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LatAm Mexico Economy

According to data from every single international entity available, Latin America is the most unequal region in the world in terms of income. Mexico, as a key player, proves to be far from an exception to the rule.

The Mexican economy has shown a positive trend on macroeconomic variables, yet most of the country’s population has failed to enjoy the benefits of this growth and stabilization. The number of those living under the poverty line had risen from 52.8 million in 2010 to 53.3 million by the end of 2012, according to data from the country’s National Council of Social Development Policy Evaluation (Coneval). Coneval’s data, however, shows another interesting trend: despite this growth in poverty, extreme poverty decreased from 2.6% to 2.4% in the same period.

The dynamics of these figures illustrate a part of Mexican reality, a country in which a huge part of the population still lives under poverty lines but has increased its overall purchasing power. Mexico’s GDP per capita, with a value of $9,741 (current US$) and having grown 2.6% per annum from 2008 to 2012 according to the World Bank, places the country as fifty-seventh; not far behind other major Latam economies such as Argentina (51) and Brazil (53).

As with other Latin American nations, during the second half of the twentieth century Mexico followed an economic model that aimed to industrialize the country through the substitution of imports. This meant the development of models based upon heavy subsidization, increased taxation, and highly protectionist trade policies, leaving the country dependent upon a handful of industries. In 1982, the system cracked, and Mexican authorities had to look outward for the first time as a way to achieve development.

Nowadays, Mexico is open to international trade, even having once held the position as the country with the most Free Trade Agreements in the world. With a privileged geographic location, Mexico has proven to be a true ‘hinge state’, holding strong commercial relations with both cultural and geographical continuums to which it belongs: North America (namely under NAFTA) and Latin America (under various FTAs and multilateral agreements such as the ones held under the umbrella of the Latin American Integration Association, ALADI). But Mexico has also gone far beyond its continent; it holds 14 FTAs across the globe encompassing partners such as Japan, the European Union and the European Free Trade Association.

With a huge population (surpassed in the region only by Brazil), its geographic location (which has granted access to the US market and has influenced

consumption habits), as well as its numerous international agreements (which have eased access to the country), Mexico has become an interesting consumption market for brands from across the globe. Despite this openness, the US remains the country’s biggest trading partner by far, holding more than 50% of its imports and almost 80% of its exports.

Swinging Back To The Past, Looking Up For The Future

In 2012, Mexico held general elections, which included the ballot for a new President of the Republic. The elections resulted in the return of the PRI (Revolutionary Institutional Party) who had ruled the country without interruption from 1929 to 2000 putting an end to the right wing PAN’s (National Action Party) 12-year rule.

Incumbent Enrique Peña Nieto’s government inherited a country filled with challenges: an economy which, because of its interdependence with the American market, was hit following the 2009 World Financial Crisis, as well as a society heavily struck by violence after the previous government’s attempts to fight drug cartels, which resulted in more than 50,000 deaths across the country.

Peña Nieto’s campaign platform focused heavily on economic matters and structural challenges in the energy sector, the tax system and labor markets; everything wrapped-up under what he called the ‘new-PRI’. The nature of such platforms, as well as the proposed change in the way drug cartels were being confronted, has had an effect on the way Mexico is perceived internationally and has, somehow, renewed a sense of opportunity in the country.

Peña Nieto has aimed to unite political forces under what is called the Pacto por México (Pact for Mexico) with varying degrees of success: violence is no longer the central axis of the political discourse, even though it is still an everyday issue, instead the discussion for structural reforms in key sectors have taken the country’s political stage. Peña Nieto’s government has sketched some changes that could potentially boost the country’s competitiveness, though there is still a long way to go before any real effect of such measures is felt, especially since they depend heavily on political will and fragile alliances that still have yet to be fully forged.

Mr. Fernando Alvarez Kuri

Director of Millward Brown Optimor Mexico