The Mexican economy is booming. Business and consumer spending along with Foreign and domestic investment are increasing. The telecommunications sector has been privatized and a new array of digital, fiber optic, satellite, microwave, and other services are spreading over the country at a rapid pace. Mexico has experienced an increase in infrastructure capabilities, computer usage and sophistication. The next step in Mexico's information technology advancement is mobility. This is a market niche where only minimal marketing efforts have been made, as attention has been focused on larger, more basic segments. However, because the potential is both obvious and enormous, critics don't expect the situation to remain this way for long.
The North American Free Trade Agreement (NAFTA) continues to be a key factor in boosting Mexican exports and raising the overall level of economic activity. During the first three years of NAFTA, from 1994-96, Mexico's exports increased by 85 percent. An 86 percent increase to the United States and Canada, and a 79 percent gain to non-NAFTA countries. Mexico’s population is young. 50% of the population is under twenty five years old. Mexican consumers like American products. They recognize most U.S. brand names and associate the products with quality and value. There are approximately 19.4 million homes in Mexico, 93 percent or 18.1 million of which have electric power. Around 19.1 million homes have one radio and 16.5 million homes have at least one TV set (1).
Mexico shares a border of more than 2,000 miles with the United States, and offers a wealth of business opportunities. Mexico is a highly centralized nation with its economic nerve center located in Mexico City. Mexico’s other diverse commercial centers are located in Guadalajara, Monterrey and Tijuana.
During the period from January 1995 through the first half of 1996 Mexico struggled to cope with the December 1994 devaluation of the peso and the economic difficulties which followed. In the later part of 1996 and in 1997 Mexico experienced a solid recovery. The harsh medicine prescribed for the ailing economy has been able, in only two years, to stabilize the economy and begin to restore economic growth. NAFTA benefitted all three partner nations, but played a crucial role in softening the recession and reactivating the Mexican economy.
The Mexican macroeconomic indicators include new stability in the peso, a leveling out of inflation and interest rates and a healthier balance of payments. The recent recovery is as startling as was the depth of the 1994 crisis. GDP declined to 6.9 percent in 1995, the largest single-year drop in more than fifty years, then rebounded with a healthy 5.4 percent growth rate in 1996. The peso lost 55 percent of its value against the U.S. dollar from December 1994 to December 1995, and inflation shot up from 7 percent in 1994 to 52 percent in 1995. In contrast, the dollar remained between 7 and 8 pesos all throughout 1996 in spite of a floating exchange rate, and inflation decreased to low double digits. Mexico's unemployment rate more than doubled during 1995, but decreased to former levels by mid 1997. The cheaper peso contributed to a major improvement in the trade balance, which improved from a deficit of $18 billion in 1994 to surpluses of $7 billion in 1995, $6.5 billion in 1996, and $1.4 billion in the first quarter of 1997 (2).
The Foreign Investment Law, passed in December of 1993, replaced a restrictive 1973 statute. The new law is consistent with the foreign investment chapter of the NAFTA and opened more areas of the economy to foreign ownership. It also provided national treatment for most foreign investment, eliminated all performance requirements for foreign investment projects, and liberalized criteria for automatic approval of foreign investment proposals (3).
NAFTA investors receive both national and Most Favored Nation (MFN) treatment in setting up operations or acquiring firms, except where reservations have been specifically made for certain types of industries. States, provinces, and local governments must accord national treatment to investors from any of the three NAFTA countries.
With the implementation of the NAFTA, the Government of Mexico has virtually completed an economic transformation from the old import substitution model to full integration in the world economy. Privatization of the economy has been expanded to seaports, airports, satellite systems, telecommunications, railroads, secondary petrochemicals, natural gas distribution and power systems.
Today's Mexico is full of challenges as well as opportunities. The Government of Mexico remains committed to the path of economic integration with the NAFTA partners and the rest of the World.
Last update: December 18, 1998.
