Mexico: Growth Amid Stagnation in the Manufacturing Industry

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Mexico's manufacturing sector employs approximately 8 million workers. An additional 4 million work in construction, power generation and mining. Manufacturing accounts for 35 percent of the country’s GDP and is one of the main sources of jobs in Mexico's formal labor market, fuelled by their low labor and energy costs. Mexico’s manufacturing specialties include metal production and the manufacturing of automotive parts, appliances, and electronic devices.

In 2014, Mexico’s manufacturing employment grew 2.5 percent, which was far above 2013 numbers around the same time. Much of this new growth is due to moving beyond many negative economic factors from the previous year. These include the initial impact of the country’s tax reform, which had the effect of reducing consumer confidence and creating uncertainty among business leaders. Additionally, low public spending in 2013, which was dampening economic growth, is now increasing and is predicted to remain strong.

The low labor and energy costs within Mexico are predicted to increase Mexican manufacturing exports, adding $20 billion (USD) to $60 billion to Mexican economic output annually by 2017. This export advantage is largely due to their cost advantage over other global developing markets, including China. In addition, Mexico’s short supply chains due to their proximity to key U.S. markets, and Mexico’s unique position as the global leader in free-trade agreements (44), allow them to work at low costs within many countries globally.

It is important to note that though Mexico is growing significantly, it still struggles in many other areas of manufacturing and production. Mexico’s economy is often characterized by a dualism: on the one hand, it has a modern, fast-growing economy with globally competitive multinationals and innovative manufacturing plants. However, on the other, it has a far larger group of traditional Mexican businesses that do not contribute to economic growth and instead detract from it. While the largest companies are raising productivity by 5.8 percent a year, the productivity of traditional businesses is falling by 6.5 percent a year. This movement in opposite directions could hurt Mexico’s future growth if it is not addressed.

That being said, young Mexicans are experiencing increasing educational opportunities within the country. While in past decades, many young people in the region could aspire to a minimum wage job earning 60 pesos ($4.87) per day, increasingly factories needing skilled workers have started specialized training centers which have helped give skills to those who would not otherwise have them.

In the medium to longer term, economic growth in Mexico is predicted to remain high, with the country’s recent energy reform leading to a boom of foreign direct investment. This is predicted to increase incomes and promote a stronger pace of overall economic activity. While these positive effects are predicted, they will only come if Mexico also is willing and able to tackle their well-documented structural problems that result in economic stagnation, including their underdeveloped infrastructure and low skilled human capital.