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4.1 An Overview of the Mexican Economy

Main Macroeconomic Indicators

 

2005

2006

2007

Population (million of inhabitants)

103.9

104.9

108.7

Gross domestic product (US$ billion)

768.2

839.4

902.3

GDP per capita (US$)

7,400

8,000

8,500

Real GDP growth (%)

2.8

4.8

3.3

Consumer prices (year-on-year % change)

4.0

3.6

3.8

Exports of goods (US$ billion)

214

250

272

Export growth (%)

+14

+17

+9

Imports of goods (US$ billion)

222

256

283

Import growth (%)

+13

+15

+11

Average exchange rate (Mexican pesos (Mx$) per US dollar)

10.9

10.9

10.9

Source: INEGI, BANXICO, Central Bank of Mexico, HSBC

Since the implementation of the North America Free Trade Agreement (NAFTA)[1] in 1994, Mexico has transformed itself into an economic powerhouse in Latin America. Its pursuit of a progressively export-oriented trade policy, together with the extensive foreign investment stemming from NAFTA, has given a strong economic boost to the industrial development of Mexico. Being an economic dynamo, the export-led manufacturing sector has not only expedited the growth of Mexico’s external trade, but also that of the inflows of foreign investment. Standing as a prominent gateway to the gigantic US market, Mexico has enticed many international corporations eyeing the US market to establish production facilities to benefit from cheaper cost of production and NAFTA’s preferential treatments. Since the implementation of NAFTA, Mexico has attracted a total foreign direct investment of US$239 billion, averaging about US$17 billion per annum. In 2007 alone, Mexico received FDI of some US$23 billion, with nearly 60% coming from the US (57%) and Canada (3%), and 47% investing in the manufacturing sector in 2007.

Having said that, Mexico’s strengths lie mostly in the production of crude oil, automobiles, television equipment and office machines. Against this backdrop, many Hong Kong consumer products such as electronics, clothing, toys and games, jewellery and timepieces are competitive and in good demand in Mexico. With a population of 109 million inhabitants, Mexico is the second largest market in the Latin America, behind only Brazil. In fact, Hong Kong’s trading relations with Mexico have grown fairly speedily in recent years. Over the period 2003-2007, Hong Kong’s total exports to Mexico soared by 74% or a compound annual growth rate (CAGR) of 15% between 2003 and 2007, while total imports from Mexico grew by 69% or a CAGR of 14%.

Furthermore, despite its high commercial dependence on US demand (85% share of Mexico’s total exports in 2007), Mexico has bent its efforts to diversify its export destinations and developed a network of FTAs with more than 40 countries. This growing trade openness has buffered Mexico against the regional economic crisis prevailing in Latin America at the beginning of the century. Subsequent to the bottoming out of the regional economy in 2002, Mexico recorded stunning growth of 65% in foreign trade during the period 2003-2007. Also worth noting is that although China, in the meantime, accounts for only about 10% of Mexico’s imports, its share is expected to meliorate in the coming years, following the recently signed bilateral AD agreement and the subsequent reduction or wavier of anti-dumping duties against Chinese products.

 

All in all, no wonder Mexico will suffer from the uninspiring US demand in coming years, Mexico’s enormous consumer base, together with the recent bilateral agreement on the wide array of Mexico’s anti-dumping measures imposed on Chinese products six years after China’s accession to the WTO, will definitely provide new trade opportunities to Hong Kong exporters over the medium to long term.  

Cities in Focus

Inhabited by nearly 20 million people, Mexico City presents the largest consumer market to Hong Kong companies. Not only is it the capital city of Mexico, but also the most populous and important economic and industrial hub for business solicitation and market promotion in Mexico. Besides, Guadalajara and Monterrey are the other two promising cities that Hong Kong traders should be more attentive to. Specifically, well-known for its business-friendliness, Guadalajara offers considerable potential for traders of electronics, while Monterrey is a prime location for traders eyeing not only the Mexican domestic market, given its proximity with the US-Mexican border.

 

Major Cities in Mexico

City

State

Population

Mexico City

Federal District

19,231,829

Guadalajara

Jalisco

4,095,853

Monterrey

Nuevo León

3,664,331

Puebla

Puebla

2,109,049

Toluca

Mexico State

1,610,786

Source: Census

Mexico City

Mexico City is usually the first name to pop up when people speak of business and foreign trade in Mexico. Situated in the central-south of Mexico, in addition to its status as the country’s capital, Mexico City is one of the most important economic hubs among São Paulo, Buenos Aires and Santiago in Latin America. Accounting for more than 25% of the country’s GDP, Mexico City rather than the whole Mexico seems to be the very market that possesses the appropriate purchasing power for Hong Kong products. According to Liverpool, one of the major players in the Mexican retail sector selling mainly mid-to-high-range products to higher income consumers with average monthly income over US$1,500, most of the higher income consumers are residing in Mexico City.

