Mexico: Economy

Mexico is classified by the World Bank as an upper-middle-income country. Poverty is widespread (around 44% of the population lives below the poverty line), and high rates of economic growth are needed to create legitimate economic opportunities for new entrants to the work force. The Mexican economy grew by more than 5% in 2010 after a sharp recession in 2009 during the global economic crisis.

Since the 1994 devaluation of the peso, successive Mexican governments have improved the country's macroeconomic fundamentals. Inflation and public sector deficits are under control, while the current account balance and public debt profile have improved. Mexico’s sovereign debt remains investment-grade, with a stable outlook. Mexico’s tax revenue as a percentage of gross domestic product (GDP) was 17.5% in 2009, the lowest of OECD members.

Mexico is a major recipient of remittances, sent mostly from Mexicans in the United States. Remittances amounted to $21.3 billion in 2010 and are the country’s second-largest source of foreign currency, after oil. Most remittances are used for immediate consumption--food, housing, health care, education--but some collective remittances, sent from a U.S. community of migrants to their community of origin, are used for shared projects and infrastructure improvements. The Government of Mexico participates through its flagship fund-matching program “3X1 Program for Migrants.” The Mexican Government also has implemented social development programs, like Oportunidades, to address the problems of poverty.

Mexico is one the most popular tourist destinations in the world. It attracted 21.3 million international tourists in 2010, making it the tenth-most popular international destination in terms of arrivals. Tourism contributed $11.8 billion to Mexico’s economy in 2010, one of the top sources of foreign exchange for the country.

Trade
Mexico's trade regime is built upon 13 trade agreements with 44 countries, including the United States, Canada, and the European Union. In 2010 it exported nearly $300 billion of goods, led by electronic and other machinery (38% of total), road vehicles and transportation equipment (17.8%), and mining and crude oil (14.6%). Mexico relies heavily on supplying the U.S. market but has also sought to diversify its export destinations. Eighty percent of Mexico’s exports went to the United States in 2010, down from a high of nearly 90% in 2001.

The United States exported $163 billion of goods to Mexico in 2010. Mexico is the United States’ second-largest export market (after Canada) and third-largest trading partner (after Canada and China). Two-way trade (exports plus imports) reached nearly $400 billion in 2010, more than quadruple what it was 20 years ago. Top U.S. exports to Mexico include electronic equipment, motor vehicle parts, and chemicals. Trade matters are generally settled through direct negotiations between the two countries or addressed via World Trade Organization (WTO) or North American Free Trade Agreement (NAFTA) formal dispute settlement procedures. Mexico is an active and constructive member of the World Trade Organization, the G-20, and the Organization for Economic Cooperation and Development.

Mexico is making progress in its intellectual property rights enforcement efforts, although piracy and counterfeiting rates remain high. Mexico appeared on the Watch List in the 2011 Special 301 report. The U.S. continues to work with the Mexican Government to implement its commitment to improving intellectual property protection.

Agriculture
Mexico’s agricultural sector accounts for 5% of GDP and employs 13.7% of the work force. Top revenue-producing crops include corn, tomatoes, sugar cane, dry beans, and avocados. Mexico also generates significant revenue from the production of beef, poultry, pork, and dairy products. Implementation of NAFTA has opened Mexico's agricultural sector to the forces of globalization and competition, and some farmers have greatly benefited from greater market access. In particular, fruit and vegetable exports from Mexico have increased dramatically in recent years. However, structural inefficiencies that have existed for decades continue to limit improvements in productivity and living standards for many in the agricultural sector. These inefficiencies include a prevalence of small-scale producers, a lack of infrastructure, inadequate supplies of credit, a communal land structure for many producers, and a large subsistence rural population that is not part of the formal economy. It is estimated that half of Mexico's producers are subsistence farmers and over 60% produce corn or beans, with the majority of these farmers cultivating five hectares or less, although the number of Mexican farmers is steadily decreasing as they seek greater economic opportunities from off-farm employment.

Foreign Investment
Foreign direct investment (FDI) in Mexico for 2010 was $17.7 billion, up slightly from 2009 but still below the peak levels of the mid-2000s. The global economic slowdown in 2008 and 2009 caused a significant decline in FDI. Portfolio investment totaled $37.1 billion in 2010. Most portfolio investment was in local bond issuances.

Energy
In 2010, Mexico was the seventh-largest oil producer in the world and the second-largest supplier of oil to the United States. State-owned Petroleos Mexicanos (Pemex) holds a constitutionally-established monopoly for the exploration, production, transportation, and marketing of the nation's oil and is one of the largest oil companies in the world. However, oil production has decreased in recent years as production at the giant Cantarell field continues to decline. The oil sector is a crucial component of Mexico's economy; while its relative importance to the general Mexican economy has declined in the long term, the oil sector still generated 14% of the country's export earnings in 2010, according to Mexico's central bank. More importantly, the government relies upon earnings from the oil industry (including taxes and direct payments from Pemex) for 32% of total government revenues. Therefore, any decline in oil production has a direct effect upon the country's overall fiscal balance.

In early 2011, Mexico held licensing rounds for performance-based contracts on oil blocks, allowing participation by foreign oil companies for the first time since the nationalization of the oil industry in 1938. The foreign firms will have no ownership rights over any oil they produce, but they are expected to provide Mexican fields with needed technological improvements.

Transportation and Communications
The World Economic Forum ranks Mexico 79th globally on the overall quality of its infrastructure (out of 139 countries). A National Infrastructure Plan of $233 billion is designed to raise the coverage, quality, and competitiveness of the country’s infrastructure assets.

Mexico's land transportation network is one of the most extensive in Latin America with 356,000 kilometers of paved roads. In terms of road density, however, Mexico has one of the lowest rates among the major economies in the region. Three major private companies operate Mexico’s 27,000-km railroad network.

Mexico's sea ports have experienced a boom in investment and traffic following a 1993 law that privatized the port system. Mexico's ports moved 3.3 million 20-foot container equivalent units (TEU) in 2008 and 2.9 million TEUs in 2009. Manzanillo is the largest container port, followed by Veracruz and Altamira. Several dozen international airlines serve Mexico, with direct or connecting flights from most major cities in the United States, Canada, Europe, Japan, and Latin America. Most Mexican regional capitals and resorts have direct air services to Mexico City or the United States. In 2010, 24.1 million air passengers visited Mexico.

The telecommunications sector is dominated by Telmex, the former state-owned monopoly, and its mobile telephone spinoff, America Movil. Several international companies compete in the sector with limited success. The fixed-line teledensity rate in Mexico (18%) is below the average for Latin America. Wireless penetration is much higher (more than 75%), with 91.3 million wireless subscribers in 2010, although many of these customers rely on prepaid cards or use their phones to receive calls only. In 2010, 35 million Mexicans had some form of Internet access.

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