Economy Breakdown:
Mexico has a free market economy with a mixture of modern and outmoded industry and agriculture, increasingly dominated by the private sector. The number of state-owned enterprises in Mexico has fallen from more than 1,000 in 1982 to fewer than 200 in 1998. The ZEDILLO administration privatized and expanded competition in sea ports, railroads, telecommunications, electricity, natural gas distribution, and airports. A strong export sector helped to cushion the economy's decline in 1995 and led the recovery in 1996 and 1997. In 1998, private consumption became the leading driver of growth, which was accompanied by increased employment and higher wages. The government expects the economy to slow in 1999 because of low commodity prices, tighter international liquidity, and slacker demand for exports. Mexico still needs to overcome many structural problems as it strives to modernize its economy and raise living standards. Income distribution is very unequal, with the top 20% of income earners accounting for 55% of income. Trade with the US and Canada has nearly doubled since NAFTA was implemented in 1994. Mexico is pursuing additional trade agreements with most countries in Latin America and with the EU to lessen its dependence on the US.
GDP — purchasing power parity—$815.3 billion (1998 est.)
GDP — real growth rate: 4.8% (1998 est.)
GDP — per capita: purchasing power parity—$8,300 (1998 est.)
GDP — composition by sector:
agriculture: 6%
industry: 26%
services: 68% (1997)
Population below poverty line: 27% (1998 est.)
Household income or consumption by percentage share:
lowest 10%: 1.8%
highest 10%: 36.6% (1996)
Inflation rate (consumer prices): 18.6% (1998)
Labor force: 37.5 million (1998)
Labor force - by occupation:
services 28.8%
agriculture, forestry, hunting, and fishing 21.8%
commerce 17.1%
manufacturing 16.1%
construction 5.2%
public administration and national defense 4.4%
transportation and communications 4.1%
Unemployment rate: 2.6% (1998) urban; plus considerable underemployment
Budget:
Revenues: $117 billion
expenditures: $123 billion, including capital expenditures of $NA (1998 est.)
Industries: food and beverages, tobacco, chemicals, iron and steel, petroleum, mining, textiles, clothing, motor vehicles, consumer durables, tourism
Industrial production growth rate: 6% (1998 est.)
Electricity production: 154.395 billion kWh (1996)
Electricity production by source:
fossil fuel: 71.46%
hydro: 20.16%
nuclear: 4.85%
other: 3.53% (1996)
Electricity — consumption: 154.448 billion kWh (1996)
Electricity — exports: 1.263 billion kWh (1996)
Electricity — imports: 1.316 billion kWh (1996)
Agriculture Products: corn, wheat, soybeans, rice, beans, cotton, coffee, fruit, tomatoes; beef, poultry, dairy products; wood products.
Exports:
$117.5 billion (f.o.b., 1998), includes in-bond industries (assembly plant operations with links to US
companies)
Exports in commodities: crude oil, oil products, coffee, silver, engines, motor vehicles, cotton, consumer electronics
Export partners: US 87.5%, Canada 1.3%, Japan 0.8%, Spain 0.6%, Chile 0.6%, Brazil 0.5% (1998 est.)
Imports:
$111.5 billion (f.o.b., 1998), includes in-bond industries (assembly plant operations with links to US
companies)
Imports in commodities: metal-working machines, steel mill products, agricultural machinery, electrical equipment, car parts for assembly, repair parts for motor vehicles, aircraft, and aircraft parts
Import partners: US 74.2%, Japan 3.7%, Germany 3.7%, Canada 1.8%, South Korea 1.5%, Italy 1.3%, France 1.2% (1998 est.)
Debt — external: $154 billion (1997)
Economic aid — recipient: $1.166 billion (1995)
Currency:
1 New Mexican peso (Mex$) = 100 centavos
Exchange rates:
Mexican pesos (Mex$) per US$1—10.1104 (January 1999),
1998 - 9.1360
1997 - 7.9141
1996 - 7.5994
1995 - 6.4194
1994 - 3.3751
Economy Overview:
Agriculture:
In most agriculture remains mired in the past, with production techniques reminiscent of those prevailing in the l9th century in Europe or North America. Agriculture is the greatest failure of modern Mexico.
Twenty five percent of Mexico's population lives in the countryside, but agriculture production represents only 9% of the country's gross domestic product. Average agricultural productivity in the U.S. is almost 20 times bigger than in Mexico.
It is not the workers who are different, but the production system. The excessive fragmentation of land in Mexico and the lack of clear property rights are two of the reasons why agricultural productivity is
so low in Mexico. Lands was divided and subdivided, and then distributed in ejidos -which
peasants could work in but did not own outright. The small Mexican farms can hardly sustain the kind of modern equipment that has made U.S. and Canadian agriculture so competitive. The lack of clear property
rights, moreover, has prevented long-term investment.
