Mighty Mexico: How a pauper nation became an OECD giant
 Mexico, living in the shadow of its Group of Seven NAFTA partners, Canada and the US is not poor relation widely supposed.
Far from it. By any standard Mexico is a major economic powerhouse, even putting itself ahead of China in living standards, having had a membership in the rich-man's club, the Organisation of Economic Cooperation and Development (OECD).
What's more, Mexico has 15 companies in the Forbes Global 2000 list of the world's largest companies.
Mexico's labour force is 52.8 million with a per capita income of US$16,900 a year, double that of China's. The OECD and WTO both rank Mexican workers as the hardest-working in the world in terms of the amount of hours worked. Unemployment rates are also the lowest of all OECD members at 3.2 per cent.
While less than two per cent of Mexicans live below the World Bank's international poverty line, the Mexican government estimates that 33 per cent of Mexico's population lives in poverty, assigning the bottom third that category as many OECD states do.
Today's Mexico is a nation of rapidly developing industrial and service sectors and increasing private ownership. Recent administrations have expanded competition in ports, railways, telecommunications, electricity generation, natural gas distribution and airports, with the aim of upgrading infrastructure.
As an export-oriented economy, more than 90 per cent of Mexican trade is under free trade agreements with the European Union, Japan, Israel, and much of Central and South America. The most influential, by far, is NAFTA since 1994.
In 2006, trade with Canada and the US accounted for 90 per cent of its exports and 55 per cent of its imports. Recently, the Congress of the Union approved important tax, pension and judicial reforms, and reform to the oil industry is currently being debated.
Given the terms of the Mexican constitution, the elected governing class, the President and the 800-member National Congress, though not the 128-member Senate, was elected in July. So while much has been said about the recent outcome, little can be known of even its short-term prospects until nearly all of its newly elected representatives gel into something recognisable as the Mexican government in months after the November inauguration.
Things were bad economically before the late 1920s. The period from 1930 to 1970 was dubbed by economic historians as the Mexican Miracle, a period of growth that followed the end of the Mexican Revolution, a civil war fought between 1910 and 1920, after which there was a slow accumulation of peacetime capital.
During this period the nation adopted the economic model of import substitution industrialisation (ISI) which protected and promoted the development of national industries. Mexico experienced an economic boom through which industries rapidly expanded production.
Important changes in the economic structure included free land distribution to peasants, the nationalisation of the oil and railways, the introduction of social rights into the constitution, the birth of large and influential labour unions, and the upgrading of infrastructure. The population doubled from 1940 to 1970 and GDP increased six fold.
President Jose Lopez Portillo (1976-1982), during whose administration the economy soared with the discovery of oil and then crashed when the price dropped, a situation which is now reversing itself.
After the oil boom, came the 1981-1982 glut. In 1982, President Lopez Portillo, suspended payments of foreign debt, devalued the peso and nationalised banking, along with many other industries that were severely affected by the crisis. While import substitution had been in fashion in lesser developed countries worldwide, it was soon evident that protectionism had produced an uncompetitive industrial sector with low productivity gains.
Mexico was the fourth largest receiver of remittances in the world in 2017 behind India, China and the Philippines. Remittances, or contributions sent by Mexicans living abroad, mostly in the United States, to their families comprised $24.7 billion in 2012.
In 2015, remittances overtook oil to become the single largest foreign source of income for Mexico, larger than any other sector. Remittances continued to climb to record levels, over $26 billion, in 2016 (excluding December).
President Vicente Fox (2000-2006), having signed on to NAFTA rules had Mexico become one of the most open of countries in the world to trade, and its economic base shifted. Total trade with the United States and Canada tripled, and total exports and imports almost quadrupled between 1991 and 2003.
The nature of foreign investment also changed with a greater share of foreign-direct investment (FDI) over portfolio investment. Macroeconomic, financial and welfare indicators
As global food demand increase, Mexico turned to its agricultural resources. Mexico's comparative advantage in agriculture is not in maize, or corn as it is known in the Americas, its domestic staple, but in horticulture, tropical fruit and vegetables. It was expected two-thirds of Mexican corn producers would naturally shift from corn to fruit, nuts, vegetables, coffee and sugar cane.
But while horticultural production increased, it did not absorb displaced workers from the corn sector, which has remained stable, producing 20 million tonnes, arguably, as a result of income though largely because of farm subsidies as much as it was a reluctance to abandon a tradition because corn originated in Mexico. Mexico is the fifth largest corn producer in the world behind United States, China, Brazil and Argentina.
The area dedicated to potatoes has changed little since 1980 and average yields have almost tripled since 1961. Production reached a record 1.7 million tonnes in 2003. Per capita consumption of potato in Mexico stands at 17 kilogrammes a year, very low compared to its corn intake of 400 kilogrammes. On average, potato farms in Mexico are larger than those devoted to more basic food crops. Potato production in Mexico is mostly for commercial purposes; the production for household consumption is very small.
Some 160,000 medium-sized farmers grow sugar cane in 15 Mexican states; currently there are 54 sugar mills around the country that produced 4.96 million tons of sugar in the 2010 crop, compared to 5.8 million tonnes in 2001.
Aircraft, automobile, petrochemicals, cement and construction, textiles, food and beverages, mining, consumer durables and tourism has benefited from trade liberalisation. In 2000, it accounted for almost 50 per cent of all export earnings.
Among the most important industrial manufacturers in Mexico is the automotive industry, which differs from that in other Latin American countries and developing nations in that it does not function as a mere assembly manufacturer.
The industry produces the Volkswagen Jetta model with up to 70 per cent of parts designed in Mexico. General Motors, Ford and Chrysler have been operating in Mexico since the 1930s, while Volkswagen and Nissan built their plants in the 1960s. Later, Toyota, Honda, BMW, and Mercedes-Benz joined in.
Given the high requirements of North American components in the industry, many European and Asian parts suppliers have also moved to Mexico: in Puebla alone, 70 industrial part-makers cluster around Volkswagen.
Mexico is the third largest manufacturers of computers in the world with both domestic companies such as Lanix, Texa, Meebox, Spaceit, Kyoto and foreign companies such as Dell, Sony, HP, Acer, Compaq, Samsung and Lenovo manufacturing various types of computers across the country.
Not only is Mexico producing more than ever before it is buying more, as average consumers become more affluent in a country where the living is not nearly as expensive it is the lands of the their often snowbound NAFTA partners to the north. So while often overlooked as a mere way to access the US market, Mexico has become in recent years far more than that. |
