Last reviewed 9 March 2021
Major economic gains over recent decades mean Mexico is now a market to be reckoned with — and it wants UK firms to play their part.
Mexico on the march
A land of fiestas and siestas, Mexico — the 11th largest economy in the world — is a classic nation of colours and contrasts. Its vast landscape — which provides a long geographical bridge between affluent North America and impoverished Central America — brings with it much of everything.
Palm-fringed, tropical beaches, snow-capped mountains, deserts, rainforest jungles, and plenty of urban, concrete jungles too. These contrasts are also plain to see among its 128 million population, with extreme wealth and poverty often living in close proximity in some of the crowded, sprawling cities and their shanty town satellites. That’s especially true in the densely-populated, high-altitude capital, Mexico City, home to more than 21 million people and a key arrival point for UK business visitors.
Like its geography, Mexico’s culture is equally colourful and diverse, and is rightfully celebrated worldwide. It is famous for its fiery, chilli-inspired cuisine, its fanaticism for football — many of its star players have played for top English clubs — and an incredible history dating back thousands of years. Prior to the Spanish colonial era, this has left with it striking archaeological ruins and monuments that can be seen and enjoyed today, the most remarkable of which include the Maya temples of Palenque and Teotihuacan’s mighty pyramids.
As such, Mexico is understandably a massive tourism destination, with popular resorts such as Cancun bringing in many thousands of visitors each and every year and earning vital foreign exchange income for countless local businesses, at least in the pre-Covid era.
The majority travel from the USA, with Cancun just 1 hours and 40 minutes’ flight time from Miami, though officials have increasingly widened their search for tourists in recent years to Europe and to other markets in a bid to diversify and grow the revenue base. It is estimated that well over half a million British visitors arrive each year, according to the UK Foreign & Commonwealth Office (FCO).
Hordes of American tourists also cross the lengthy land border that stretches 3,145km from California to Texas on the US side, and from Tijuana in Baja California to Matamoros in Tamaulipas on the Mexican side. This controversial frontier — a focal point for illegal immigrants, drug trafficking, as well as a conduit for legitimate trade — is also marked for much of its length by the Rio Grande, a river that separates the two countries and which is also considered a political boundary.
For international businesses, Mexico is an equally appealing destination. From a largely third-world country in the sixties, seventies and eighties, as the American market thrived and flourished just over the border, Mexico has been through something of an economic transformation in recent decades.
It is now the second-largest economy in Latin America, after Brazil, with a diversified industrial base, a sophisticated services sector and consumer market, and is a major exporter of manufactured goods and commodities, like crude oil. Despite being battered by disruptions triggered by the lockdowns of 2020, the economy has grown impressively — it is projected to return to growth in 2021 and recover its pre-crisis level in 2024.
On the doorstep of the world’s biggest and most affluent market, it has become strategically more important as a trade and investment partner to the USA. Mexico is currently the USA’s largest goods trading partner and is a major manufacturing and assembly hub, tapping into cheaper costs including land and labour. But other countries around the world, from Europe to Asia, have woken up to Mexico’s strategic advantages, from its high potential for further growth to its proximity to the US market.
While Spanish historical links are strong given the two sides’ history, officials have been proactively nurturing relations with other trade partners, including the UK. The two countries have already signed a trade and continuity agreement to help capitalise on opportunities in the wake of Brexit and are expected to begin negotiations on a new and ambitious free trade agreement during 2021.
Total trade in goods and services with Mexico was worth £5.3 billion (US$7.3 billion) in 2019, spanning a broad range of sectors such as automotives, pharmaceuticals, textiles, agriculture, food and drink and other manufacturing industries.
The UK and Mexico have separately moved to boost iconic drinks in each other’s countries with an Agreement on the Mutual Recognition and Protection of Designations for Spirit Drinks, covering traditional spirits like Irish and Scottish Whisky and Tequila, Sotol and Mezcal. Mexico is also supporting the UK’s attempt to join the Trans-Pacific Partnership (CPTPP).
