Panel
The Transformation of Mexico
Milken InstituteJana Remes, Marcela Meireles, Alberto Gomez-Alcala, Enrique Perret, David Fong, Martha Minowski
- Mexico is expected to benefit significantly from an unmatched reforms agenda implemented over the last 18 months, including fiscal and monetary measures, though structural challenges like informality, regulatory constraints, and lack of financing present long-term delays to broader benefits.
- The automotive sector is projected to continue delivering dividends through deep U.S.-Mexico integration, having received $160 billion over the past 15 years, with high-value manufacturers now comprising 35% to 40% of trade compared to oil and gas in the past.
- Trade volume between Mexico and the U.S. is expected to have grown from $50 billion in 1994-1995 to over $500 billion currently, driven by a pipeline of more than $25 billion in annual foreign investment from ProMexico in the U.S. and Canada.
- Foreign ownership of Mexican government securities is estimated to have risen from 25% five years ago to approximately 60%, capturing global liquidity and yield hunting despite partial truths regarding market conditions.
- The energy sector anticipates secondary rules for oil and gas arriving within the next couple of years, alongside open renewable structures for solar and wind, though electricity selling remains a separate issue; these reforms aim to reduce industrial power costs to 75% below current levels relative to the U.S. and lower formalization costs by 75% for small informal players.
- Regional growth is expected to be uneven, with the Bajio region growing at 6.5% annually over the last five to six years and Aguascalientes at 12% last year, while the southeastern region remains underdeveloped and Campeche continues to decline due to falling oil production.
- Corruption and crime pose significant risks, particularly for the four-fifths of workers in small businesses, where crime management costs have historically reached roughly 5% of production expenses and getting a small process done can be arduous.
- The country faces a risk of future populist alternatives, specifically a scenario involving Mr. López Obrador, which could arise if the government fails to deliver on a modernization agenda covering economic and political fronts, including institutional transparency and the rule of law.
- Economic indicators suggest Mexico will avoid the credit and real wage excesses seen in other Latin American nations, standing out with clean balance sheets, while the peso is expected to strengthen once Federal Reserve volatility dissipates and productivity growth begins.
- Labor costs in dollar terms are projected to remain flat, maintaining competitiveness, while the country faces the challenge of sustaining growth momentum to move the focus from the bottom of the pyramid to the "belly of the market."
- Future growth requires modernization in political and rule of law factors to lag behind economic progress, with specific regional specializations expected to continue in Guadalajara for computers and Querétaro for aeronautics to avoid engineering bottlenecks.
- A pool of well-trained expatriates in Europe and North America is expected to be tapped to contribute to Mexico's transformation, while a consensus across political parties supports fiscal discipline, independent monetary policy, and low inflation, though these alone are not deemed sufficient for accelerated growth.