The largest Spanish-speaking country in the world
Mexico (United Mexican States) is a country located in North America, with a population of 126.7 million. Mexico is the largest Spanish-speaking country in the world and one of the most economically developed countries in Latin America. As one of the so-called Newly Industrialized Countries, Mexico is characterized by a surging GDP, friendly policies for foreign businesses, expanding high-tech industries, and low labor costs.
In 2021 the GDP value was $1.27 trillion ($10,045 per capita). In the GDP structure, industry accounts for 30.8%, services for 59.2%, and agriculture for 3.9%. 98% of companies (4.9 million) are small or medium-sized enterprises (SMEs). Social inequality, corruption, and crime continue to pose problems despite economic progress. However, as the World Bank predicts, growth will be supported by Mexico’s stable macroeconomic conditions, trade with the United States, and developed manufacturing base.
Challenges for the coming years include further reducing the administrative burden on businesses, ramping up investment in education, expanding infrastructure, mainly transportation, and increasing the share of renewable energy resources in the energy mix. On the other hand, Mexico’s economic model is increasingly moving toward an innovation-oriented economy, as evidenced by the growth of industries such as electronics and the ICT. An open and diversified economy makes Mexico a prospective market for exports and investment.
Population of Mexico
Mexico’s population is 126.7 million. About 60% of the population is Mestizo of Native American and European descent, mainly Spanish. About 30% are indigenous peoples (Nahuatl, Maya, Zapotec, Misteca, and others), who retain their cultural identity. Mexicans of European descent make up about 9% of the population. The majority of the population speak Spanish, but about 7 million people speak 63 native languages.
Catholics are the largest religious group (72.1%). Others include evangelicals (2.5%), Jehovah’s Witnesses (1.7%), and Pentecostals (1.3%). More than 13% are those who do not follow any religion. The country’s population is relatively young, with 67% of Mexicans aged 15 to 54 in 2021. The workforce numbers 58.7 million people. 62% of Mexicans work in services, 26% in industry, and 12% in agriculture. It should be noted, however, that despite low unemployment, more than half of the working population operates in the informal economy.
81% of Mexican citizens live in cities. The largest city is the capital, Mexico City (Ciudad de Mexico), with a population of more than 9.2 million. The entire metropolitan area is home to more than 22 million people. The states with the largest populations are Jalisco, Veracruz, Puebla, Guanajuato, Nuevo Leon, and Chiapas. More and more rural residents are migrating to cities in search of work.
Economy of Mexico
Mexico is a member state of the Organization for Economic Cooperation and Development (OECD), the Asia-Pacific Economic Cooperation (APEC), and the G20. In 1994, Mexico, along with the United States and Canada, became a party to the North American Free Trade Agreement (NAFTA), which was succeeded in 2020 by The Agreement between the United States of America, the United Mexican States, and Canada (USMCA). The United States is currently Mexico’s largest trading partner (78.1% of Mexican exports and 43.7% of imports).
Mexico’s currency is the Mexican peso. Mexico is the world’s second-largest recipient of remittances from abroad, sent mainly by Mexicans living in the United States. In 2022, it totaled about $60 billion, accounting for 4.2% of GDP. Services play a pivotal role in the economy. Key sectors include tourism, trade, banking, insurance, and telecommunications. In 2022, tourism, accounting for 8.3% of GDP, recorded a massive surplus of $20.9 billion. Conversely, foreign investment amounted to $3.4 billion.
For industry, the key sectors are automotive, food, textiles, chemicals, and electronics. A distinctive feature of the Mexican economy is the maquiladoras, or manufacturing plants operated by foreign companies and exporting products to the companies’ home countries. Mexico is one of the largest producers of food products such as corn, coffee, wheat, sorghum, barley, sugar, beans, tomatoes, chili peppers, and avocados. The prospective sectors are ICT, worth $26.7 billion, and pharmaceuticals, worth $11 billion.
Mexico has extensive mineral deposits. Proven oil reserves are 6 billion barrels, with daily production of 2 million barrels. Mexico is the 12th largest oil producer, and PEMEX is the second largest oil company in Latin America after Petrobras. Mexico also has 7.1 trillion cubic feet of proven natural gas reserves, and its exports have quadrupled over the past decade. Other natural resources are silver, copper, zinc, gold, and lead.
