EAGLE ALIGHTS

Mexico 2014 | DIPLOMACY | YEAR IN REVIEW

Democratic, social, and institutional reform was the theme of 2013, taking place against a backdrop of slow but steady GDP growth.

Mexico is on the verge of a dynamic transformation under the Peña Nieto administration, which came to power in December 2012. Though these changes have yet to be implemented effectively, they are a clear sign of the course being followed by the government, which is attempting to tackle long-standing obstacles to growth such as education and informal economic activity.

The country occupies the southern cone of North America, attached to the US by a border of over 3,000 kilometers in length, the busiest international frontier in the world with approximately 350 million annual crossings. To the south, Belize and Guatemala are Mexico's other neighbors, with the latter running for around 870 kilometers and bears the bulk of traffic between Mexico and the Central American nations of El Salvador, Honduras, Nicaragua, Costa Rica, and Panama.

With extensive coastlines on the Pacific Ocean and the Caribbean Sea, Mexico has ample access to the rest of the world through its port infrastructure. These facilities are being expanded over the coming five years, with investment of $3.7 billion slated for their redevelopment. In addition, the country's railway system is being redeveloped, funneling $7.18 billion into passenger projects and yet more into linking the ports of Altamira and Manzanillo (Gulf of Mexico and Pacific Ocean respectively) with an enhanced cargo route. Mexico City's airport could be replaced by 2018 if plans go ahead, while heavy investment in the nation's roadways has emerged as another priority for the Peña Nieto administration.

Mexico has a diverse citizenry, the majority of which is mestizo (mixed Spanish and Amerindian) heritage, while a significant minority remains completely or predominantly Amerindian. Spanish is the sole language of over 90% of the country, but indigenous languages such as Mayan and Nahuatl are spoken, particularly in the southern states of Oaxaca, Chiapas, Campeche, Yucatán, and Quintana Roo. English is the most widely spoken non-native language. With a population of approximately 120 million, Mexico has a labor force of just over 50 million, and an unemployment rate of around 5%. Three-quarters of the workforce is employed by SMEs, in sectors as diverse as manufacturing, agriculture, tourism, mining, logistics, and other services.

The country's export sector was revolutionized in the 1990s with the signing of the North American Free Trade Agreement (NAFTA). This agreement has dominated the sector since, and opened the Mexican market to investment also. As part of the same drive, Mexico's outward looking free trade policy has led to the creation of numerous FTAs within the region and beyond. As part of the Pacific Alliance, a Latin American trade bloc with a focus on potential markets across the ocean, Mexico may also be expanding its trade in Asia through an expansion of NAFTA known as the Trans-Pacific Partnership (TPP), though its membership has yet to be finalized.

Mexico's GDP for 2013 was $1,260.91 billion, though growth slowed to 1.1%, the result of insufficient competition, contract enforcement, cumbersome regulations, and moderate growth in the US, the market with which it conducts the most business. One of the most persistent challenges facing the state is the widespread informality of the economy, which is being rectified through systemic reforms to the education and financial sectors. The construction sector, which represents a significant proportion of GDP, had a difficult year, though renewed government infrastructure spending will help it recover. Economic growth overall is expected to be improved by the historic liberalization of the energy sector, voted in by a majority of congress in 4Q2013. This bill is expected to increase revenue from taxes through the privatization of production.

The Pact for Mexico, signed in December of 2013, outlined a number of cross-partisan objectives for the bettering of society and the economy. The agreement's pragmatic focus on improving the lives of Mexico's citizens through more efficient economic activity and the encouragement of a competitive dynamism across all sectors has been seen in a broadly positive light.

As a result of this, and the continuing reforms, Mexico was given a Moody's Long Term Foreign Currency rating of A3 in 1Q2014, while S&P and Fitch upgraded the country's credit rating to BBB+ in the previous year. FDI inflows to Mexico reached $38.28 billion in 2013, a considerable improvement on the previous year's figure.

The groundwork laid down by Peña Nieto's government thus far into its mandate promises much for the short-term future of the country, and as reforms take shape and conditions improve, the nation's brand and image abroad will win over more investors than ever before.