Which European country loves Mexico the most

LIPortal

Economy: Sectors, Analysis and Policies

The Mexican economy has achieved a fairly high level of macroeconomic stability over the past 30 years, but economic growth did not exceed 3% in the same period and has recently stagnated. Industrial production in the north of the country is closely linked to the US economy. Mexico was able to successfully shift its exports from petroleum to industrial products. However, a third of the public revenue still comes from the oil industry and is therefore the second most important source of income after the remittances of the Mexicans living in the USA (remesas). The tourism industry also plays a major role as an economic factor, with revenues falling in recent years due to crime in the country. The tourism industry suffered particularly severe losses due to the COVID-19 pandemic. The Mexican oil industry has already suffered from the corona crisis, as global market demand fell sharply.

Ex-President Enrique Peña Nieto announced a far-reaching reform package after taking office, which he tried to implement with the support of all parties. The so-called "Pacto por México" (signed by representatives of the larger parties on December 2, 2012) included, as important economic reforms, an increase in competitiveness through the liberalization of markets, growth and the creation of jobs. Other political goals included fiscal reform, reform of the education system and the fight against corruption.

The pact had been heavily criticized by many intellectuals and social organizations. Among other things, because it was signed and adopted without a consensus from important social groups. For example, the so-called "educational reform" in the southern, impoverished states met with great opposition from the population. Protests, combined with vigils, road closures, and in some cases also motorway closures, resulted in high economic costs. Peña Nieto's reform was abolished in 2019 by López Obrador, with the aim of making education accessible to all sections of the population.

The goal of fighting corruption has not been achieved to this day. Several governors are suspected of having enriched themselves through their offices. Ex-President Enrique Peña Nieto was also repeatedly involved in real estate and corruption scandals. The economic costs of corruption are high and damage the country's development. It is estimated that corruption costs the country around 10% of GDP.

As early as the mid-1980s, the deregulation and privatization of companies and banks were at the core of the structural change towards an export-oriented economy. World market integration was accompanied by strong economic and social polarization, as only a few sectors and regions were able to contribute to economic growth. While the service sector now generates 62% of GDP and employs 58% of the working population, the agricultural sector only contributes 3.5% to GDP, but still creates 18% of jobs.

Mexico suffered from economic crises in the 1970s and 1980s due to its dependence on oil and its price development on the world market. For this reason, it has been of high importance for neoliberal economic policy since 1982 to promote diversified industrialization. The extraction of metals and mineral raw materials and the production of food and beverages, vehicles and textiles (maquila industry) today generate 35% of GDP. The development to an export country was strengthened with the free trade agreement between Canada, USA and Mexico (NAFTA). The concentration of exports in a few companies remains problematic: of approx. 3 million companies, only approx. 7,000 export.

Despite various efforts to diversify energy production, the dependence on oil is still very strong. This dependency has serious implications for the entire economy, especially in times of falling oil prices. Dams and reservoirs are currently being planned, but the population's distrust of such projects is considerable. The expansion of renewable energies has great potential.

Regional economic importance and charisma

For the development of the Mexican economy, the growing interdependence with the USA at the trade level is of central importance. Since NAFTA came into force in 1994, the Mexican economy has geared its production to the needs of North American countries. The US takes 80% of Mexican exports. Where oil used to be the top priority, remittances from Mexicans living in the USA are now the most important source of income for Mexico. An agreement on the free movement of workers is not in sight.

The more than 12 free trade agreements that Mexico has signed with 45 countries around the world make the country very interesting for international investors. Mexico has also signed several trade agreements with other Latin American countries (including bilateral agreements with Argentina, Bolivia, Chile, Costa Rica, Ecuador, Colombia, Nicaragua and Peru as well as multilateral alliances with Colombia and Venezuela on the one hand and with Guatemala, Honduras and El Salvador on the other). Mexico uses its position as the third largest economy in Latin America to promote regional networking (see: the signing of the CELAC).

Outside the American continent, there are agreements with alliances and associations of states, such as the global agreement with the EU. This came into force in 2000 and goes far beyond the regulation of trade relations in that it deals with topics of cooperation and political cooperation. There is also a trade agreement with the European Free Trade Association, which came into force in 2001, as well as bilateral agreements with Israel and Japan.

Economic indicators, analyzes, statistics

The German-Mexican Chamber of Commerce and Industry provides information about its tasks and gives useful tips on everyday issues.

On the website of the Mexican central bank Banco de México you will find explanations of monetary and currency policy, economic indicators, etc.

Economic Policy and Development Potential

The structural change to an export-oriented economy was consolidated through the signing of several trade agreements (NAFTA, global agreement with Europe) and international agreements on economic and political cooperation.

There is enormous development potential in the country for highly diversified small and medium-sized companies that are already highly productive but have not yet found a place in the export economy.

Mexico was able to successfully diversify exports of a wide variety of products and is today, for example, the second largest steel producer in Latin America and the second largest oil producer on the American continent after the USA.

Mexico is rich in minerals and metals such as gold, silver, iron, zinc, and lead. Mining companies from Canada, Great Britain and the USA are granted concessions to exploit the mines.

The main agricultural products are: corn, wheat, soy, rice, beans, wool, tobacco, coffee, beef, poultry, wood and countless types of fruits and vegetables.

