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27.03.2018

BACKGROUND: MEXICO - A LONG WAY OFF BECOMING AN INDUSTRIAL SUPERPOWER

Mexico is a very large country. 19 European countries, including Germany, would fit into the size of the largest of the Central American countries, while 22 million people live in the metropolitan area of Mexico City, which is more than in most European capitals put together. The country's ambitions are correspondingly large.

By Holger Paul

"There are many factors that make Mexico one of the best choices for locating business operations," writes ProMéxico, a subdivision of the Secretariat of Economy, citing the huge number of engineering graduates or trainees in Mexico (more than 120,000 annually) as an example. The country is equally proud of the 46 free trade agreements that have been concluded with countries around the globe, making Mexico one of the most open economies in the world. "The path taken thus far and the goals set by the Mexican government and society set the expectations for the country to emerge as a key economic power by 2040," is the official goal.

Most important sector: food industry

However, 2040 is still a long way away, as is the path toward becoming a real industrial superpower. With a gross domestic product of the equivalent of around 1,000 billion dollars, Mexico was only able to reach the 15th spot on the ranking of the largest economies in 2016. The manufacturing sector achieved the largest share with nearly 18 percent, followed by the real estate sector (a solid 11 percent) and the retail sector (almost 10 percent). The automobile sector has increasingly gained importance since the beginning of the NAFTA free trade zone (1994), and Mexico has since become the seventh-largest automobile manufacturer in the world. But the most important sector remains the food industry (including drinks and tobacco), which accounts for around 27 percent of the value creation of the total manufacturing sector.

Mechanical engineers from Germany and Europe also benefit from this. Mexico's food manufacturers and the automobile companies which produce vehicles inside the country need modern production facilities, otherwise their goods will not be able to compete on the world market. Since 2009, mechanical engineers from Germany have recorded a continuous increase in exports to Mexico, cumulating in a record export growth of 28 percent to nearly 2.9 billion euros in 2017. This result helped Mexico achieve16th place in the export ranking for mechanical engineering. "The market has become increasingly important for our industry and it is the hidden champion of the export markets," explains the Latin America expert Gabriele Welcker-Clemens from the VDMA Foreign Trade Department.

The country is now determined to change its standing on the international market, but is above all desperate to break away from being an extended workbench for the USA. To this end, the government in office has introduced an industrial policy with four pillars which envisages substantial investments in infrastructure, for example, including a strong expansion of renewable energies. There are also plans to drive forward factory automation. In 2016, around 5,900 industrial robots were delivered to Mexico. A small number when compared to Germany (with a good 20,000 industrial robots in 2016), for example, but a record for the country, writes the International Federation of Robotics. The challenge for the Mexican economy is to involve the many small businesses in these advances. More than 90 percent of all businesses are small medium-sized companies, and this is why the low labor costs are ProMéxico's first argument for investing in the country: According to the Mexican government agency, the labor costs are below the comparable figures in Brazil, China or Poland.

Further Information

VDMA Foreign Trade   |   VDMAimpulse 02-2018: "Mexico: No longer the extended workbench"   |   Hannover Messe  

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Contact
Holger Paul, VDMA Communications.