The COVID-19 virus has spread with alarming speed and its impact on the global economy continues to be calculated as nations voluntarily impose restrictions on economic and social activities. Apart from the lives lost, the fallout from the pandemic will lead to a recession as most nations’ economies shrink with production reduced and high unemployment. As nations and companies work to diversify their global supply chains and trade relations, economic activities would gradually readjust and the recovery will follow, though it will be a slow and gradual process.
Mexico has not been immune to the effects of the pandemic. The human cost of the virus has been high and the economy is likely to shrink between 4 to 8 per cent according to the Bank of Mexico. Nonetheless, the government hopes to make a full economic recovery by 2022. The Mexican economy has the advantage of being near the United States of America. The two are close trading partners with the new USMCA trade agreement strengthening economic relations. Apart from the U.S., Mexico also has strong trade linkages with its neighbours in the region through the Pacific Alliance and with the international community through the G-20 and OCED etc.which will further help to boost the recovery process.
As nations look at a world post-pandemic and identify sectors that are going to help them jump-start the economic process in the best way, I identify four sectors that have the potential to emerge as the new drivers of the Mexican economy. Not only do they provide growth opportunities but are also likely to attract foreign direct investments into Mexico.
Emerging Sectors within the Mexican Economy
Medical Device Manufacturing
The pandemic has increased the demand for quality medical equipment and supplies. Mexico is home to some of the most prominent manufacturers of medical equipment such as Boston Scientific, Johnson & Johnson, GE, Tyco, Siemens and Cardinal Healthcare, Becton Dickinson, 3M, Stryker Incorporated and others. The medical device industry in Mexico is also supported by globally known major and mid-size Emergency Medical Service (EMS) service providers that dedicate a significant portion of their production to medical device customers, as well as contract manufacturers of medical devices. Mexico produces the whole spectrum of medical products from needles, surgical kits, medical gowns to larger equipment such as pacemakers and respirators. Mexico produces FDA Class I, II, and III medical products, which are subject to the same safety regulations as those manufactured in the U.S. A skilled workforce, proximity and competitive wage structure will propel continued growth in medical device manufacturing in Mexico. Proximity to the U.S., the largest consumer of medical devices and home to many life science companies and research organizations is an added advantage. In 2018, Mexico exported more than USD 9 billion in medical equipment and supplies, with projections from INEGI (Instituto Nacional de Estadística y Geografía) placing that closer to USD 15 billion by the end of 2020. It is an industry which employed nearly 134 thousand people in 2018 up from 125.59 thousand employees registered in 2016. The sector is one of the fastest-growing in the Mexican economy and the near future could be an important industry to help the Mexican economy regain its strength.
The aerospace industry in Mexico is young and dynamic. The government’s 2012-20 Strategic Aerospace Programme, Pro-Aéreo, aims to position Mexico within the top-10 countries in aerospace exports, creating more than 100,000 direct jobs and increasing the national content of goods manufactured for the aerospace industry to at least 50 per cent. According to trade and investment promotion agency ProMéxico, growth in the aerospace industry is expected to focus on the introduction of advanced manufacturing practices. As air travel becomes more common it will increase the demand for aircraft, along with this we have military and space aspects to this industry as well, which would be beneficial to Mexico. As a location of low-cost manufacturing, high human resources capabilities and proximity to significant trade markets, major global firms have continued to invest in plants, research centres and infrastructure in Mexico. It is expected that USMCA would open more opportunities for Mexican manufacturers to collaborate and work with American and Canadian companies. To promote the continued growth of aerospace manufacturing in Mexico, the country’s leaders have committed themselves to enhance human resources for this industry. More educational resources dedicated to aerospace studies are producing quality and skilled workforce. It is a high-end industry which will attract higher wages for its citizens.
Automobile manufacturing is the workhorse of the Mexican economy. As manufacturers from Canada and the U.S. find advantage in manufacturing in Mexico it has become the hub for manufacturing both parts and products. Japanese and Korean companies also operate from Mexico. More than 300 companies are part of the industry and Mexico is one of the top exports of cars and car parts, (Cars-11% and auto parts -7 % approx. are a major part of Mexican exports) providing more than 800 000 direct jobs. This industry, which is the second largest after food production, accounts for 2.9 percent of Mexican GDP and is likely to grow shortly. The advantages for international firms to come to Mexico are many; chief being it is well-known for its availability of experienced and skilled workers at cost-effective wages. Also, the country’s strong support network of suppliers ensures the production of high-quality goods attracting more international companies to explore options. Mexico’s proximity to the world’s largest vehicle importer and government incentives have added to its appeal as a manufacturing location. The signing of the USMCA has brought stability to the industry with a reduced threat of U.S. sanctions, streamlined the process of export and import between the two nations while reducing ambiguity and boosting investor confidence
For the above two sectors, Mexico’s proximity and good relations with its southern neighbours provide another advantage. Trade agreements with the countries of Latin America and the availability of skilled bi-lingual workforce have meant that it is easier for international companies to penetrate these markets by making Mexico their base of operations.
Financial Technology (Fintech)
Mexico is one of the upcoming international destinations in Latin America to expand a foreign fintech startup. In recent years, Mexico’s FinTech industry grew at a rate of 50-60 per cent and consequently attracted many new players. Mexico has put itself on the map to stimulate the FinTech innovation ecosystem and today, has close to 273 FinTech setups in the country. FinTech companies offer a wide range of financial services and operate within several markets, providing both individuals and businesses with services and solutions. E-payments, international transfers, mobile banking and payment platforms are the most viewed aspects of this industry. It also includes risk assessment, cybersecurity, digitization of financial entities among a host of other services. Understanding the potential of the industry, in 2018, Mexico introduced the ‘fintech law’. It offered a framework for regulating digital financial products, such as crowdfunding and electronic payment software, as well as a formal process for registering and operating a fintech firm. The goal of the fintech law was to help bring more people into the formal economy and reduce the dependence on cash. As Mexico remains a cash-based economy with a large population with limited access to banks, the potential for the fintech industry to grow is immense. Over the past year, many of Mexico’s fintech have also attracted significant investment. In May 2019, Japan’s Softbank Group invested approximately USD 20 million in Mexican payments startup Clip, one of the first deals in its USD 5 billion Latin American technology fund. As more and more Mexican and Latin American populations come online, the demand for digital financial services is only going to grow. Mexico is poised to use its head start in the industry to cater to this need and provide technological and financial support to this new and emerging sector of the economy.
Mexico is a dynamic industrial power of Latin America. With an economy that is poised to grow despite external challenges and long-established trade relations with its neighbours, Mexico has emerged as a perfect partner for nations that would like to expand their reach to both the North American markets and Latin American economies. Its proximity to the largest consumption centres allows companies to respond easily to growing demands for their products. It is an attractive market for foreign investors and plays an active role in a multilateral economic organization such as the WTO, APEC, OECD etc. Mexico also has the advantage of a skilled workforce, natural resources and geographical positioning. Additionally, Mexico is characterized by its wide variety of natural resources, It is clear that Mexico offers interesting investment opportunities as an emerging market with promising growth prospects.