External, Internal Factors Present Opportunities

Mexico has a robust industrial sector that capitalizes on a young, large and well-qualified workforce, numerous trade agreements and an ideal location that serves as an entry point to North and Latin America. The country also offers investors a stable political environment, inflation rates mostly contained to between 3 and 4 percent and a large local customer base, all benefits for local and foreign manufacturers operating in the country. Similarly, the manufacturing sector is vital for the country, as it represents 30 percent of national GDP, according to the latest data from the World Bank. Deloitte’s Global Manufacturing Competitiveness Index ranks Mexico eighth and projects the country will climb to seventh by 2020.
NAFTA was a key element in strengthening the country’s manufacturing muscle, as it facilitated imports and exports between Mexico and the US. According to INEGI, the manufacturing industry represents 88.2 percent of all exports. In 2018, Mexico exported a total of US$280 billion and this number is expected to increase by 5-7 percent in 2019, according to INDEX. As the US receives almost 80 percent of Mexico’s exports, companies on both sides of the border held their breath during the NAFTA renegotiation that eventually led to USMCA. While the updated treaty does not impact most manufacturing sectors, it will play a role in the automotive industries of both countries because it increases the required content manufactured in North America from 62.5 percent to 66 percent by 2020, followed by a gradual increase to 75 percent by 2023. 
Headwinds for 2019 include the potential for local strikes, the ratification of USMCA and the ongoing trade war between the US and China, according to INDEX. But challenges often open opportunities. At a news conference on Dec. 8, 2018, Luis Aguirre, President of INDEX, called for the return of tax exemptions on temporary imports and for a removal of the eight-year time limit on the shelter program, which supports foreign companies starting operations in Mexico. 
SERIOUS CONSIDERATIONS In January 2019, President López Obrador announced a plan to stimulate the economy in the area close to the US border, which represented a total of 7.5 percent of the country’s GDP in 2018, according to Minister of Economy Graciela Márquez. López Obrador’s strategy would cut corporate and income taxes at the border from 30 percent to 20 percent. Moreover, it would double the existing minimum wage to a total of MX$176.2 (US$9.2) per day. The goal is to attract FDI and strengthen the region’s manufacturing capabilities. 
Investment in technology is also key to fostering growth in the sector. The World Economic Forum, in its Future of Manufacturing report, credits globalization of the manufacturing ecosystem for driving prosperity for companies, countries and people, especially in emerging economies. PwC’s survey Industry 4.0: Building the Digital Enterprise states that surveyed companies expect the incorporation of IoT into their supply chains to lead to a 4.1 percent increase in efficiency and a 3.6 percent reduction in operational costs on average in the next five years.