A head start: The state’s location, population and industries make it a blueprint for broader national development plans

Despite accounting for just 1.7% of Mexico’s population and 2% of the economy, Querétaro is, in many ways, a picture of the country Mexico wants to become. Querétaro, however, has a head start over many other states. It is home to more than a dozen universities that work closely with local industry to produce engineers and other professionals with relevant training. The state government aggressively courts foreign direct investment (FDI), securing $500m-$700m annually in recent years. Querétaro also stands out in terms of security and links to population and transport centres.

DEMOGRAPHICS: Economic growth in Querétaro has driven domestic immigration to the state. According to figures from the state’s Ministry of Sustainable Development (Secretaría de Desarrollo Sustentable, SEDESU), Querétaro’s population grew at an average annual rate of 3% from 2010 to 2013. By contrast, Mexico’s population expanded by 1.2% per year from 2010 to 2012, according to OECD statistics. About two-thirds of the state’s population growth comes from immigration, which consists mostly of other Mexicans looking for work. As a result, the economically active population of the state grew almost 5% in 2013.

Due in part to Querétaro’s factories’ demand for labour, the population growth has been accompanied by an expansion in formal employment and a reduction in informal employment in relative terms. According SEDESU, the number of formal employees in the state’s economy grew 34% between the end of 2009 and the end of 2013, from 312,000 to 420,000. According to the National Institute for Statistics and Geography (Instituto Nacional de Estadística y Geografía, INEGI), average daily wages in Querétaro have increased 17% since 2009, reaching MXN254 ($19.74) by October 2013. The national average has risen 20% to MXN242 ($18.80) over the same period.

Wages have been driven by factory jobs, as well as higher-paying professional jobs in the growing business services sectors. The information technology and telecoms sectors, for example, have attracted middle-class professionals from the population of Querétaro and other parts of Mexico (see analysis). ICT technicians, engineers and customer service representatives tend to be young and educated, with high earning power. According to SEDESU, the median income for workers in the sector is MXN18,000 ($1399) per month compared to the state’s median salary of MXN9000 ($699).

ECONOMY: Querétaro’s growth has outpaced Mexico’s in recent years. From 2010 to 2012, Querétaro’s economy grew at an average annual rate of 6.5% while Mexico’s grew at an average rate of 4.3%. In 2013 the difference was more pronounced, and SEDESU estimates that Querétaro’s economy grew 4.5% in that year. For the country as a whole, INEGI estimates GDP grew 1.1% in 2013. From 2010 to early 2014, the latest date for which statistics are available, Querétaro’s GDP per capita grew 40% to about $14,000.

As the state’s economy has grown, so too have exports, narrowing Querétaro’s trade deficit. According to figures from SEDESU, the trade deficit decreased from $1.4bn in 2009 (on $5.6bn of exports and $7bn of imports) to $500m in 2012 (on $10.6bn of exports and $11.1bn of imports). Final figures for 2013 were not available in early 2014, but preliminary data indicated that the trade deficit may have widened.

FDI in Querétaro has been steadily growing. Between 2004 and 2007 annual FDI in the state fluctuated from $100m to $250m. From 2008 to 2011 the state attracted between $450m and $500m per year. In 2012 the figure reached $652m and for the nine months through September 30, 2013, FDI totalled $584m. According to figures from the federal Secretariat of Economy, manufacturing accounted for 66% of Querétaro’s FDI between 2010 and the third quarter of 2013.

INDUSTRY: Manufacturing accounted for 27% of Queré- taro’s economy in 2012, the most recent year for which figures are available (see Industry chapter). Of the manufacturing total, the automotive sector represented 33%, as well as 9% of state GDP. Food, beverage and tobacco accounted for another 22% of manufacturing (or 6% of state GDP). Querétaro’s aviation sector represents a smaller portion of the state’s economy, but is growing quickly and accounted for more than half of Querétaro’s FDI from 2003 to 2013, with $2bn of investments distributed among 24 greenfield projects. Many of the state’s manufacturing plants have become fully integrated in Bombardier, Boeing and Airbus’s supply chains, which stretch across North America. The aviation sector grew at an average annual rate of about 20% between 2009 and 2013, according to SEDESU, and growth does not appear to be slowing down.

