Government trust, economic reforms critical to Mexico’s next wave of competitiveness

Riviera Maya, 8 May 2015 – A thriving manufacturing base, ample energy reserves, a growing labor pool, and sizeable access to global markets position Mexico to raise national living standards and dramatically reduce the nation’s historic inequality, according to a Deloitte Touche Tohmatsu Limited (Deloitte Global) report released today. However, there are several critical issues that must be addressed to enable faster growth, including the government’s ability to build and maintain political confidence and trust by reducing crime and corruption, boosting education, and improving the skills of its workers.

Deloitte Global’s report, Competitiveness: Catching the next wave: Mexico, examines five key industry sectors—manufacturing, automotive, energy, telecommunications, and tourism—that will fuel Mexico’s “next wave” of growth over the next 25 years. It also delves into the importance and impact of open trade to Mexico’s prosperity, and outlines key policy areas and reforms that can help accelerate growth.

“Talent is a key competitive advantage in today’s globalized economy, and Latin America—including Mexico—is struggling to fill high-skilled jobs locally as sectors attract new investment and continue to expand,” said Gary Coleman, Managing Director, Clients and Industries, Deloitte Global. “Despite investment, the quality of Mexico’s education system lags many of its Latin American peers. There is a real opportunity for Mexico to make those key investments now to ensure future economic development.”

Additionally, the report examines the crucial role of anti-corruption policy initiatives.

“Combatting bribery and corruption is challenging in Mexico’s informal economy, but the right steps are being taken to counter corruption,” said Jorge García Villalobos, Financial Advisory Partner, Deloitte Mexico. “Recent cases have highlighted the need for stringent anti-corruption policies that are necessary for Mexico to grow and compete in the region and on the global stage.”

Industry sector highlights from the report include:

• Manufacturing: Poised to be the country’s strongest growth sector in Mexico’s economic forecast, the manufacturing sector accounts for 32 percent of domestic economic output and nearly 50 percent of total FDI. The close proximity to vital U.S. markets, cheaper wage rates, and access to foreign technology has boosted growth in the electronic and aerospace sub-sectors, causing many American factories to relocate to Mexico.
• Automotive: As the seventh-largest auto producer globally, Mexico’s automotive industry is a high-priority sector in the country’s growth plans, and is projected to receive an additional $15 billion investment in automotive capacity and rise to the fifth-largest vehicle producer in the world by 2020.
• Energy: Lower oil prices and energy costs in Mexico have the potential to propel the energy sector. A rise in manufacturing output would boost U.S. consumer spending and benefit Mexican factories: U.S. natural gas exports to Mexico doubled between 2010–2013. This influx of cheap gas allows for significant reductions in electricity rates, improving competitiveness in manufacturing and chemical industries.
• Telecommunications: Newly implemented government reforms in broadband services, including the entry of new market players, elimination of long-distance telephone rates, and reductions in cellular fees, will be instrumental in paving the way for mobile innovation, open competition, and reduced costs for consumers, while undermining long-entrenched media monopolies.
• Tourism: As Mexico transitions towards a more service-based economy, tourism has the potential to be a significant driver of additional employment, investment, and growth. A spike in the number of tourists visiting Mexico in 2014 surpassed 29 million, ranking the country tenth worldwide in tourism, a 20.5 percent increase from 2013.

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