Moreover, the city has the best infrastructure and facilities in the country for retail, wholesale and foreign trade. Shopping malls, chain stores, hypermarkets, supermarkets, small convenience stores as well as the gigantic Central Supply Market give shape to the enormous metropolitan trading and commercial system, not to mention its close connection with the port of Manzanillo – the most important distribution hub in Mexico. Owing to its advanced infrastructure for trade and commerce, Mexico City has attracted many prominent companies, such as General Electric, Motorola, Siemens, HSBC and Wal-Mart to set up their regional headquarters and bases of operations. Aside from the aforesaid, Mexico City is also home to the Mexican stock exchange (Bolsa Mexicana de Valores), which is considered one of the busiest stock exchanges in the region in terms of volume of transactions.

Another point worth noting is the dynamism coming from the fast-growing Santa Fe District in the western part of the city. As a symbol of modernisation and one of the safest areas to do business in Mexico, the Santa Fe District is fast emerging as a financial and commercial zone in Mexico City. Meanwhile, the district is renowned for its modern retail development. In particular, it is home to the largest shopping complex in Latin America – the Santa Fe Shopping Mall – which attracts a steady flow of visitors of over eight million people every year. Riding on its superb location and the government’s careful land-use planning, the Santa Fe District is fast gaining popularity among international companies. Nowadays, companies based or headquartered in the district include Chase Manhattan, Citibank, Microsoft, Disney Consumer Products, Federal Express, Mobil Oil, Procter & Gamble and Tupperware.

Guadalajara

Located in the central region of the state of Jalisco, Guadalajara is the second most populous city in Mexico with a population of over four million. According to fDi magazine, Guadalajara is recognised as the “city of the future” over other major Mexican cities, and has the second strongest economic potential among other North American cities (after only Chicago). Topping the rankings of the most business-friendly Latin American cities in 2007, Guadalajara is also dubbed as the “Silicon Valley of Mexico”. In particular, Guadalajara is the national leader in the electronics industry, where many internationally well-known high-tech players such as HP, IBM and Intel have established production facilities, producing mainly software, electronic and digital components. Aside from electronics, the sizable textile industry together with the fast-growing fashion industry forms another eye-catching sector in the city. Among many others, the city’s major industries include also footwear and leather products.

Also noteworthy is the city’s fast-paced advancement of modern retail and construction. Guadalajara spearheads the development and investment in shopping malls in Mexico, agglomerating many shopping centres, including Plaza Galerias, which is one of the largest shopping centres in Latin America. Meanwhile, Guadalajara is undergoing fast infrastructure development, and is going to be home to Torrena, the tallest building in Latin America expected to be completed 2009.

 

Monterrey

Inhabited by a population of more than 3.6 million, Monterrey is the third most populous city in Mexico and the capital of the state of Nuevo León. In view of its massive steel industry, Monterrey used to be referred as “the Pittsburgh of Mexico”, but that industry has been replaced by machinery, processed food and metal parts in recent years. It is estimated that the city’s per capita output is the largest among all Mexican cities, while its per capita income is the second highest in the country behind only Mexico City. Ranked as one of the top five cities to do business in Latin America by the America Economia magazine, Monterrey is nowadays one of the most important cities in attracting FDI in Mexico, currently accommodating about 2,000 foreign companies.

In addition to everyday wheeling and dealing, Monterrey, characterised by modern industrial and business clusters, is fast gaining popularity as a city for meetings and conventions. This not only helps diversify the city’s economy, but also makes it an excellent place to network with businesspeople from all over Mexico and Latin America. In particular, riding on its proximity with the US-Mexican border, Monterrey is widely considered a city of strategic importance in developing trade with the US.


[1] Effective since 1 January 1994, NAFTA is an expansion of the Canada-US free trade agreement of 1988. It has eliminated most of the tariffs previously imposed on merchandise trade among the US, Canada and Mexico, and gradually phased out others over a 15-year period. In terms of combined GDP of its members – the US, Canada and Mexico – NAFTA formed the world’s largest trade bloc in 2006.

Content provided by Hong Kong Trade Development Council
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