World’s tenth largest economy takes wing
IN THE SECOND PART OF OUR REPORT ON MEXICO, WE LOOK AT HOW THE ECONOMY CONTINUES TO GROW THANKS TO NAFTA-BOOSTED EXPORTS AND A REASSURING FLOW OF FOREIGN INVESTMENT

GOLDEN AGE Trade with the U.S. and Canada has tripled since NAFTA was implemented.

It would be unwise to underestimate the significance that the July 2, 2000 election victory of Mexican President Vicente Fox has had on the country’s long-term market potential. Marking the end of 71 years of one-party rule at the federal level, Mr. Fox’s victory was a clear symbol of Mexico’s commitment to a more open democracy and signaled that the Mexican peoples’ demand for a vigorous attack on corruption and crime was about to be met.
Since taking over office, the Fox administration has been unfailing in its commitment to sound economic policies, such as fiscal reform and measures to increase foreign trade and investment, and to improving U.S.-Mexico relations in both good times and bad.

One sign that the Mexican economy has been able to hold its own during the recent economic downturn was the recently released set of figures from the finance ministry outlining the country’s trade deficit for January.
Analysts had predicted a shortfall of nearly $1 billion for the month, underestimating the country’s ability to control its trade balance by some $300 million. The figures show that exports reached $11.6 billion, 89% of which came from manufacturing, while imports reached $12.3 billion.
An important footnote to the ministry’s report is that 77.5% of all imports for January consisted of intermediate goods. Most commonly referred to as Mexico’s ‘maquiladora’ sector, intermediate goods are those earmarked for assembly in Mexico and then reexported. Last year the industry received a huge boost from increased foreign direct investment.

Mexico’s membership in the North American Free Trade Agreement, along with the United States and Canada, helped spur remarkable economic growth of 7% in 2000. While growth projections have been scaled down for the current year, being a part of NAFTA means that foreign investors are increasingly more confident of Mexico’s stability. That confidence resulted in record foreign direct investment last year of $24.73 billion, an 87.9% increase over 2000.
And thanks to NAFTA, Mexico has become the tenth largest economy in the world. A similar free trade agreement just now getting off the ground between Mexico and the European Union promises to translate into even greater economic growth. “The view of Mexico as an emerging market must be taken separate from the perceptions of other emerging markets,” Secretary of Economy Luis Ernesto Derbez points out. “Mexico has a very clear integration given our relationship with the United States and our direct access to an open market with the United States, Canada and Europe. That means our economic possibilities are strong in the medium and long term once the cycle of growth begins in these countries once again.”

Mexico’s free market relationship with the world’s largest economies places the country in a category that few emerging markets can claim, Mr. Derbez adds. “This is proven by the fact that Mexico’s financial risk factor compared to countries like Brazil and Argentina is no more than 300 basis points, while these two countries have a rate of 700 and 1,100 basis points,” the economy secretary explains.
Foreign investors, says Mr. Derbez, are increasingly attracted by the high-skilled, low-cost technology sector and Mexico is seeing more and more investments flowing into the electronics and information technology industries.
“We are also seeing greater investment in energy with the possibility of opening up the sector. In both natural gas and electrical power generation there exists a substantial area for foreign investment,” says Mr. Derbez. “There are also considerable opportunities in our agro-industry sector, which is rapidly being developed for export and therefore we are seeing the arrival of a steady flow of investors.”