Guanajuato continues on path of economic expansion and diversification

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%. Overall, Guanajuato reported the sixth-highest increase in per capita GDP of any state in Mexico between 2013 and 2016. The state’s per capita GDP increased by 5% over the period, double the national average of 2.5%.

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.

Manufacturing

The main driver of the local economy is manufacturing, with the sector accounting for more than 38% of its economic output, according to the National Statistics and Geography Institute. In addition to being Guanajuato’s most important economic sector, the manufacturing industry is also one of the state’s most dynamic. Over the decade leading up to 2016, industry and manufacturing expanded at an average annual rate of 4.8%. Furthermore, the expansion of manufacturing has brought numerous ancillary benefits. For example, the transport, real estate and services sectors have all grown substantially as a result of the increased investment in industry.

Geography & Climate

Agriculture is another important economic sector for the state. Having a temperate climate that averages 18°C annually – hitting monthly average lows of 5°C in January and highs of 30°C in May and June – and an average annual rainfall of 650 mm per year, Guanajuato’s geography and climate present favourable growing conditions. In total, the state produces crops worth more than MXN40bn ($2.2bn) per annum. Traditionally, Guanajuato’s main agricultural outputs have been strawberries, grains and beef, but over the last two decades the state government has worked to help local farmers shift towards higher value-added crops. As a result of diversification efforts, Guanajuato is now Mexico’s top producer of broccoli, cauliflower, anise, barley and artichokes.

Located in the heart of Mexico’s central Bajío region, Guanajuato is surrounded by San Luis Potosí to the north, Jalisco to the west, Querétaro to the east and Michoacán to the south. Guanajuato’s territory spans more than 30,500 sq km, accounting for less than 1.6% of Mexico’s total land mass.

History

The state’s main sources of revenue have evolved over time. During the pre-Hispanic era, the territory that is now Guanajuato was inhabited first by a farming-focused civilisation under the Toltec empire, and later by a diverse group of nomadic tribes. The arrival of the Spanish in 1522 led to the introduction of large-scale mining operations, with these initially relying on workers that were brought in from other areas. The capital of the state, Guanajuato City, was founded in 1548 and quickly emerged as the state’s major centre for mining. León, the state’s largest city with over 1.6m residents, was founded some years later in 1576.

Throughout the 1600s and 1700s Guanajuato’s economy was dominated by mining. During the 1700s Guanajuato’s population expanded from 58,000 to just over 190,000. Throughout the 1700s and 1800s Guanajuato was defined by immense class divisions and the absence of a strong middle class. By the late 18th century wealthy landowners had begun developing large-scale commercial agriculture operations, though these were disrupted in 1810 when a violent peasant uprising against Spanish colonial rule broke out. Mexico declared independence 11 years later, and Guanajuato then became a state in the newly independent Mexican republic in 1824. By 1838 the state’s population had topped 513,000.

From the 1860s until the Mexican Revolution in 1910, the state government had invested in railway construction and supported continued expansion of mining and agricultural operations. During this period large landowners ramped up their production output, giving Guanajuato the reputation of being the “granary of the republic”. However, over the subsequent decades economic development was interrupted by political turmoil across Mexico and an invasion by US troops in 1914.

20th Century

While the decade-long Mexican Revolution and the Great Depression after that dampened economic prospects, in the post-Second World War era the federal government implemented a bold growth strategy focused on industrialisation and protectionism. During this time Guanajuato’s economy remained mainly focused on agriculture, and for most of the 20th century Guanajuato was slow to diversify its economy, mostly sticking to its traditional industries of grain production, crafts and leather goods. The majority of residents worked on small family-owned farms or in unstable jobs in the informal economy. This deficit of secure jobs pushed many to migrate to the US in search of work. However, an economic boost for the state came in 1950 when Mexico’s parastatal oil company, Petróleos Mexicanos, opened what was then the largest refinery in Latin America in the city of Salamanca.

Nevertheless, Guanajuato was still largely dependent on agriculture for jobs and revenue at this time. While the state lacked significant employment opportunities in the formal sector, Guanajuato’s population expanded from 1.3m in 1950 to 3m in 1980. The shortage of employment prospects fast became problematic for the growing population. From the mid-1980s to the early 1990s Mexico’s experiment with import substitution came under increasing stress. In response, state leaders lowered tariff barriers and shifted to an export-oriented growth model. The 21st century model of export-led industrialisation spurred a new influx of investment.

Since the 1980s an impressive amount of new infrastructure has been built, and the authorities have succeeded in attracting investment and developing a consolidated industrial sector. Since the North American Free Trade Agreement came into effect in 1994, Guanajuato has created hundreds of thousands of jobs in the formal sector, resulting in the emergence of a modern middle class. Today, the state is home to a cluster of modern industrial parks, a dry port, a thriving automotive sector, an international airport, and a continuously expanding network of roads and railways.

