Photo credit: Bolsa Mexicana de Valores by mykewithwai
Mexico’s Instituto Nacional de Estadística y Geografía (INEGI), translated as the National Institute of Statistics and Geography, has recently stated to the public that the country’s economy, due to a rise in agricultural sector activity, grew by 3.9 percent in 2012.
The growth in the economy corresponded to projections made by the Mexican government a year ago, and was roughly the same as the growth the country experienced in 2011. INEGI stated that part of the growth was fueled by agricultural activity, which grew 7.2 percent in 2012’s last quarter. A higher production of corn, beans, sugarcane and wheat was responsible for the sector’s growth.
In a move to promote higher rates of growth and to attract investment in high-tech industries, the new Federal Government under President Enrique Peña Nieto is working to pass reforms in the energy and telecommunications sectors. The objective is to increase the rates of formal employment in the country where unemployment and underemployment can be problematic.
However, there are industries other than agriculture, which are contributing significantly to Mexico’s strengthening economy. The first industry is that of automotive manufacturing, with the Volkswagen plant in Puebla alone employing over 18,000 and producing approximately 2,500 vehicles per day mainly for export. Other international auto companies with plants in Mexico include Nissan and Lexus.
The electronics industry is another area where strong growth has been seen and is expected to continue. Mexico is the sixth largest producer of electronics after China, the United States, Japan, South Korea and Taiwan. Electronics currently are responsible for 30% of the country’s exports.
Mexico’s highly skilled workforce is also contributing to the country’s economic growth; foreign companies who may have at first gone to China or India due to the low wages there are choosing to invest in Mexico as the workers are solidly educated and are also capable of innovation. Automotive companies base their research and development headquarters in Mexico, and companies in the aerospace industry are also establishing manufacturing plants in order to access the highly skilled Mexican workforce. According to the WTO and the OECD, the Mexican workforce is the hardest working in the world when it comes to hours worked per year and profitably in terms of man-hour.
Mexico’s economy is growing while others might not be doing as well for several different reasons. Along with the skilled labor force, Mexico enjoys a good location for companies that want to export. Due to the high cost of fuel, a company that might have thought of locating to Asia may very well find that manufacturing in Mexico will produce big savings on transportation costs. From Mexico, both North and South American markets are easily accessed.
Finally, a significant factor in Mexico’s economic growth is the fact that it has 12 free trade agreements with 44 countries, including Japan, the United States and Canada (NAFTA), and the European Union among others. Mexico has also shown interest in MERCOSUR and negotiations for free trade agreements are currently underway with South Korea, Peru, and Singapore. The present government is also hoping to arrange a free trade agreement with Australia.
Opportunities for investors exist in Mexico; lower wages, a highly skilled workforce, and business-friendly free trade agreements will most likely ensure that the country’s economy will continue to expand.
Japanese car-makers, squeezed by the strength of the yen and the high cost of vehicle production in Japan, are increasingly turning to Mexico to manufacture their automobiles. Mexico’s car export industry therefore, has boomed.
One of Nissan’s busiest factories worldwide is located in Aguascalientes in central Mexico. Nissan Mexicana vice president Armando Avila Moreno said: “We make a vehicle every 55 seconds. Our speed is the fastest in the world.”
The Aguascalientes plant produces 380,000 automobiles per year; mostly compact cars like the Sentra. 80 percent of the cars are exported to 100 different countries. A two-shift system in place to maximize efficiency, and the factory runs 24 hours a day for six days a week. Nissan is hoping to have their third Mexican factory up and running by the end of 2013.
According to IHS Automotive, a research firm, Mexico’s vehicle production will reach 4 million units per year by 2018. In 2012, 2.8 million cars were manufactured, which was a full 12.8 percent more than the number of vehicles produced in 2011. Mexico will be the third largest vehicle export base in the world.
This increase in car production is mainly due to Japanese automotive companies growing their presence in the country. While Nissan has been in Mexico for decades, Honda is also becoming a big player. A second Honda plant is in the works and plans are for it to be operational by the spring of next year. Mazda is also hoping to build a new factory in Mexico in 2014. According to Honda president Takanobu Ito, “Mexico is becoming the ‘Ginza‘ (Japan’s hottest shopping area) of car production.”
