Mexican current economy and future expectations
This time, we asked the president of HIDA/AOTS Alumni Association in Mexico City (Asociación de Ex-Becarios de AOTS México-Japón A.C.), who also runs a consulting company in Mexico, about the current Mexican economy and expectation for the future. Interviewee: Mr. Marcos Escobedo
President,
HIDA/AOTS Alumni Society in Mexico City
--Please tell us about the current Mexican economic/business situation in general.
Over the last eight years the Mexican economy has been stable and its growth has been moderate, inflation has been less than 3% and growth has been 2.5% per year.
The current government has pushed for a series of structural reforms to increase competitiveness and achieve growth of more than 4% per annum over the next ten years. The most important structural reforms for faster economic growth have been: energy reform, to achieve greater foreign investment in the oil fields and to increase the production of oil, gasoline and gas and obtain more competitive prices for the industry in general.
Another important structural reform has been labor reform that has been designed to achieve a more competitive and better paid labor force. Reform of education has also had great importance as it ensures better technicians, engineers and professionals more prepared for the job. And finally telecommunications reform to improve Mexico's communication with the world and take advantage of the most advanced digital technologies.
Mexico is an interesting country for investors from other countries because of its proximity to the USA and cheaper and more competitive labor than elsewhere. The automotive industry is a clear example of the investment in Mexico and currently the country occupies the seventh place in the world in the production of cars. The most important companies in the production of automobiles have installed big factories in Mexico like: General Motors, Ford, Chrysler, Nissan, Toyota, Honda, Mazda, and Volkwagen.
Another important sector in the development of Mexico has been tourism and it is currently one of the most important destinations for tourists from Europe, Asia, Canada and the USA. Finally, it is important to mention that 80% of Mexico's exports go to the USA and the quality of its products is high and competitive.
The government continues to work on the security aspect to provide adequate conditions for investment. I think Mexico is a good place to live and a good place to invest.
--What is your perspective on the influences which may be expected to occur or may have already occurred in the Mexican economy in general, due to the fact the U.S. President is to change?
Mr. Donald Trump will be the new President of the USA and that election was according to the laws of the USA and its citizens, and was ratified on the 19 December 2016.
Mexico is an important partner for the USA because 80% of Mexico's exports are to the USA, and the largest investment in Mexico is from the US companies.
Currently, the Free Trade Agreement between Mexico, Canada and the USA is the instrument to promote trade between the three countries and is 22 years old*. Mexico also has another 21 free trade agreements with other countries which is a competitive advantage to boost the economy and exports to other places and regions.
After the election in the USA the Mexican economy has been unstable due to the fear of multiple rumors about the situation of the relations with the USA.
The Mexican peso has depreciated by 20% during the last weeks* and inflation has increased slightly; also the expectation of growth decreased for 2017 and interest rates have increased considerably. Unfortunately, the global situation of oil prices has also affected Mexico and has had an adverse effect on the economy because of the low level of oil prices.
From my point of view during 2017 Mexico will have an unstable economy during the first months due to the uncertainty that will arise with the start of the new US presidency in January. Some economic indicators indicate that growth will be only 1.5% and inflation will be 5%, the price of oil will remain low and the exchange rate of the peso will be 23 pesos per dollar.
But, as well, after the storm will come the calm, and at the end of 2017 the Mexican economy will be stable. And the government of Mexico will start another page in its relationship with the government of U.S.A. led by the new President. For both countries a good relationship will help each other and the growing of both will be the next step.
--What influences do Mexican companies' top management think will be impacted on their corporate management in accordance with the change of the U.S. President, in general?
The new policies stemming from the new president of the USA will be a challenge for Mexican investors, general managers, owners, corporations and managers in general.
Strategic planning will be the most important tool to deal with change and risks. Training and education will be two key elements in achieving the goals and objectives of corporations.
Fear and panic will be the worst weaknesses of top management and therefore they should review their strengths and opportunities to achieve success in their organizations.
From my point of view the USA will not lose its leadership in the world and its economy must remain stable and growing; if the directors understand this message, their organizations will also be stable and grow.
--What influences do Mexican companies' top management think will be impacted on their corporate management in accordance with the change of the U.S. President, particularly in automobile industry?
Automobile manufacturing organizations in Mexico should optimize their operations to reduce their costs and be more competitive in order to be able to export their cars not only to the USA but also to other regions of the world.
It is very possible that the new president will protect American companies and exports to the USA will decrease slightly in 2017 and 2018 from companies located at Mexico.
The Free Trade Agreement will be revised during 2017 and 2018 and new rules should be taken into account for the manufacture and marketing of cars in the three countries (Canada, the USA and Mexico).
The top management will need to improve their process for making decisions and the teamwork will be the key for getting speed and better performance in their operations.
The new president of the USA has experience in business and corporate organizations and he will promote competition in the manufacturing industry in Mexico and the USA because we are a good neighbor. Design and innovation will be the way for working together between Mexico and the USA in the automotive market.
--In relation with the above questions, what kind of actions will Mexican company's top management take in a future or what kind of actions should be taken?
The top management will need to improve their strategic planning for the deployment of their objectives to be competitive in an unstable environment. Training and education will be the key to reducing costs and improving productivity. If it is necessary to export to other countries the delivery and speed will be targets in the operations.
Top management needs to be optimistic and see change as an opportunity to grow and improve; data analysis, the situation and opportunities are key to success.
The USA needs Mexico and Mexico needs the USA; both countries will find the way to be good friends and very competitive. The economic power of the USA is our best shield and Mexico needs to be the ideal partner of the USA.
Japan is also another strategic partner of the USA, and Japanese industries in Mexico will have a good opportunity to be close to the American market and get benefits from this. Thank you very much for the interview.
Thank you very much for your cooperation.
*This interview was conducted in the late December 2016.
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