Mexican Manufacturing Exceeds Trade Forecasts
June 9, 2014
Mexican officials have reported that they have recorded a trade surplus of $510 million for the month of April. This positive report marks the third time in a row Mexican officials have been able to record a net positive for their trade surplus levels. For those looking for the source of this recent boom, they need to look no further than the strong base of Maquiladora manufacturing in Mexico.
A maquiladora is a factory or other center of manufacturing in Mexico operating under IMMEX, a program designed by the Mexican government to promote foreign investment. These factories are then able to import and export materials and products at reduced, or even nonexistent, tariff levels, as well as enjoy fiscal and tax benefits. Maquiladoras in Mexico have been an important draw for foreign companies looking to set up a factory near the border, in towns like Tijuana, Mexicali, or Juarez.
More recently, many maquiladoras are being established to supply the rapidly growing automotive industry. By one account recently published by the Mexican government, the automotive industry showed a growth of 12 percent since the previous September. From a global perspective, Mexico is one of the top ten producers of automobiles and automotive products and is projected to move further up the charts.
What makes these maquiladoras so successful? One of the major factors is the cost of labor in Mexico. Labor costs are far less in Mexico than they are in the United States and other developed countries. Another is Mexico’s location. Products shipped to the U.S. and other Latin American countries can be quickly and cheaply transported overland, whereas products built and sold in places such as China have to endure long rides across the Pacific Ocean. Lastly, many businesses are nervous about expanding overseas because of reports about labor wage inflation and the theft of intellectual property.
While the surplus mentioned in the report above came as a surprise to many, others have seen this coming for quite a while. In November, the Economist called the automotive industry “steaming hot”. Combine that with the positive trade growth, and many are predicting that Mexico is poised to become the next manufacturing megaspot. Marco Oviedo, the chief Mexico economist at Barclays Plc said when he was asked about the positive numbers in the report, “The strong export rebound is behind this surprise, and this is positive for growth in the coming months.” Delia Paredes, an economist at Grupo Financiero Banorte SAB, said that the reports “suggest that external demand is recuperating.” With all these signs, it is no wonder Mexico manufacturing is gaining significant momentum.