Famous UK names already working in Mexico include the likes of HSBC, GlaxoSmithKline, AstraZeneca, BAT and the InterContinental Hotels Group. But there is strength and depth too, with around 3800 VAT-registered UK businesses exporting goods to Mexico and a further 1300 importing goods, according to HMRC.
A new British ambassador, Jonathan Benjamin, takes the reins in August 2021 to replace the present ambassador, Corin Robertson, and to spearhead the new trade push. One former ambassador, Dame Judith Macgregor, is now an independent non-executive director at Anglo-Mexican mining company, Fresnillo plc. It is incorporated in the UK but headquartered in Mexico City and is the world’s largest producer of silver from ore, as well as Mexico’s second-biggest gold miner.
Smaller players are also active in this important sector, such as London-listed Alien Metals, which recently commenced first drilling at its Donovan 2 copper gold project in Mexico. There is, in fact, a long, shared history in the mining sector with Cornish tin miners helping establish Mexico’s early mines some two centuries ago. Firms on both sides are also supported by an active Mexico-UK Business Council.
Other recent high-profile business includes the award of a contract to a group comprising UK-based architects Foster + Partners to design Mexico City’s new international airport. Its design anticipates a predicted increase in passenger numbers to 2028 and beyond, with an expansion plan up to 2062 with an eventual six runways.
Doing business is comparatively straightforward — Mexico was ranked as the second easiest market to do business with in Latin American and the Caribbean, according to the World Bank. While Spanish is the official language, English is increasingly understood in tourism and business circles because of the country’s proximity and ties to the USA.
This familiarity with the US market could potentially aid British exporters, given the shared language and similar cultural influences — the vast bulk of Mexican goods and services exports are sent to the USA. But for UK entities there is still huge scope to boost trade and investment on both sides. In terms of inward foreign direct investment (FDI) into Mexico, the UK lags far behind not only the USA, the lead foreign investor, but also peer states such as Spain, Germany and Italy.
Risks and opportunities
Despite a largely pro-business environment, and one that enjoys access to the North American Free Trade Area (NAFTA) group, some strategic industries remain dominated by Mexican state entities. That includes the vast oil and gas sector — an area in which UK firms are traditionally strong — which produces around 1.7 million barrels of crude per day.
The industry remains dominated by state-owned oil producer, Petroleos Mexicanos, or Pemex, although it is saddled with an eye-watering US$100 billion in debt. This has been exacerbated over the past year with the fall in global oil prices, while a delay in the recovery of tourism could further dent any hopes of a recovery during 2021.
Nonetheless, the International Monetary Fund (IMF) is cautiously optimistic and expects gross domestic product (GDP) growth to reach 4.3% for this current year, despite all the prevailing headwinds. This is higher than the 2% annual average since 2013.
In its last review, in November 2020, the IMF gave an endorsement of the country’s mostly solid economic and fiscal management.
“The authorities have a track record of sound policy management and are firmly committed to maintaining prudent policies going forward,” noted Geoffrey Okamoto, first deputy managing director and acting chair at the IMF.
It is this level headedness that has helped Mexico navigate the developmental challenges of the past few decades, transforming the country into a growing, pro-business market with an increasingly international outlook. Yet, a number of delicate issues that hold Mexico back still remain.
Corruption, bribery and bureaucracy have all affected business, while confidence also continues to suffer from safety risks linked to organised crime, drugs trafficking and people smuggling. For more than a decade, Mexico's powerful drug-trafficking organisations have engaged in violent feuds that have resulted in thousands of drug-related homicides.
Low productivity, high wage inequality and a disproportionately large informal sector which employs over half of the workforce, have also been flagged as holding back more rapid economic advances. And yet, given its strategic location, facing out to the high-growth Pacific region on the west coast and to the Gulf of Mexico on the eastern side, Mexico will not find it difficult to draw attention back — both from investors and tourists — as the world begins to settles down after the tumult of 2020.