Products and production methods

A high-tech industrial production and a modern service sector are represented in Mexico, as are subsistence-oriented agriculture and traditional handicrafts and small businesses.

Trade: domestic and foreign trade, trade balance

Mexico is Latin America's largest exporter and importer. The geographical location of Mexico is proving to be a dynamic location for trade and investments in Latin America, Asia, Europe, but above all in the USA, which is the most important trading partner. Around 85% of Mexican exports and 50% of imports go to the USA and Canada. Foreign direct investment has increased in recent years, with investment coming mainly from the USA, Canada, Spain and Germany. Mexico has had a slight trade deficit for years. With their money transfers, Mexican migrant workers make a major contribution to private consumption.

Mexico has managed to diversify exports into several industries, which reduces the often onerous dependence on the development of oil prices. The improvement of the domestic economic conditions is necessary in order to compensate for external burdens. As agreed in the Pacto por México, the political measures that should be implemented with this aim include: the dismantling of oligopoly and monopoly structures, the strengthening of competition and the private economy, the fight against the shadow economy, the increase in tax revenue and the Fight crime.

Mexico ranks 22nd in the ranking of German trading partners in the export sector. The volume of trade between Germany and Mexico was around $ 23 billion in 2018 (compared to around $ 17.4 billion in 2015). A large part of this is capital that has been invested in the automotive industry, plus further investments in the chemical and pharmaceutical industries. Germany is Mexico's most important trading partner in the EU.

The free trade agreement with Europe, which came into force in 1997, has been supplemented by new products and services over the past 20 years. The relationship with Germany in particular and with Europe in general has become more important for the Mexican government. In particular, since Donald Trump took office in the US and the associated threats to impose punitive tariffs on goods imported from Mexico into the United States, the Mexican government has tried to diversify its trade relations worldwide. An important step in this direction is the renewal of the trade agreement with the European Union - Mexico's third most important trading partner after the USA and China. After the negotiation rounds began in May 2016, Mexico and the EU reached an agreement on the agreement in April 2018.

Before the agreement was reached, civil society organizations demanded that renegotiation should not only be limited to including other areas in the agreement, but should also include better mechanisms to protect human rights. A central point in this constellation is the behavior of European companies in Mexico and specific demands regarding water pollution, environmental pollution and deterioration in working conditions.

Development and development policy

As an OECD country, Mexico is no longer a developing country, but an emerging country, i.e. a global development partner that should play an important role in solving regional and global challenges.

The lack of social cohesion in the country is a clear obstacle to stable, long-term development in Mexico. Since 2005, political dialogue and cooperation with the European Union have focused on strengthening regional integration and social cohesion (combating poverty, inequality and social exclusion). The aim is to create sustainable development and a balanced society. Despite the use of diverse resources and the positive economic development, it has not yet been possible to initiate far-reaching changes in the social structure of Mexico.

The unequal distribution of income creates a gap, which in part results in major social problems. While 10% of the poor in Mexico receive 1.3% of the income, 10% of the rich generate 36% of the income. 52 million Mexicans live in poverty, 10.4% of them even in extreme poverty. Of the 50 million active Mexicans, 31 million live in a precarious situation and cannot live on their salaries. According to the World Bank, 10% of Mexicans lived on less than one dollar a day in 2005 and thus cannot adequately cover their basic needs. 29.6 million work in the informal economy. Agriculture, on which about 30% of the population live and which only generates 4% of GDP, is in deep crisis. 10% of young people do not go to school and have no job.

Development cooperation between Germany and Mexico has focused on future-oriented topics such as climate change, the environment, renewable energies and energy efficiency. The European Union's cooperation with Mexico focuses on the following topics: justice, social development, human rights, promoting the indigenous population, youth rights and democratization.

Millennium Development Goals: Poverty, Poverty Reduction, etc.

Even if Mexico has been partially successful in achieving the Millennium Development Goals (MDG) since the 1990s, the proportion of the population living below the poverty line has been increasing again since 2006. The unequal distribution of wealth continues to grow, widening the gap between rich and poor. During the global economic crisis between 2008 and 2010, the poverty of the population temporarily increased to 46.2%. According to the World Bank, the proportion of the population living in poverty is now 41.9%, the proportion of the population living in extreme poverty, i.e. less than 1.90 dollars a day, is 2 by 2016, 2% down.

National development efforts

Government efforts to combat poverty are coordinated in the Bienestar Ministry of Social Affairs (previously SEDESOL, Secretaria de Desarollo Social). The programs largely target the marginalized sections of the population, such as migrants, day laborers, indigenous peoples, single parents and other disadvantaged population groups. Despite poverty reduction programs, Mexico is one of the countries in Latin America that is least successful in combating poverty.

The state sees great development potential in large-scale energy projects such as the wind energy park on the isthmus of Oaxaca. Since planning and construction were carried out without public participation and bypassed the needs of the largely rural indigenous population, public protests broke out in 2011 that ended in increased repression.

German and other European development and aid organizations in the country

Mexico is an important partner country for European development organizations, also for cooperation with Latin American countries. Since 2015, the focus of German development cooperation with Mexico has been on environmental and resource protection, as well as renewable energies and energy efficiency.

The following links lead you to country-specific activities of international organizations:

footnote

*) It should be noted that the statistics are rough estimates and only partially reflect reality. Detailed information on the development status can be found at UNDP in the Human Development Report

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