Economy Improving Amid Declining Violence In Mexico

Economy Improving Amid Declining Violence In Mexico

Many Latin American countries could in the coming years and decades become major stability points for the global economy. Brazil has received much press for its BRIC status, but it is far from the only stable Latin American country.

In recent years, Mexico’s economy has performed well compared to other major Latin American economies, in large part thanks to a thriving manufacturing sector. Whereas Brazil and Argentina have suffered amid slumping manufacturing sectors as late, Mexico has seen solid growth, mostly thanks to its proximity and relationship to the United States. Low oil prices will surely place pressure on Mexico’s economy, and the performance of the manufacturing sector, in particular in high-end manufacturing sector, will help grow Mexico’s economy in today and in the future.

As Stratfor analyzes, In the late 1980s and early 1990s, Mexico underwent a profound economic and political reorganization. The economy liberalized, culminating in the North American Free Trade Agreement. Major state-owned companies privatized, transforming Mexico from a closed economic and political system into an export-oriented industrial economy. As a result, trade increased between Mexico and the United States, and a manufacturing belt sprung up at the countries’ shared border. From 1990 to 2000, Mexican trade became even more closely tied to the United States. In 1990, the United States accounted for 69 percent of all Mexican trade; by 2000, it accounted for nearly 80 percent.

At the turn of the twenty-first century, China’s boom led its manufacturing sector to offer competitive alternatives to Mexico’s factories. Mexico began to manufacture more valuable products in the automotive, aeronautical and electronic industries. Clothing exports fell 43% between 2002 and 2012, while automotive exports increased by 152 percent ($27.9 billion to $70.3 billion). A slagging US economy, while in the near-term a political and economic risk for Mexico, could, in the longer term, be a net positive.

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Since 2001, the United States has lost about 42,400 factories, and about 5.5 million manufacturing jobs since October 2000. Tax Notes reported that, between the years 1999 and 2008, employment at foreign affiliates of US parent companies went up approximately 30 percent to 10.1 million during the same time period. US employment at American multinational corporations fell 8 percent to 21.1 million. In 1959 manufacturing represented 28 percent of US economic output, and in 2008 it comprised only 11.5 percent. Much has also been written of de-industrialization in Europe, as well. Mexico is expected to continue gaining from the outsourcing of work from the United States into Mexico. Analysts expect Mexico could become an increasingly popular destination for call center work, IT services and manufacturing, which could, in turn, fuel local economies. The changing currency valuation of the peso could be responsible for the trend, as firms can now get more for their dollar investments. (That goes for travellers as well.)

Aside from the stable economy, some researchers estimate Mexico could feed its population by 2050, even though the population of Mexico is expected to grow 22% to 150 million. “Those eating once a day will eat three times a day,” one researcher said, saying that food production will increase by 70-80% by 2050.

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Falling Violence

Homicide rates are falling in Mexico, as dwindling levels of violent and organized crime across Mexico have seen the country become more-and-more peaceful in the past four years, and boosted helped to boost the economy. In fact, violence and crime have decreased in 26 of 32 Mexican states since 2012. The Mexico Peace index, which has measured peace since 2003 based on crime rates, police funding and the justice system, stated violence still cost the Mexican economy an estimated $233 billion last year, or 17.3 percent of the country’s GDP.

“The recent improvements in peace have had a beneficial impact on the Mexican economy, however the impact of violence is still three times greater than the total Mexican health budget,” Steve Killelea, IEP executive chairman, said in a statement. “Further reductions in violence will improve the likelihood of higher levels of foreign investments and more tourist arrivals thereby creating a virtuous cycle for business.”

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About the Author

By Michael / Administrator

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on Apr 15, 2015

Danish entrepreneur working out of Acapulco, Mexico. CEO @ WB Innovations LTD

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Luis Fernando Domínguez Mora
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