The fact that Japanese automakers are moving to Mexico to take advantage of Mexico’s ideal exporting location, multiple free-trade agreements and highly-skilled workforce, is also influencing Japanese car parts makers to move manufacturing to Mexico. Parts manufacturers are incredibly eager for the opportunity to expand their business, with many companies wanting to make the move as soon as possible in order to get a head start on any competition.
In Tokyo, Mexico’s Secretary of Economy in Japan’s representative office spoke of how many Japanese parts makers have been calling the office with urgent inquiries. Companies usually say “We want to expand into Mexico as soon as possible. Are there any vacancies in industrial complexes?”
While there are 50 Japanese parts manufacturing companies currently in Mexico, officials from the Tokyo representative office claimed that the number would most likely rise to around 100 in the coming years.
Experts in the field of economics say that one of the driving factors behind many automakers’ decision to manufacture in Mexico, along with lower wages, is the amount of free trade agreements that Mexico has. The country actively promotes free trade and has agreements in place with 44 countries. This means that automakers and parts makers who manufacture in Mexico can export their cars and products to 44 nations at low tariffs or even duty-free in some cases. For most companies that are concerned with their bottom line, this is a huge reason why Mexico simply makes sense.
Finally, Japanese automakers like Mexico because it’s close to their largest markets: The United States and Brazil. Cars manufactured in Mexico cost much less to transport than cars produced in Japan, which also contributes to a healthier bottom line
Photo credit: Fisker Automotive Parking Lot by David Harris
A couple of months ago, I wrote a post called “How many OEMs do you need to amend the auto decree?“, where I explored the decision of the Administration of Felipe Calderón on raising the minimum volume of production for being elegible of the benefits of the Auto Decree. I further suggested that the Government and the auto industry needed to make a wall of greatness with achievements and be proud of this auto/aerospace nation in the making.
Just now, it seems that it happened. Administration of Enrique Peña announced that the Auto Decree will not be amended, i.e. the minimum requirement of 50,000 units will remain to be elegible for OEMs benefits (mainly tax breaks). Of course, these benefits will be extended to all tiers and suppliers, and will release some preassure on Toyota, who was directly affected by the amendment.
Government and the industry seem willing to build their wall of greatness around the good conditions Mexico is having for investing in auto business. Government is taking care of the industry.
It has reached an agreement with Argentina to restart the exports, and there are some new assignments under the ACE 55 for exporting new light vehicles to Brazil, that Nissan and North Pole Star were awarded with.
Government will publish, in the next days, an extension for importing used cars, that will expire January 31, 2015. This will certainly will hit the new and used car dealerships, but the aftermarket industry may find some good use for that.
The opening of the new WV Plant in Silao, Guanajuato, and the forthcoming Plants of Honda and Mazda, show true interest from investors in having an operation running in Mexico. Many other Plants are yet to be announced.
So, it is time for hunting a land, rent a space at an industrial park, negotiate with local government for tax breaks or cheap land, request IMMEX program, set up logistics and hire personnel.
I will be writing several posts on automotive business. I hope this can be of help for all of you. Time is of the essence, let´s do automotive business like it´s 2013, since there is no better timing than today. Grab momentum.
Photo credit: Networking Switch by felixtriller.
Effective as from June 1, 2012, the Canada-Mexico Treaty acknowledges standard evaluation proceedings for telecom equipment. This will facilitate imports/exports between these two countries. This Treaty does not cover electric security and is only usable for testing labs approved by their respective Governments.
A year ago, the same Treaty with US equipment entered into force. Now we are integrated into hardware, maybe next step would be to tear down some regulations on foreign investment.
Photo credit: Luxembourg Neumünster und Johanneskirche by Wolfgang Staudt
On October 31 2011,both Mexico and Luxembourg amended its Tax Evasion Treaty to increase the exchange of information on any type of information and applicable for all type of taxes.
These Amendments will increase cooperation for sharing information.
Last October, Mexico approved similar Amendments for its Tax Evasion Treaty with Singapore, so it seem this will be the new standard for tax evasion policy with tax collaborative Countries of Mexico.
If you are believe this Treaty will affect you, it probably would. As always for tax matters, it is important to follow the rules and comply. As always happens, it is better to contact your tax advisor and start planning.