Why Mexico Matters

Why Mexico Matters:

Good-to-know facts


Arizona-Mexico Trade in 2015:

  • $9.1 billion in exports, which is approximately 40% of Arizona’s total exports.
    $7.6 billion in imports.
  • Total two-way trade is $16.8 billion.
  • 100,000 Arizona jobs supported by trade with Mexico.

Arizona-Mexico Ports of Entry in 2015:

  • $30 billion in imports and exports passing through Arizona’s ports during the year, including much of the produce consumed in the U.S. during the winter.
  • Arizona has 6 ports of entry:
    • Douglas, Naco, Nogales, Sasabe, Lukeville, San Luis
    • Arizona’s largest ports of entry have SENTRI lanes to expedite trusted traveler crossings (Douglas, Nogales, and San Luis)
  • Arizona has 6 international Airports

What makes Mexico such an attractive market?

  • Proximity to Arizona – We share a 300 mile border with Mexico.
  • Mexico is expected to surpass Brazil as largest economy in Latin America by 2020 it is currently the world’s 14th largest economy and predicted to be the 7th by 2050.
  • Currency stability – the volatility of the peso is a thing of the past.
  • GDP Growth- Bank of Mexico is forecasting a growth of 2.5 to 3.5% in 2015, increasing to 2.9 to 3.9% in 2016. If the price of oil recovers then the forecasts will lean to higher end of forecasts.
  • Business Profile- With an economy that now surpasses $1.3 trillion, Mexico ranks as one of the top 20 economies in the world (#14). Mexico’s economy has been increasingly focused on manufacturing particularly since the signing of the North American Free Trade Agreement (NAFTA) in 1994.
  • A huge consumer base – a population of 118 million people with a median age of 27. Mexico private conssumption outpaces China, Indonesia, India, Columbia and Brazil.
  • Growing middle class – estimated at 39% of the total population or about 44 million people – more than the total population of Canada. Mexico’s emerging middle class is looking for travel, recreation and business opportunities.
  • An affluent upper class – they have money to invest.
  • Young and increasingly skilled workforce – more than 100,000 engineers graduate every year; currently, the Economically Active Population (EAP) is 64% of the total population, a rate that will remain for over two decades.
  • Nearshoring opportunities – With rising wages in China, ongoing concerns over quality control and protection of intellectual property, compounded by uncertainty in shipping reliability and costs between China and North America, Mexico has once again emerged as a top location for U.S. manufacturers, most notably in advanced manufacturing.

Reforms Passed by the Mexican Congress:

President Enrique Peña Nieto took office on December 1, 2012 and immediately began advancing a sweeping agenda of constitutional reforms in a coalition with the three major political parties that have Mexico poised for significant transformation.

Education: Reform centers on professionalizing the educational system; instituting the evaluation of teachers with the goals of improving the quality of education; introducing accountability; preparing a more productive workforce to make the system more transparent and merit based; and introducing evaluations and performance testing. This reform has been extremely controversial and even after its passage teachers and unions continue to protest, most notably in Mexico City’s busiest business districts and government sectors with protesters blocking main arteries of Mexico for months at time causing traffic and business to come to a standstill in opposition to this reform.

iStock_000015811739_MediumEnergy: This landmark energy reform will restructure Petrolios Mexicanos (PEMEX) bringing an end to a 75-year state monopoly on petroleum by opening the oil and gas industries to private investment through profit-sharing agreements, production sharing agreements, licenses, as well as allowing private companies to generate and distribute electricity. The reform focuses on transforming PEMEX to compete globally, allowing private companies to participate in production and exploration for oil and gas. Mexico recently approved secondary laws that open deep-water and shale fields to foreign investment. The electricity industry has also been reformed and this should lead to lower energy costs.

Financial:  The reform consisting of 34 financial and banking laws strengthening banking regulation and legal framework with regards to guarantee collection, increase competition and enhance transparency. This stands to increase bank lending, thus, increasing access to capital for all Mexicans with the hopes of spurring economic growth in the country. As part of the reform, a universal credit bureau will be established in order for banks to better assess lending risks and be able to ease the recovery of collateral.

Fiscal: The fiscal reform will increase government revenue wile redistributing the tax burden. It will tax junk food and sugary drinks, and increase taxes on upper income brackets. It will also unify the value-added tax throughout the country, ending lower tax rates in border regions. Mining profits will experience tax increases, and 50 percent of those revenues will benefit the municipality where the mining project is located. There will be a 10 percent tax on stock market profits and dividends. The fiscal reform also aims to formalize 5.2 million small businesses through an electronic tax system and create universal pensions and unemployment for those in the formal sector. Highly debated was the impact on the taxation to the maquila sector, most notably in the northern border region.

This would roughly double the tax burden for many local maquiladoras, raising their corporate income tax from about 17% to over 30% and increasing their value added tax (IVA) from 11% to 16%. The bill also includes ending the maquiladora’s current exemption from the country’s 16% sales tax on goods imported for assembly.

Labor: Labor rules would be normalized to comparable rules in the United States and others around the world making it easier for foreign companies to run their operations in Mexico and more attractive to foreign direct investment. The reform stands to encourage workers to move from the informal to the formal economy and incorporates items such as introducing hourly pay, trial periods and a tighter cap on severance pay.

Political/Elections: Reform aimed at relaxing Mexico’s ironclad ban on re-election of some federal and local congressmen (deputies), senators, and mayors allowing them to run for office again. Now, senators will be eligible for one re-election, while federal deputies can be re-elected up to three times. Officials currently in office will not be eligible for reelection. It will still limit president and governor to one six year term. In addition, the Chamber of Deputies will be charged with approving the country’s finance secretary, and the Senate must ratify the pick for foreign affairs secretary. Presidential transitions will also be shortened. The next elections take place in 2015, when Mexicans will elect representatives to the Chamber of Deputies, governors in five states, and mayors and local congressmen in 10 states. Changes to the presidential elections will take place beginning in 2018.

Telecom: The reform attempts to break up the Current monopolies and allows foreign investment in telecom to grow from 49% to 100%, though limits foreign investment in radio to 49%. It creates two open television channels, and makes access to information and communications technologies a constitutional right, and creates a more powerful regulator. Telmex has a monopoly in the telecommunications sector, owning 80 percent of fixed lines and 70 percent of mobile. This will allow for increased participation by smaller industry players, and will give Mexicans access to better, cheaper telecom services.