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Leading opportunity in Latin America

Article - August 22, 2011
Although Mexico-related news over the past couple of years has been dominated by stories of drug trafficking and violence, there is a whole other side to Mexico that has sadly been eclipsed and is one that the majority of the country – 90% in fact – is living and breathing today
BOTH THE OBAMA AND THE CALDERON ADMINISTRATIONS UNDERSTAND THE STRATEGIC RELEVANCE OF A BILATERAL RELATIONSHIP
It is a story of rapid economic development and job creation, of improved access to education and health, and of greater political and fiscal stability. This is the story that Mexico would like to share with the world, with investors and with travelers.

While security issues have served to bring U.S. and Mexico even closer than before, trade relations between the two nations have always been strong. Indeed, two-way trade hovers around a whopping $1 billion per day and Mexico is its northern neighbor’s second-largest trading partner. Mexico’s ranking as the world’s 13th largest economy is due in large part to its strategic location, as well as to its wide portfolio of free trade agreements, excellent infrastructure and enormous workforce.

For Arturo Sarukhan, Mexico’s Ambassador to the U.S., the Mexico-U.S. trade relationship is unique, because “it brings together two countries in which one is abundant in capital and the other is abundant in labor.”

Hector Rangel Domene, director of state-owned banks Nacional Financiera (Nafin) and Bancomext, says that the Mexican government has further consolidated its strong economic position – especially since the 1995 financial crisis – with a highly disciplined and prudent management of public finances.

“An autonomous central bank and a stalwart performance in the areas of deregulation, infrastructure, education and health have been determining factors in improving our competitiveness,” says Mr. Rangel. “Our private sector has also been growing over the past 10 to 15 years to the extent that now we’ve got many multinational Mexican companies that are investing abroad.”

 THE 1995 FINANCIAL CRISIS MEXICO SUFFERED SERVED TO STRENGTHEN ITS FISCAL MANAGEMENT AND THUS RECOVER MORE QUICKLY FROM THE RECENT WORLD RECESSION

MEXICO IS ENJOYING GROWTH ACROSS A WIDE RANGE OF SECTORS AND THE GOVERNMENT WELCOMES FDI WITH INCENTIVES AND INVESTMENT-FRIENDLY LEGISLATION

THE GOVERNMENT’S REINFORCED FOCUS ON EDUCATION AND HIGH-TECH INDUSTRIES AIMS TO BUILD A KNOWLEDGE-BASED ECONOMY AND KEEP ITS WORKERS AT HOME  
 
AS KEY PARTNERS IN TRADE, THE BILATERAL RELATIONSHIP BETWEEN MEXICO AND THE U.S. IS PARAMOUNT TO BOTH COUNTRIES’ PROSPERITY AND SECURITY


The result was robust economic growth in the run up to the global financial recession (GDP contracted by 6.1% in 2009), and a quick comeback last year, when GDP grew by 5.5%, with estimates stating the economy will grow by another 4.9% in 2011 as domestic demand recovers.

Many of Mexico’s sectors have enjoyed healthy growth, and the government has made available numerous incentives not only to foreign investors but also to local ones. In creating special hubs to develop key industries, namely aerospace and IT, the country has also catalyzed the creation of a knowledge-based society in which research and development capabilities are now developed alongside, thus creating better opportunities for the local workforce.

“Many mistakes were made in the past where a lot of people thought that if you trigger FDI then that does the trick, but it doesn’t. It is FDI plus a number of other issues such as education, training, labor and local R&D, and that is precisely what is happening in the sectors of IT, aerospace and alternative energy in Mexico,” comments Ambassador Sarukhan.

Moreover, foreign companies are considering Mexico as a better home for their factories than China, for example, and today the Spanish-speaking country is the largest producer of Blackberry units.

“Many who had set up factories in China are now turning to Mexico due to our proximity and our system of intellectual property rights. Also, the language and culture are much more similar here than they are in the Far East,” says Mr. Rangel.

Education is certainly a key priority for President Felipe Calderon’s administration, as are health, social infrastructure, physical infrastructure, and of course national security, and more public funds have been channeled into these areas. Yet the government must also tackle the problem of ‘brain drain’, which sees many of Mexico’s more talented workers migrating northwards in search of higher salaries, albeit without working papers. Ambassador Sarukhan says that the trick is to anchor a sufficient number of well-paid jobs in Mexico, encourage private public partnerships (PPPs) to foster sustainable economic development, and build upon the synergies between Mexico, the U.S. and Canada by investing in human capital and ensuring that companies in the NAFTA region are able to hire the best talent and labor possible, regardless of which country they operate in.

“At the end of the day, how do you take on this very polarized debate in America which is immigration reform?” asks the Ambassador. “Beyond the issue of the rule of law, the challenge is whether the U.S. and Mexico will have the ability to understand labor mobility, human capital and integrated supply chains. This will allow these two countries to compete vis-à-vis the Chinas and Indias of the world. I think that is the most important advantage that Mexico brings to the table in the economic environment of North America.”

Gustavo Madero Muñoz, president of the ruling National Action Party (PAN), sees a relationship between the U.S. and Mexico becoming increasingly consolidated at different commercial, private and governmental levels. “The need for dedication and collaboration between both governments is clear. The NAFTA has proven to be a good decision. The next step should be lending greater added value to the economies and recognizing the complementarity between the two countries. The opportunities are infinite.”

As for the issue of national security, both governments continue working towards eradicating the problem. “Despite the challenges that the U.S. faces in other parts of the world – whether it is the Middle East, the Persian Gulf or Central Asia – there is no more important relationship for the future wellbeing of the U.S. in terms of security and prosperity than its relationship with Mexico,” says Ambassador Sarukhan.

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