Mexico, or the United Mexican States, is the second most populous country in Latin America with over 123 million people. A stable democracy, it has the second highest GDP in the region, after Brazil. Administratively, Mexico is a federation made up of 31 states. Its capital, Mexico City, is home to 20 million inhabitants.
Mexico’s US$1.3 trillion economy has become increasingly oriented toward manufacturing in the twenty-plus years since it joined NAFTA. At the same time, services are now a growing component of the economy, making up roughly 60% of GDP in 2013, followed by industry at 37%, and agriculture at slightly more than 3%.
Per capita income is one-third that of the U.S., at around US$15,600. Some 45% of the population is considered middle class, with 78% living in urban areas. Mexico’s comparatively young population has a median age of 27.
The U.S. is by far Mexico’s most significant trading partner, taking almost 80% of its exports and supplying 50% of its imports. For the U.S., Mexico has become its second largest export market and third largest source of imports.
The European Union is another critical trading partner for Mexico. EU countries are now its second biggest market after the U.S. and its third largest source of imports after the U.S. and China.
As a way to boost economic performance and attract more foreign investment, Mexico recently undertook a series of economic reforms focusing on financial regulation, taxation, anti-trust, energy, and telecommunications. Some of these were part of the broad “Pact for Mexico,” an initiative kicked off by Mexican President Enrique Pena-Nieto in 2012 aimed at improving competitiveness and economic growth across the Mexican economy.
The Pact’s key reforms include constitutional amendments aimed at increasing competition, enlarging the country’s tax base, and easing foreign investment, particularly in energy and telecommunications.
In the energy sector, Mexico’s state-controlled oil company, Pemex, previously had a monopoly on all hydrocarbon activity in the country. New legislation will allow the country to partner with private sector firms and open up some of the country’s oil fields to outside exploration and development.
The country’s massive telecommunications sector was another target of recent legislation. New reforms should improve competition and diminish concentration in the sector through the creation of a constitutionally independent regulator with authority to order divestitures, enforce regulations, and apply targeted sanctions on companies it regards as dominant in the market.
One program that should further strengthen Mexico’s economic foundations while spurring foreign investment is the new “National Infrastructure Plan,” announced in April 2014. The plan aims to build up Mexico’s transportation, water, energy, health, urban development, communications, and tourism sectors with an investment of US$586 billion. As these projects take shape, market opportunities should develop in major projects, sub-contracts, and sales to Mexico’s federal government.
A unique feature of Mexico’s economy is its so-called “maquiladora” industries located along the U.S.-Mexico border. This industrial belt will continue to provide U.S. and other foreign businesses with increasing alternatives to Asia-based manufacturing and opportunities to sell into regional supply chains. Labor rates there are competitive with China, and a robust logistics network allows rapid transit of goods to consumers.
In the coming years, wider reforms will be needed, however, if Mexico is to boost economic growth, further liberalize its economy, and gain a competitive edge against its neighbors. In particular, it will need to boost its IPR protection (it was on the U.S. government’s IPR “watch list” in 2014) and reverse the high degree of market concentration in key industries, including telecommunications, electricity, television broadcasting, petroleum, beer, cement, and tortillas, where one or two dominant companies with sufficient market power continue to restrict competition.