International trade
Mexico is the world’s 15th largest economy by GDP, the 11th largest exporter, and the 12th largest importer. The value of Mexican exports is $494.6 billion, and imports are $506.6 billion. Mexico’s main trading partners are the United States, China, South Korea, Germany, Japan, Malaysia, Canada, Brazil, Vietnam, and Thailand.
The most imported goods are electrical machinery (20%), industrial machinery (15.6%), oil and mineral fuels (8.5%), motor vehicles and parts (7.73%), plastics (5.87%), precision instruments (4.08%), iron and steel (3.5%), iron and steel articles (2.18%), organic chemicals (2.11%), and aluminum (1.75%). Other imported goods include chemical products, rubber, cereals, paper, pharmaceuticals, meat, furniture, inorganic chemicals, cosmetics, toys, and sports equipment.
Among the most frequently exported goods are motor vehicles and parts (23.3%), electrical machinery (17.6%), industrial machinery (17.2%), oil and mineral fuels (5.58%), precision instruments (4.17%), plastics (2.31%), furniture (2.24%), beverages (2.02%), precious stones and metals (1.88%), and vegetables (1.74%). Other goods include ores, fruits, nuts, iron and steel articles, rubber, meat, cereals, cosmetics, clothing, glass, and glassware.
Trade agreements
Mexico has many trade agreements, both with countries and associations of countries. The trade agreements are 13 free trade agreements with 50 countries, 32 reciprocal investment promotion and protection agreements, and nine trade agreements within the Latin American Integration Association (ALADI).
Mexico has concluded free trade agreements with the following countries:
Bolivia
Chile
Colombia
Costa Rica
El Salvador
Guatemala
Honduras
Israel
Japan
Nicaragua
Panama
Uruguay
Venezuela
As of July 2020, Mexico is a party to the “Agreement between the United States of America, the United Mexican States, and Canada,” a free trade agreement that replaced the North American Free Trade Agreement (NAFTA).
Agreements with associations of countries:
Latin American Integration Association (ALADI)
Southern Common Market (Mercosur)
European Union (EU)
European Free Trade Association (EFTA)
Asia-Pacific Economic Cooperation (APEC)
Pacific Alliance (PA)
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
Agreements concluded as a member of the Pacific Alliance:
Singapore
Mexico – European Union relations
The European Union and Mexico concluded the EU-Mexico Economic Partnership, Political Coordination, and Cooperation Agreement, also known as the “Global Agreement,” in 1997. This agreement went into effect in 2000 and liberalized trade in industrial goods and most agricultural goods. It was modified in 2020 to eliminate tariffs on other agricultural products and improve the investment environment. The agreement is currently up for ratification.
As a result of the liberalization so far, trade between Mexico and the EU has tripled. Its value in 2022 was 78.1 billion euros. The European Union is Mexico’s second-largest export market. The EU mainly imports machinery and appliances, transportation equipment, and optical and photographic instruments from Mexico. Mexico imports machinery and appliances, chemical products, transportation equipment, and base metals from the EU.
As for trade in services, the European Union primarily imports tourism and transportation services. The EU’s service exports are more diversified. These include business, transportation, tourism, and ICT services. The EU is also the second largest investor in Mexico after the United States. In 2021, foreign direct investment amounted to €6.9 billion.
Opportunities and challenges
The Mexican market is open to trade. It is also attractive in terms of potential consumer base. Mexico’s membership in the USMCA translates into potential re-exports to the U.S. and Canadian markets. In recent years, the import regime has been relaxed, import duties have been reduced, and are estimated based on the transaction value of imported products. A special products and services tax (IEPS) is charged on imports of alcoholic beverages, cigarettes, and cigars. Details can be found on the website of the National Customs Agency of Mexico (Agencia Nacional de Aduanas de Mexico).
The challenges for foreign entrepreneurs include excessive administration, over-regulation, unclear and frequently changing laws, crime, and corruption (Mexico ranked 126th out of 180 in Transparency International’s 2022 ranking). Frequent changes in legislation make it necessary for exporters to follow the situation closely and keep up to date with trade rules. Patience is also essential, as deadlines for responding to formal letters are not always met.
Regarding opportunities, the most promising market segments include the automotive, pharmaceutical, agri-food, and ICT sectors. Other opportunities stem from the need to expand transportation and housing infrastructure and increase investment in the education system. Also promising are projects in the energy sector, including those related to greater use of renewable energy resources. Further opportunities for expansion are offered by seven special economic zones, where investors enjoy additional support through incentives and breaks.