A Tale Of Three Mexicos

Business Monitor International – Apr. 4, 2013

Mexico’s central states look set to enjoy robust manufacturing sector-driven economic growth over the coming years, with foreign firms likely to be drawn to the region’s strong transport links, increasing number of incentive programmes, and easy access to a rapidly expanding domestic market. However, as the central states begin to more closely resemble the wealthier north, this will leave Mexico’s economically stagnant south behind the rest of the country.

In a special feature published in Business Monitor Online this week, we examine the position and prospects of Mexico’s central states within the broader economy. There are two key points we think are worth highlighting:

1: The manufacturing sector is set to boom in Central Mexico: Northern Mexico has long been the manufacturing heartland of the country, benefiting from proximity to the US market. However, we believe that the central region is set for substantial manufacturing sector growth in the coming decade for several reasons:

•First, it has increasingly strong transport links, allowing for easy export of goods to both US and other foreign markets.

•Second, given the higher population density and proximity to the wealthy Federal District, manufacturers are likely to want to set up in the region to take advantage of a growing Mexican domestic consumer market.

•Third, the central region is cost-competitive, with wages tending to be lower than the north, and a number of the central states having aggressively been offering incentives (such as tax breaks) to manufacturing firms to set up shop.

•Finally, we have already started to see the beginning of a clustering effect in some of the country’s larger industries, especially autos and auto parts. This in itself is likely to draw other firms, so that by the end of our 10-year forecast period, we believe the centre of Mexico could be a manufacturing hub to rival the north, bolstering growth in the region.

2: Southern Mexico will remain economically stagnant: In contrast to our more sanguine view for Mexico’s central region, the south looks set to continue struggling economically.

Mexico has long had a substantial divide between the wealthier north and poorer south, with the southern states lagging their northern counterparts in almost all indicators measuring socioeconomic and human development.
This phenomenon looks set to continue over the coming decade, given the region’s limited political sway and considerable structural obstacles to greater foreign investment, such as a poorer population, less educated work force, and weaker infrastructure.

See Entrada commentary.

Source: Business Monitor International

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