Stable democracy, open economy, reform minded Government, young population, lower wages than China and proximity to end customers. In Mexico you get it all!
In 2001, Jim O’Neil of Goldman Sachs coined the acronym BRIC in a paper hailing the emergence of new economic powers that would shift the center of gravity away from the rich G7 countries. However, the current situation in these countries implies that it might be time to look for other promising markets since the BRICs are now in a growing need to reform and reinvent themselves.
Mexico was left out from this group and has indeed performed poorly during the last ten years in economic terms. The country has however continued to open itself to ever more free trade and has become more democratic. Furthermore, the new president, Enrique Peña Nieto has embarked a bold package of reforms to improve the country’s competitive edge including improvements in competition legislation, anti-corruption legislation and constitutional amendments that will facilitate foreign direct investments in telecommunication and energy.
Mexico has promising natural resources and a demographic advantage. While China is leaving its demographic bonus period (figure 1), Mexico is just entering. China’s one child policy has led to an increasing shortage of labor pushing up wages. Mexico, in contrast has experienced stagnant real wages that are now lower than in China. Brazil is even less competitive. (Figure 2 )
Mexico’s geographic location and its free trade agreements with 45 countries adds to the advantage. Goods from Mexico can reach the US duty free within days rather than in weeks or months. Mexican producers are already integrated in international supply chains. Bombardier includes Mexican factories in its supply chain to produce trains and airplanes.
The future prospects of Mexico look bright. Investors have to catch the train before it goes.