Mexico’s Economic Environment

Mexico’s Economic Environment

Mexico is among the most attractive emerging markets due to its improved conservative fiscal and monetary policies as well as political reforms which have led to an increasingly strong democracy. It is a liberal, pro-business environment (Communicaid Group Ltd, 2009). Currently, Mexico’s political environment is very stable showing a thriving democracy. Most state-owned enterprises have been privatized by the Mexican government meaning that the government is friendly to private companies (Communicaid Group Ltd, 2009). This is a clear indication that the Mexican government is committed to free trade and macroeconomic stability.

Mexico has a diversified free market economy comprised of outmoded and modern industries mixture that is overtopped by private sector (Business Bridges, 2010). Its economy is growing rapidly as a result of rich natural resources, increasing manufacturing output and major exports. Since its accession to GATT system in 1986  (which later became WTO), mexico has moved forward in becoming an active player in the world economy (Business Bridges, 2010). It has managed to promote trade relations with other countries very well making it one of the major driving economic force in Latin America. This rapid economic growth is attracting foreign business from across the globe and Allgemeine is not different. Its economy largely shadows the economic cycles of the United States, meaning this region has a strong financial system and credit availability.

Mexico has signed free trade agreements with over 44 countries including Germany making its trade regime to be one of the most reliable in the world. NAFTA implementation has doubled Mexico trade with US and Canada (Villarreal, 2010). After the implementation of NAFTA, Mexico changed its approach to international trade as well as balance of trade. There is also a growing demand for the vast majority of Mexican products which are marketed in developing countries and the US. The following table shows the basic macroeconomic indicators for Mexico (US Department of State, 2011):  

Table 1.0: Basic Macroeconomic Indicators for Mexico 

Infrastructures such as roads are well developed. In fact, Mexico highway network is one of the most extensive in Latin America. Mexico has invested $235.3 billion pesos in infrastructure development as from 2007 to date.  This has contributed to 23 000 km of roads been repaired, rebuilt and modernized (Yeskett, 2012). The railway system and other transport infrastructures are well developed and currently some of them are being maintained by private sector making them to be very efficient. The electricity power production within the region is reliable to maintain any business operations. Telecommunication industry has improved greatly due to competition of the companies in this sector.

Unemployment has also been one of the major issues in Mexico with 5.1% of the population being unemployed in March 2012 as compared to 2010 when it was only 3.45. There might therefore be cheap labor. Therefore, the social-cultural environment of Mexico supports foreign investment because labor operational costs are very low. Mexico also provides lower production costs, affordable shipment costs and makes deliveries to the North American Market just-in-time. As such, manufacturing and managing products in Mexico is 32% lower as compared to the United States (North American Production Sharing, 2012).

Silver, copper and platinum are in abundance in Mexico as it is among the leading producer of silver in the world with a production volume rate of 96.4 tones. In 2006, Mexico took the 18^th position globally in copper production with a production rate of 129,042 tones. Mexico was also among the top platinum producers in 2009 ranking 6^th globally with a production rate of 6,150 tones (Hays, 2012).

Puebla state is one of the best location in mexico where foreign companies are normally located. This state enjoys the advantages of mexico’s economic stability and has attracted many foreign companies form German, Swiss, Canada, France and America at large (Communicaid Group Ltd, 2009). It has being rated as an excellent destination for foreign direct investment (Communicaid Group Ltd, 2009).

Most of the risks which can be experienced by foreign investors are normally solved through investment treaties. Other protection can occur inform of free trade agreements. Risks which are protected by either investment treaties or free trade agrements in mexico include political risks, global economic risks, civil unrest and government instability (Pritchard, 2005).