Politics

Guanajuato is one of 32 autonomous entities that comprise Mexico’s federal system. Residents in Guanajuato, like other states in the country, elect a new governor to serve a single term of six years. The unicameral state legislature and municipal authorities, meanwhile, are elected for three-year terms. Under a set of constitutional reforms that were passed by Mexico’s Congress in December 2013, state legislators and local authorities may run for re-election. Local leaders may now be re-elected to a second term in municipal office and up to four terms in the state legislature.

In 1991 Guanajuato became one of the first states in Mexico to turn away from the Institutional Revolutionary Party (Partido Revolucionario Institucional, PRI) – a party that had controlled the federal government from 1929 to 2000, as well as most state and municipal governments during that time – by voting in a governor from the centre-right National Action Party (Partido de Acción Nacional, PAN). During the 1990s governors Carlos Medina Plascencia and Vicente Fox catalysed Guanajuato’s transformation into a modern industrial economy, and the PAN has continued to dominate the state’s political sphere since. In 2012 Miguel Márquez from the PAN was elected state governor; his term ends in September 2018. Another PAN candidate, Diego Rodríguez Vallejo, became governor-elect in July 2018.

Population & Workforce

As of 2017 Guanajuato had an estimated 5.9m residents, equivalent to 4.8% of the country’s population. Among Mexico’s states, Guanajuato has the sixth-largest population, and with a population density of over 179 residents per sq km, it is also the sixth-most densely populated state. Just under 40% of the state’s population lives in cities that have more than 100,000 residents. The state’s biggest municipalities are León, Irapuato, Celaya, Salamanca, Silao, Guanajuato City, San Miguel de Allende and Dolores de Hidalgo. All of the main population centres are easily accessible by motorway.

Guanajuato is in the midst of a demographic boom, with the bulk of the state’s population now of working age. The median age in Guanajuato is 24, two years lower than the national average of 26. The state also benefits from having a large labour force that is concentrated in a relatively small geographic area. There is also a sizeable skilled labour force with a large segment of specialised, technically trained workers. As of 2015 over 64.5% of the state’s residents are of working age (15-64 years old), up from 62.7% in 2010. Guanajuato has a birth rate of 2.1, slightly higher than Mexico’s national average of 2.0, but lower than the state’s previous rate of 2.3 recorded in 2005. As is the case in the rest of Mexico, birth rates today are significantly lower than those recorded in the mid-20th century.

As of March 2018 about 2.63m people over the age of 15 are economically active, of which 2.53m are employed, according to the national Ministry of Labour and Social Welfare. Unemployment in Guanajuato stands at 3.4%, slightly above the national average of 2.9%. At the close of 2017 the informal labour market in Guanajuato accounted for 55.8% of the labour force, slightly below the national average of 57%: over 627,430 people are employed in industrial manufacturing, accounting for nearly 24% of the state’s workforce, while 476,051 residents, or some 18% of the labour force, are employed by the retail sector, followed by 261,867 people in agriculture and 241,342 people in construction.

While Guanajuato has hundreds of thousands of experienced workers, the large pool of informal economy workers creates constant competition for entry-level jobs. It also allows industrial employers to avoid raising wages paid to employees. According to government statistics, more than 12% of the labour force in Guanajuato earns the minimum daily wage of MXN88.36 ($4.77). Guanajuato also has a relatively strong upper middle class of professionals. Over 17,747 people in Guanajuato earn annual salaries of around $9690, which is worth approximately 10 times more than the minimum wage salary.

Education

Guanajuato has a strong public education system at the primary and secondary levels, and a solid base of technical schools and universities at the tertiary level. The state has a literacy rate of 94.5%, just below the national average of 95.3%. In the 2016/17 school year Guanajuato’s public system had 1.33m students studying at 10,608 primary schools, 233,855 students at 1217 high schools and 150 technical schools with 131,815 students. There were also 69,932 students studying at private high schools. In the 2017/18 school year, Guanajuato’s enrolment rate for basic education – where students are aged 3 to 14 – was 97.1%, above the national average of 95.7%. However, the state’s rates drop below national averages at the higher levels, falling to 60.9% compared with 64.4% for students aged 15 to 17, and 29.5% against 38.4% for students aged 18 to 22 in 2017/18 school year.

Guanajuato has a number of universities, including the University of Guanajuato, the National Polytechnic Institute and the Technological University.

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The Report: Mexico 2018

Guanajuato chapter from The Report: Mexico 2018

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