Energy and Mining:
Some portions of these industries, it is true, were eventually privatized or are in the process of being offered to private investors. Production of petrochemicals, which until recently was largely a government monopoly, is being put in private hands. Private companies have also been allowed to prospect
various areas of the country on behalf of Petroleos Mexicanos (Pemex), the government oil company. Plans to allow the private operation of pipelines are also in the works. But the ownership of crude
oil deposits and their exploitation remain a government monopoly and considered to be national treasure.
The privatization of Pemex or of the electricity companies is considered politically unacceptable.
Banking and financial services The bank were nationalized in 1982 under the government of President
Lopez Portillo because he blamed the banks for the country’s troubles. This action instead of
helping the economy, simply accelerated the economic collapse. In that era loans for the private sector, especially to the small companies and individuals, virtually disappeared.
So, in 1990 the privatization of Mexico’s now under the President Salinas had enormous political resistance. Not only were the banks privatized, but the rules of the country’s financial system were modified. Foreign banks, banned from Mexico for decades, were invited back. Legal restriction on banking and financial operations were removed to an unprecedented degree. Moreover, the administration,
which drastically reduced its domestic debt, sharply dropped its need for bank credit, thus making financial resources available for the market use. Overdue loans, which stood at 3% before privatization, rose to 8% at the end of 1994 and sky-rocketed to 15% in the crisis of 1995. Mexico’s banks, however, have now been capitalized while the government has launched a program to subsidize some loans to small companies and private individuals.
Communications:
The once government own only telephone company (TELMEX) was privatize during the Salinas administration with 2 goals:
1. Gradually open the telephone market
2. Ensure enough money available for the huge investments necessary to modernize the old system.
The owners got in return for its commitment to invest billions of dollars in the modernization through digital and optic fiber system replacing analogic switchboards and copper wiring and other, the protection of the long distance market over a five year period. Thus in 1997 new companies will compete with Telmex in
this market.
On the television market, there is a type of monopoly controlled by Televisa on 90% of the market. The government privatized two television networks in 1993. The two are now operated by a private company, Television Azteca that is gradually gaining market share over Televisa.
Transportation:
Mexico was the biggest promoter of private roads in the world during the Salinas administration. This was done due to the lack of money of the government. These companies in return received concessions to operate the roads for a number of years, after which they would become government property. This
decision allowed 4,000 kilometers of highways to be build. The downside for this project was that there was no subside on this so the full cost had to be reflected on the tolls, also the concession lasted only for 8 years, were this type of project have an amortization of 30 years. Result: very expensive tolls. Transportation within the city is very cheap and get everywhere. There is the subway system, one of the largest in the world, subsidized in a large amount by the government. The buses are also from the government and subsidize and there are taxis and other private types of massive transportation. Trucks in Mexico are very old, specially in comparison with that of the other NAFTA countries, and massive investments are needed to modernize it. Mexican ports, also own and operated by the government, are inefficient. But now are also being privatized.
In Bond Industries (Maquiladoras) The in-bond industry in Mexico ranks second as a source of foreign exchange and it is one of the strongest economic sectors. At present. more than 600,000 qualified workers perform various processes-ranging from single assembling to highly-complex manufacturing
- thereby creating an aggregate value of three billion dollars and more than 2,000,000 workers have indirect jobs generated by them. New manufacturing plants for electronic and electrical products,
transportation equipment, clothes and textiles, processed food, furniture and chemical products, for the
most part, have set up along the border and inside the country. Recent decrees on the fostering and operation of the in-bond export bond industry and the impulse given to the border area, provide investors
with available labor, capacity to adapt to new technology or manufacturing methods, stability in worker-employer relations and an easy access to the American market, with a speedy, simplified and decentralized operating framework thus improving their competitiveness worldwide. The reason why the maquiladoras have grown so quickly is because they have been exempted from excessive regulations. They have never had the limitations of foreign investments and the importation of goods and services that have
suffocated other industries. Do not pay duties or tariffs on imports. The problem they cause is
that they use only less than 1% of Mexican goods for their production lines.
Tourism:
There are more than 6,000 miles of warm-water coast on the Pacific, the Gulf of Mexico and the Caribbean. Archaeological sites and colonial towns offer recreation for those who tire rapidly for the sun. Mexico city is one of the cultural capitals of the Spanish-speaking world. You may find high quality hotel, restaurants and all the tourism facilities of industrialized countries. Strangely enough Mexico with all the beautiful resorts, and places has not increased its share of international tourism from 1.5%. New resorts
like Huatulco and Cancun has gained successes sometimes by taking it from traditional resorts like Acapulco and Puerto Vallarta.