Meanwhile, the auto parts sector has continued to grow modestly, but consistently, and serves as a pillar of the state’s manufacturing sector. By the end of 2013, the sector consisted of at least 265 companies, including 200 Tier 2 suppliers, 60 Tier 1 manufacturers and several heavy-vehicle original equipment manufacturers. These companies exported $3bn of auto parts in 2012 and an estimated $1.8bn between January and August of 2013. The sector’s future appears secure. Querétaro’s auto plants employ at much lower rates than would be demanded in the US and workers are in short supply in the towns surrounding Santiago de Queré- taro. Light vehicle plants, which are potential customers for Querétaro’s suppliers, are proliferating throughout Mexico and are showing increased resilience to frequent fluctuations in demand for new cars in the US due to a diversified export base and the increasing number of off-warranty vehicles on US roads.

Mabe, Dongbu Daewoo Electronics and Samsung dominate the state’s electronics manufacturers, which accounted for 4.6% of its economy in 2013. These three firms primarily make household electronics, including refrigerators and washing machines, for sale within Mexico and export to markets in the US and Latin America. Fluctuations in international demand have negatively affected some of the electronics producers, but the state remains competitive, accounting for around 15% of Mexico’s household electronics output. Food and beverage is Querétaro’s other legacy economic sector (see analysis), with its roots going back to the 1950s, when Kellogg’s built a cereal factory in the state.

AGRICULTURE: The mainstays of Querétaro’s agriculture sector are milk, poultry and greenhouse cultivation of tomatoes and vegetables. Agriculture has lost ground in terms of share of state GDP in the past few decades as manufacturing has expanded, but the sector’s average growth rate is still robust. In 2012, the last year for which figures are available, agriculture contributed 2.5% to GDP. Between 2003 and 2012, the sector grew at an average annual rate of 8%. However, this growth has been uneven. In 2005, 2008 and 2009 the sector contracted, while in 2012 it grew 33%.

Several categories have contributed to the recent growth. According to the state’s Ministry of Agricultural Development, in 2013 Querétaro became Mexico’s leading producer of poultry meat by volume, accounting for 11% of the national total. It ranks fifth in terms of value, producing roughly $420m worth of meat per year. Also in 2013, a multi-year private investment in egg production was initiated, which should bring the state’s daily production to 70,000 eggs. Another contributor to growth, and perhaps the most important one, has been the protected agriculture, or greenhouse, segment. This capital-intensive business has been growing throughout Mexico for decades as investors have sought to take advantage of seasonal price fluctuations in the US produce market.

REAL ESTATE & TOURISM: Immigration to the state and the workforce’s increased buying power have led to new real estate development, especially around Santiago de Querétaro. The metropolitan area consists of three main municipalities: Santiago de Querétaro, El Marqués and Corregidora, with populations of approximately 800,000, 115,000 and 145,000, respectively, according to data from the 2010 census. Construction on residences for all segments of the market is ongoing in all three cities, catering to the estimated 40 new families that arrive in the state every day. The luxury housing market has expanded especially quickly, with condominium high rises going up in Santiago de Queré- taro and the surrounding cities, and new developments of expensive single-family houses are planned.

The state’s services sector, which comprises slightly less than 3% of the economy, is focused on business travellers. Santiago de Querétaro’s hotels tend to be busiest from Monday to Thursday, rather than weekends. As of early 2014, new hotels, such as a Marriott, a W Hotel and about a dozen others, were in the pipeline.

OUTLOOK: Querétaro appears poised to continue experiencing steady growth driven by manufacturing in the coming years. Its most attractive features for industry are primarily related to geographic links and its workforce, which are unlikely to change in the foreseeable future. The challenges the state faces are either surmountable or shared by other Mexican states, which means that, at the very least, they do not place Queré- taro at a competitive disadvantage. As the press and the Mexican government itself have emphasised, Querétaro is a state to watch as an economy in its own right and as an example of the path Mexico may follow.

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The Report: Mexico 2014

Querétaro chapter from The Report: Mexico 2014

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