Some of the current economic problems of Mexico they are inflation, corruption, drug cartels, dependence on the United States, and socio-political tensions with border countries. In addition, corruption is a problem that causes enormous economic losses in the public coffers..
Mexico's economic system is based mainly on the free market in terms of exports. Its GDP is $ 2,571,633 million (2018), while the GDP per capita is $ 9,797 (nominal, 2018). Inflation in 2019 has been 3.4%, while the population below the poverty line is around 40%, with 25.7% earning less than $ 5.5 a day.
Mexico is famous for being a giant in the manufacturing of consumer goods. It has the largest silver reserves in the world and is the tenth country with large oil deposits, being in charge of this last sector the state company PEMEX.
However, like any country, it has a series of difficulties that affect the economy. These trigger general insecurities in the population, but it is in the corporate and private sector where concern diminishes confidence in good projections.
Mexico's main trading partner is its immediate neighbor to the north. More than 80% of all national production is exported to the United States, followed by exports to Canada (3%) and China (1%).
Despite the fact that exchange costs are regulated by the North American Free Trade Agreement (NAFTA), better known by its acronym NAFTA, bilateral relations have been considered unequal and asymmetric throughout the last 150 years..
The main analyzes among economists, sociologists and politicians assert that the geographic location and border with the United States brings great advantages, especially at the cost level..
However, it has become evident that any change in the environment and the internal political and economic platform of the United States directly and indirectly affects the treaties, agreements, commitments and negotiations with Mexico..
This situation keeps practically the entire economy of Mexico tied to the interests of another country, which makes it vulnerable to foreign policies..
The United States is not only the main client of Mexico's legal exports, it is also the main client of illegal products such as drugs.
There are many drug cartels that operate near the border and transport their merchandise north.
It is stated that the cartel networks come to exert enough control over Mexican government mechanisms and institutions, and even over large companies, to facilitate their transit to the United States.
This destabilizes the confidence of the business sector and investors by not wanting to involve their businesses with links to drug trafficking..
Other aspects related to drug trafficking are also taken into account, such as violence and insecurity, which also affect businesses..
The Mexican government is sometimes described as institutionally limited, disabled, or disinterested in taking seriously the war to end the drug cartels, despite working together with the United States in this campaign..
Many attribute it to direct links to the same cartels at different levels. Corruption was estimated to cost Mexico 9% of GDP in 2014.
Additionally, more than 40% of companies admitted to having accepted bribes, making their companies less competitive in the world market..
60% of entrepreneurs accept that this type of corruption is considered part of the cost of owning a business. Less than 20% of corruption cases that reach the judicial system result in a guilty verdict.
Despite the fact that Mexico's macroeconomy continues to be good, it is the second country in the OECD (Organization for Economic Cooperation and Development) with the highest degree of economic disparity between rich and poor, and rural and urban population, only surpassed by Chile.
The 10% of the society with the lowest income level has 1.36% of the country's resources, while the top 10% has almost 36%.
26% of Mexico's GDP comes from the informal economy, where almost 60% of all active labor force works.
Inequality of income, the tax system and infrastructure affects the lower social classes much more.
The proposals in the speech of the current president of the United States when he was still a presidential candidate, created an environment that destabilized the economic projections of Mexico that had been very optimistic throughout 2016.
The protectionist approach of the Trump administration by threatening to change conditions on trade and immigration policies, increased the political tensions that already existed between the two countries..
On the one hand, it affects that a large part of the workforce in North American border industries is Mexican, and they require constant transit across the border. Changes to the immigration system could leave many families without a livelihood.
On the other hand, there is corporate uncertainty about the changes that President Trump wishes to apply in the NAFTA exchange guidelines, where there is fear that more pressure will be placed on Mexico.
This point highlights the economic fragility of Mexico due to dependence on the United States..
This point is believed to have been another repercussion from the Trump case. Investor mistrust in Mexican production companies has been affected by uncertainty in the political environment.
Some reports affirm that the setback in the increase in investment is temporary until the foundations are laid for new commercial negotiations, but such a dilemma raises the alerts in business owners.
The deputy governor of the Bank of Mexico, Alejandro Díaz de León, has as a priority to regain the confidence of the companies in the process to maintain Mexico as the good production machinery that it has always been.
At the beginning of 2017, the Mexican peso had a considerable fall against the dollar, the price of gasoline increased by 20% and the popularity of President Enrique Peña Nieto fell by 25 points.
Several protests were raised in Mexico City, Guadalajara and in border areas demanding a response to the situation and denouncing billions of dollars that have escaped in well-known corruption scandals. This situation is believed to be another consequence of the Trump case..
* Data sources: Central Bank of Mexico, World Bank and Bloomberg.
According to the latest statistics from the National Institute of Statistics and Geography (INEGI), the unemployment rate in Mexico rose to 4.6% in the last quarter of 2020.
According to economists, some variables that affect the country's employment are the development of formal, informal or precarious employment and the migration of the population to the United States..
In addition, after the pandemic produced by Covid-19, the most affected activities were restaurants, hotels and the manufacturing industry. On the other hand, the closure of micro-businesses and small establishments decreased 1,322,000 jobs.
The Mexican Institute of Finance Executives (IMEF) reported that according to its manufacturing sector indicators, during the second month of 2021, economic activity remained passive.
The report is consistent with the fragile revival due to mobility restrictions. The industry is contracting in general, since although the country has become an exporter, the sector has not consolidated on a strong industrial structure.
Yet No Comments