February 6th, 2014 — Mexico, famous for its Gold Coast of tourist destinations, Yucatán Peninsula and an ongoing immigration problem with the United States, is on the cusp of what may be the largest economic expansion the country has ever experienced.
This path may not only ease some of its political issues with the U.S. but will also contribute to an explosive middle class. What is the primary catalyst for Mexico’s growth? Foreign companies fleeing places like China, Western Europe, and the United States to manufacture in Mexico.
Large OEMs from the Aerospace, Automotive, Medical Device, Electronics, and Consumer Products industries are opening factories throughout Mexico to take advantage of a skilled, low-cost labor force and a business-friendly government. Following in the OEM’s footsteps is the entire supply chain for each industry, creating thousands of jobs and opportunities for Mexico’s citizens.
The greatest evidence of Mexico’s economic expansion can be seen in the commercial and residential real estate markets. New industrial parks in Mexico are popping up along the border cities and in the central states, such as Aguascalientes, Guanajuato, and Queretaro, to support this Mexico manufacturing renaissance. Thousands of residential homes are being constructed near these industrial parks so people can walk to their jobs, keeping their overhead low and congestion off the roads.
By developing its university system, thus keeping younger people in the country instead of trying to leave, Mexico has succeeded in attracting sophisticated manufacturing that requires technical and professional staff, as well as “direct” labor.
The model that Mexico is following is not particularly new. Economic development often begins by encouraging businesses, both national and foreign, to expand in a particular region. In Mexico’s case, there is healthy competition among State governments to attract large projects, which has helped bring industries that require significant land and infrastructure to Mexico, such as the automotive industry. Mexico, however, is unique among “low-cost” manufacturing countries, due to its proximately to the United States.
For example, to encourage automotive manufacturing in Mexico, a 2,600 acre “interior port” located in Guanajuato, Mexico contributed to the expansion of the industry in that region. The State has built customs facilities, including a railroad depot and a link to the local airport, to help the import/export function for all these companies. Other infrastructure in Mexico was constructed, such as toll roads and natural gas lines, to attract a larger base of companies.
In the last four years, at least 100,000 jobs have been created in Mexico, according to a recent report by Brookings Institution. Companies like General Motors, Ford, Chrysler, Honda, Mazda, Nissan, and Audi, have all announced expansion plans with up to $10 billion to be invested over several years.
Manufacturing in Mexico still has some hurdles to overcome, but if the past 3 years are any indication of future growth, Mexico could be the next China.