North Looking South
By John Barham, Dec 1, 2006

Can Mexico become a Latin American powerhouse?

(The first in a series on the Mexican economy)

Last week, while combing the pages of various Mexican dailies, many of the lead stories focused on the lineup of president-elect Felipe Calderón’s economic team. Consequently, it seemed that it might be good to consider some basic information on the Mexican economy and what challenges this new group of cabinet members will face in their efforts to make Mexico a competitive economic force in the 21st century.

With a population of 107 million, Mexico represents the second-largest domestic market in all of Latin America. Per-capita income stands at slightly more than US$9,000 per year, and gross domestic product is expanding at an annual rate of about 5 percent, somewhat less than the 7 percent predicted by President Vicente Fox during his presidential campaign in 2000. 

Despite the relative strength of its economy in comparison to its neighbors to the south, Mexico is not producing a sufficient number of jobs for its citizens. 

International Monetary Fund statistics show that, of the 43 million Mexicans of working age, only about 12.8 million hold jobs in the formal sector of the economy. The remainder work in the informal sector, with no assurance of regular wages and benefits.

Elected in 2000 with ambitious hopes for reforms that would make the economy less reliant on the United States and more vibrant in terms of global markets, Vicente Fox has not met the expectations of the electorate. And, although Mexican per-capita income has grown by 10 percent in the last quarter century, some developing economies in the Pacific Rim have tripled their per-capita incomes during the same time frame, which has also seen unauthorized Mexican immigration to the United States rise to a level of about 250,000 per year.

In recent years, residents of San Miguel de Allende have witnessed an explosion of Chinese imports in shops selling clothing, small appliances, toys and household goods. And, if one visits a Wal-Mart Super Center in one of the larger Mexican population centers, the story is the same as in Wal–Mart Super Centers in the United States—Chinese goods have proliferated. 

After enjoying a relatively favorable position in terms of production costs through the late 1980s and 1990s, Mexico has seen the advantage it initially enjoyed in its maquiladora plants eroded by the mushrooming Chinese economy. A case in point is that most of the trendy clothing favored by the younger set in Mexico is now coming directly from China.

For those who might ask why, the answer is relatively simple: The costs of textile production in China are roughly half of those in Mexico. And, accordingly, approximately 200,000 Mexicans are no longer working in textile manufacturing.

It is clear that unless the Mexican government is able to create conditions to produce a thriving and dynamic economy, Mexico will lag in its development and the majority of the one million Mexicans who seek to enter the workforce each year will be sorely disappointed.

An accomplishment of the Fox administration, somewhat overlooked due to disappointments in other sectors of the economy, was in high-tech development and training. In 2000, there were only four high-tech incubators in Mexico. As Vicente Fox prepares to leave office in 2006, there are 220 that reach throughout the country. And, along with this, Mexico is training some 60,000 new information technology (IT) engineers each year.

Despite the presence of 2,100 IT companies in Mexico, the country is now looking abroad to provide employment for this growing source of IT professionals. Lately, full-scale campaigns in the US have taken place to raise awareness of Mexico’s high-tech potential and to lure American companies south of the border to avail themselves of an ample supply of high-tech specialists.

Just this month, evidence that this strategy may be working emerged when Perot Systems of Plano, Texas, revealed that it would locate a new technology center in Guadalajara, where 150 IT personnel will be hired by January of 2007. The center will be based on several floors of the Guadalajara World Trade Center. It is expected that the Perot Systems announcement will serve as an impetus to attract other high-tech operations to tap into the Mexican labor pool. 

Regardless of the great potential that high-tech development might hold for job development in Mexico, the country is faced with daunting challenges as the economy strives to keep pace with population growth and the glaring disparity in income with its northern neighbor, which continues to entice thousands of Mexicans to immigrate—either legally or illegally. Whether the incoming administration of Felipe Calderón will possess the savvy to end the political stalemate that has precluded necessary economic reforms remains to be seen. In the meantime, Mexico will continue to be mired in the economic dilemma of how to respond to the powerful pressures of demography that create an overabundance of labor and a dearth of job opportunities.

Subsequent articles will continue to examine the Mexican economy with regard to its strengths and weaknesses and how its expansion might alleviate major obstacles to the progress of Mexican society in the 21st century.


John Barham, after a long career as an instructor and administrator in colleges and universities in the United States and the Middle East, is now a full-time resident of San Miguel de Allende. He lectures frequently on Mexican history for the international Elderhostel program and may be reached at barhamjw@yahoo.com