Time to start trading with Mexico

Laura Atkinson

Latin America may not be the first destination that comes to mind when British companies are trying to establish new export markets. Understandable enough as we consider the issues surrounding safety, corruption and dire fiscal and monetary management. However, it is wrong to generalise and tar the whole continent with the same brush.

Openness

While a few of Mexico’s Latin American neighbours are dealing with political instability, Mexico itself is a country with a democratic economy and a great openness to trade – it has free trade agreements (FTAs) with 45 countries. There has been steady GDP growth (2.3 per cent in 2016) and single-digit inflation since 2000, and the government is opening up historically government-dominated sectors such as energy, utilities and telecommunications. Mexico is the second-largest populated Latin America country (Brazil is the most populous) and offers rewards for companies who want to pursue business there.

Moreover Mexico and the UK have had a positive relationship for over 200 years and, recently, Ministers from both countries have publicly committed to establishing a new FTA when Britain leaves the European Union.

Concerns

Following the American elections, there were serious concerns over the impact of proposed protectionist policy and a desire to renegotiate the North American Free Trade Agreement (NAFTA) to protect the USA from trade deficit. In spite of this, GDP has been growing. The Mexican government even recently revised their growth forecast for 2017 upwards after having given more conservative numbers at the beginning of the year due to Trump’s presidency.

The manufacturing sector has been behind much of this growth despite early problems. At the beginning of the year, Ford Motors cancelled the construction of what was to be their second plant in Mexico. This appeared to be a political move to appease Trump and a potential disaster for the Mexican economy if other carmakers followed suit. However, months later, these fears have not been realised and Nissan, along with Daimler, KIA, Toyota and Nemark, are now expanding their operations in Mexico, while Volkswagen, BMW and Audi have publicly committed to maintaining their investments in the country.

Production for 2017 (up to July) reached record numbers of 2,170,732 vehicles manufactured – a 10.8 per cent increase on the previous year. These figures were complimented by a 13.1 per cent increase in exports (1,756,390 vehicles.) The story is the same in other manufacturing subsectors with aerospace exports anticipated to grow by 12 per cent this year.

As NAFTA renegotiation talks began in mid-August, Mexico shows they are unwilling to accept unequal treatment that might damage their manufacturing industry.

The Mexican government also understands that there is a need to reduce dependency on the United States. They are currently renewing and modernising the existing FTA with the EU and there are talks of new FTA between Mexico and China.

Opportunities

There are opportunities available in Mexico at every level and beyond manufacturing. The current government’s reform agenda has created million-dollar tenders in oil and gas as well as power generation, and many more are expected. To renew and develop Mexico’s infrastructure to support the country’s growth, many new projects are underway through the government’s National Infrastructure Plan that harnessed the benefits of private-public partnerships with an investment target of $7.75 trillion pesos (approximately £338 billion). With a general election next year, there may well be another such plan with even more opportunities for British companies.

In services, there is also strong growth. Tertiary sectors grew by 3.4 per cent during 2016: transport and storage grew by 2.8 per cent, trade by 2.4 per cent, housing and rental services by 1.9 per cent and finance and insurance services climbed by a whopping 7.7 per cent.

Business Clinic

The British Chamber of Commerce can help you in establishing contact with potential partners and clients. On 11th October, the LCCI is hosting a business clinic with the British Chamber of Commerce in Mexico. Here you can find practical advice and
guidance on the opportunities that exist in Mexico for your company and anticipate challenges you may face before taking the leap. Click here to book your ticket

Laura Atkinson is the manager of BritChaM Business in Mexico

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