The American Chamber of Commerce released a report regarding Mexico in June of last year, entitled: Foreign Direct Investment in Mexico: Is Your Investment Safe? It was exceptionally positive and lucid report, especially when compared to how mainstream media has been portraying the country recently. Its a long report, but here are some of the highlights.
The Mexican government is engaged in a vital effort to disrupt and dismantle drug cartels. The military has been called in, local police are being reorganized, retrained and purged of corrupt elements, and changes have been made to streamline criminal trials.
The result has been an unprecedented number of arrests, extraditions, prosecutions and large-scale seizures of drugs, weapons, cash and assets. These efforts have also led to increased violence as criminal gangs confront government forces and battle among each other for control of key territory. These events have been widely publicized on both sides of the U.S.-Mexico border. The media coverage, however, often fails to provide sufficient context.
Isn’t that the truth…
AMERICAN CHAMBER OF COMMERCE OF MEXICO (AMCHAM) is aware that the perceptions of Mexico as a place to live, work and do business are very often at odds with the reality. Since joining NAFTA, Mexico has developed a stable market economy, now the eighth largest in the world, and enjoys a solid record of macro-economic success. The middle class is now the largest socio-economic group in the country. In addition, China’s low wage advantage has all but disappeared while transportation costs have soared. As a result, Mexico with its myriad of free trade agreements, is perfectly positioned to serve as an export platform for manufacturers. In 2010 alone, a number of foreign companies have announced investment plans involving hundreds of millions of dollars to create or expand productive capacity in Mexico or to serve the burgeoning middle class. Mexico is a strategic economic partner of the U.S.
AMERICAN CHAMBER/MEXICO is committed to working with Mexico in its efforts to reduce crime, to create more and better economic opportunities for its citizens, to improve transparency and the rule of law, and to promote greater integration between our two nations.
AMERICAN CHAMBER/MEXICO believes that while the recent spate of insecurity has put a cloud over Mexico’s business climate, Mexico remains an excellent choice for investors: the country has a strong and growing internal market, offers a competitive manufacturing environment with excellent geographic location and has solid macro-economic fundamentals.
Mexico’s most recent economic difficulties were not of its own doing. Unlike the U.S. and Europe, Mexican financial institutions did not engage in reckless less lending practices. To the contrary, the Mexican banking system is very sound. In fact, Mexico has been a model of economic stability since at least the early 1990’s. And with an average per capita income of over $7,800 USD, Mexico is considered a relatively wealthy country by World Bank standards.
Indeed, Mexico has run a responsible macroeconomic policy for the last several years. The country has more free trade agreements than any other country in the world. Moreover, tariff average rate (from 11% to 5%) to the rest of the its accumulated foreign reserves have helped Mexico weather this economic downturn. At the same time, the of this was accomplished while also transitioning to a representative democracy after 70 years of single-party rule. Not many countries could have accomplished such a feat.
There are a number of reasons to be positive about the prospects for economic growth and stability in Mexico.
- First, Mexico enjoys enormous benefits owing to its proximity to the United States. Geography will become even more pronounced as manufacturers move away from outsourcing and embrace near sourcing, while China continues to lose its once considerable cost advantage.
- Second, NAFTA offers legal protection to US investors in Mexico that operates independently from the domestic legal system.
- Third, Mexico has a young, hardworking and well trained labor force; in fact, according to Engineering Trends, Mexico graduates more engineers per capita than Brazil, China and even the U.S.
- Fourth, Mexico and the U.S. enjoy strong cultural and business linkages.
- Finally, the Mexican government has implemented a number of initiatives designed to enhance Mexico’s competitive position. The National Infrastructure Program will upgrade the country’s railroads, highways, energy sector and ports. Antitrust legislation will reduce the power of long-standing monopolies and Mexico will continue down the path of greater transparency and more effective legal regimes including the protection of intellectual property rights.
I’ll be posting more from the report over the next week.