods made up the lion’s share of exports last year, with preliminary data from the National Institute of Statistics, Geography and Informatics (Instituto Nacional de Estadística, Geografía e Informática, INEGI) showing they accounted for 81.6% of the total through August 2012. Exports from oil came a distant second, totalling 13.4%.
While Mexico has been keen to reduce its dependence on the US market and avoid a reliance on growth in the world’s largest economy, figures from INEGI indicate the bulk of exports - 80.5% - went to its northern neighbour in 2012.
Mexico can take some comfort from the IMF’s forecasts for 2013, which predict US growth will remain stable at around 2%. The US economy expanded 1.8% in 2011 and 2.2% in 2012, according to data from the US Bureau of Economic Analysis, after struggling with a two-year recession through 2008 and 2009.
Figures also show that the US appetite for Mexico’s manufactured goods was strong in 2012. However, manufactured exports were down 7.9% in January 2013 compared to the previous month, prompting analysts to suggest domestic demand will play a bigger role in pushing the sector forward this year.
Mexico’s proximity to the States and the privileged access afforded to it under the North American Free Trade Agreement (NAFTA) have heightened the challenge the government faces in diversifying its trading partners, although it has plenty of partnerships to build on. The Ministry of the Economy said Mexico had signed 12 free trade agreements (FTAs) with 44 countries, together with 28 reciprocal investment promotion and protection agreements (RIPPAs) and nine “partial scope” trade agreements.
Efforts to expand Mexico’s trade ties are expected to focus on Latin America and Asia, given the key frameworks already in place and the potential for growth in both regions. The country signalled its intent to move in this direction in 2012 when it signed the Pacific Alliance, which aims to reduce trade tariffs between Peru, Chile, Mexico and Colombia. Mexico is also taking part in ongoing negotiations with the broader Trans-Pacific Strategic Economic Partnership (TPSEP), although the presence of larger economies, such as the US, Australia and Japan, is likely to lengthen the process for finalising an agreement.
While Mexico is still working towards broadening its range of trading partners, it has added significant value to its manufacturing sector over the past decade, particularly in the automotive industry. Estimates indicate the industry attracted more than $5bn in 2012, with Nissan, Ford, Volkswagen and Mazda all opting to either set up new bases or expand their existing manufacturing facilities.
The automotive segment accounted for 17.4% of total exports in 2011, rising to 18.9% for the first eight months of 2012. The industry places second for exports behind the electronics segment, which made up 20.4% of Mexico’s exports in 2011 and 20.1% through August 2012, according to data from INEGI.
Exports for the aviation sector also notched up double-digit growth at an average of 18.6% between 2006 and 2011, according to the Ministry of the Economy. In 2011, aviation exports reached $4.3bn, accounting for 13.8% of the total export basket. The figures reflect Mexico’s progress in attracting interest from the aerospace industry, which is helping it move further up the value chain. By 2020, the country hopes to increase aeronautic exports three-fold to $12bn, which would earn Mexico’s aerospace industry a place on the global top 10 list.
While NAFTA has worked well for Mexico during the past 15 years, efforts to broaden the range of trading partners are expected to produce a more balanced base on which the country can build up growth in manufacturing and other export-oriented industries. By acquiring a more diverse network of trading partners, Mexico should also reduce its exposure to the economic fortunes of the international community, particularly those of the US.