Mexico is Latin America’s second largest economy behind Brazil. It outperforms its regional peers on per capita income, creditworthiness and ease of doing business. A cyclical downturn brought on by softer export receipts and weaker construction activity has weighed on growth.
The economy entered a downturn in 2013 driven by weak exports receipts and softer construction activity. Exports account for 25% of GDP with around 90% of this sent to the US and Canada. Stronger US growth is expected to lift export receipts, while a steady pickup in residential investment and public infrastructure spending is likely to revive the construction sector. But growth will struggle to exceed 3% over the coming years.
The government is committed to reform of energy, telecom, anti-trust, labour markets, education, and the financial sector. Mexico’s external position is stable and the economy has withstood well the ‘taper tantrums’ brought on from uncertainty about US monetary policy. Positive structural reforms should attract greater foreign investment.
Mexico’s per capita income is higher than most other Latin American countries, but lags behind fellow regional heavy weights, Brazil and Argentina. It is currently classified as a middle-income economy and unless structural reforms can significantly lift growth, Mexico could fall victim to the middle-income trap.
Mexico enjoys an investment grade credit rating and an OECD country credit grade of 3. This suggests a relatively low likelihood that it will be unable or unwilling to meet its external debt obligations in a systemic sense (though, needless to say, individual debtors can and do default).
The business climate is better than the regional average, ranking 38 out of 189 economies on the World Bank’s ease of doing business gauge—which measures regulation and red tape relevant to a domestic small to mid-sized firm. It outperforms the regional average on most metrics.
Mexico underperforms most of Latin America on most measures of governance. Heavy drug trafficking into the US often breeds violence, while corruption is widespread.
Mexico was Australia’s 28th largest trading partner in 2014-2015. Imports from Mexico were worth A$2.3b, consisting mainly of telecom equipment, motor vehicles and alcohol. Australian exporters sent A$472m of goods to Mexico in 2014-2015, mostly coal.
Service exports to Mexico were worth A$86m in 2014-2015. Mexican students enrolled in Australian institutions numbered more than 2500 in 2015 (0.3% of total enrolments). Mexico was Australia's fourth largest education and training market in Latin America, after Brazil, Colombia and Chile.
Tourist arrivals oscillated between 6,000 to 7,500 pa over much of the last decade, but reached 8,500 in 2015. According to Pricewaterhouse Coopers, the Mexican economy could become larger than both the UK and France by 2050. Its growing energy needs, emerging middle class and greater infrastructure spending present opportunities for Australian exporters.
Australian wine is becoming increasingly popular and there is scope to raise participation in the processed food industry. There is also potential for water management equipment and environmental services.
The mining industry presents an opportunity for Australian mining services companies. Mexico is the world’s largest producer of silver and bismuth, and also produces copper and zinc. There is also a large tract of under-explored land which should attract Australian exploration and mining equipment, and technology services companies.
Liberal investment laws, improvements in intellectual property laws, simplifying investment procedures, higher ceilings on foreign equity and NAFTA membership are major drawcards for foreign investors. Australian investment in Mexico was worth less than A$5b in 2015, concentrated in mining and related services. Mexico’s inclusion in the Trans-Pacific Partnership adds further upside to the investment and export outlook.
Australian companies with interests in Mexico include Incitec Pivot, Nufarm, Elders, Azure Minerals, Global Resources Corporation (Cloncurry Metals), Worley Parsons, Chep, Spotless Group, QBE Insurance, UGL Equis, TNA Packaging, Securency, CSL, Orica, Boart Longyear, Boral and Howe Leather.
Department of Foreign Affairs