PRODUCTIVE NUMBERS

Mexico 2018 | INDUSTRY | REVIEW

Numerous trade agreements, combined with a skilled workforce and a diversified high-tech oriented economy, ensure Mexico's international industrial pedigree.

Mexico's 2017 GDP printed at USD2.4 trillion, exceeding NAFTA partner Canada's USD1.6 trillion, albeit well shy of its immediate northern neighbor's USD17.9 trillion. And it is clearly not resting on tequila and tourism; industrial prowess is evident from several key numbers. First is Mexico's ranking as the world's 13th-biggest exporter. Mexico produces and exports the same product volume as Latin America combined, where foreign trade accounts for more of GDP than any comparable large nation (66%). It realizes 90% of its trade through 12 free trade agreements signed with 44 countries. Tellingly, last year, 81% of exports went stateside.

Trump Drives Hard Bargain

It seems that the Trump administration aims to leverage this overwhelming dependency, not least since commerce has more than tripled with both the US and Canada since NAFTA kicked off in 1994. In early May Mexico's auto industry rejected the latest US NAFTA-related proposal. It required 40% of parts used in light vehicles and 45% of those used in pickup trucks to originate in high-wage countries: namely, US production lines. The long and short of the proposal is that 75% of all components in a vehicle (up from 62.5%) should be North American-made to qualify for tariff-free importation. The stakes are high, and in 1Q2018 Mexico produced 963,216 vehicles (YoY down from 966,982), with 71.6% exported to the US (73.6% 1Q2017). Mexico had become the world's seventh-biggest auto producer by 2015 and has overtaken Japan as the second-largest US auto parts exporter. In March 2018 local auto production shed 10.9% YoY to 331,100 vehicles, having climbed 6.2% in February. Local volume is matched by skill. Hiroshi Shimizu, the President of Honda de México, revealed that the firm's “Celeya manufacturing plant is one of the most advanced transmission manufacturing facilities in the world.”

Manufacturing

Economic transformation has come from diversified manufacturing capabilities, besides automotive, notably electronics, including most flat screens in the US, aviation, and medical technology. Mexico's primary export is manufactured goods, followed by silver, fruits and vegetables, coffee, and cotton. David Gold, General Manager of consumer durables and electronics manufacturer Hisense Mexico, explained how, “There is a well-established supply chain in Mexico (where) raw materials and many other components can be purchased.” In February 2018 industrial production rose 0.7% YoY after January's 0.8% climb, having averaged at 1.79% from 1980 to 2018, peaking at 23.82% in October 1996 and troughing at -17.5% a year earlier that month. Capacity Utilization in February 2018 slipped 1pp to 81% MoM, shy of a historic high of 82.50% in November 2017. For February manufacturing production rose 0.9% MoM.

BPO & ICT

In high-tech products and services the numbers once again speak for themselves, as Mexico's IT business process outsourcing (BPO) industry is on a high, fueled by a highly skilled and competitive workforce. From 2012 to April 2018 the sub-sector has seen 11% CAGR and seems set for a year-end value of USD26 billion, outpacing Latin America overall. Around 1,000 engineers graduate per year, many of whom fuel a burgeoning start-up industry attractive to foreign venture capital in a more welcoming investment and regulatory environment. Mexico boasts 30 tech-parks in 20 states and 32 tech-clusters in 26 states. 560,000 ICT professionals contribute to a sector generating north of USD2 billion annually. Mexico is also the world's third-largest exporter of IT services, while high-tech product exports comprise 19.3% of GDP and 80% of the Latin American total.

Oil & Energy

Despite the new oil price paradigm, Mexico remains the eighth-largest producer in the world at almost 3 million bbl/day. State oil enterprise Pemex, which has shed employees as prices slumped, owns the vast Sen field. Since liberalization four years ago, over 100 exploration and exploration deals have been penned, although investment has been labeled short term rather than developing new fields. Electricity, too, is earmarked for privatization.
Oil prices and Washington's industrial priorities aside, Mexico remains an industrial powerhouse suitably oiled for the demands of tomorrow.