How Manufacturing Contributes to Economic Growth in Mexico

Manufacturing is a key economic activity in which raw materials are transformed into goods. When economies of scale take place due to innovation and proximity, production becomes more time- and cost-efficient, while adding value to inputs. This allows specialization in terms of production, transportation, storage, and maintenance, thus creating new jobs, investments, infrastructure, services, exports, and technologies in an economy.

According to DataMexico, a department of the Ministry of Economy, manufacturing represents 18% of Mexico’s GDP, orUS$305 billion. It includes 21 different economic activities, ranging from food and beverage industries, manufacturing of textiles and clothing, and the chemical and plastics industries, to the more sophisticated manufacturing of machinery, electronics, and transport equipment. The country has 608,484 economic units dedicated to industrial activities that employ 9.6 million people (60% men and 40% women), with an average monthly wage of US$330 and an average worker age of 38.. 

Also, the manufacturing industry is the main foreign direct investment(FDI) attractor in Mexico. In 2022, the sector accounted for 37% of total FDI equivalent to US$13 billion. Mexico City alone captured 13%, or US$1.7 billion of the investment projects. From January 1999 to December 2022, the accumulated amount of FDI in manufacturing industries was US$315 billion, distributed in new investments (US$122 billion), reinvestment of profits (US$98 billion) and accounts between companies (US$94 billion). The countries that historically have invested the most in Mexico’s manufacturing sector are the US with US$157 billion, Japan (US$26 billion), and Germany (US$25 billion). 

Moreover, manufacturing activities generated US$35 billion of exports in the first month of 2023. This represents 83% of Mexico’s total exports and an increase of 30% compared to the same month in 2022. In January 2023, the main products exported from Mexico related to advanced manufacturing, such as vehicles with US$11 billion, electrical and electronic equipment at US$7 billion, and nuclear reactors, boilers, and machinery with US$6.8 billion. The main export destinations in that month were the US with US$35 billion, Canada with US$1.3 billion and Germany with US$823 million. 

At the local level, former Mexico City Mayor Claudia Sheinbaum fostered the manufacturing industry by redeveloping Mexico’s first industrial zone called Vallejo. Today, Vallejo hosts 1,580 economic units, accounting for 5% of national manufacturing GDP. The Vallejo-i program aims to reindustrialize the city by investing public and private resources into key infrastructure like roads, water, energy, waste disposal, mobility, telecommunications, and security in the area. This has resulted in the attraction of more than 30 productive investments of high-added-value Industry 4.0, green manufacturing, logistics and industrial corporate services worth nearly US$800 million, which has generated 9,000 highly specialized jobs.

What are the priorities on which the manufacturing community should focus to drive impact?

Sustainability: With the growing concerns over climate change, the manufacturing community should prioritize sustainable manufacturing practices. This includes reducing waste, optimizing energy efficiency, and adopting cleaner production processes. For example, last year, Mexico City built Latin-America’s largest and most advanced Transfer Station and Selection Plant for Recycling and Utilization of Urban Solid Waste in Vallejo. 

Innovation: Manufacturing companies should focus on developing innovative products and processes to improve efficiency, reduce costs, and stay competitive in a rapidly changing market. This requires investment in research and development to drive new technologies and breakthroughs, which is why Mexico City created the Vallejo-i Innovation and Technological Development Center, a collaboration space for government, academia and the private sector.

Talent development: As the manufacturing industry becomes increasingly automated and digital, there is a need for a skilled workforce to operate and maintain these technologies. The manufacturing community should prioritize investing in talent development programs to upskill and reskill workers, especially in areas like advanced manufacturing, automation, and data analytics. Mexico City created the first free coding school in the country, graduating 532 students in its first year.  

Supply chain resilience: The COVID-19 pandemic highlighted the importance of supply chain resilience in the manufacturing industry. Manufacturers should prioritize building a resilient supply chain, including diversifying suppliers, increasing inventory levels, and developing contingency plans. Nearshoring manufacturing operations to Mexico in order to export to the US is an important step toward supply chain resilience. 

Digital transformation: The manufacturing industry is adopting new technologies, such as the Internet of Things (IoT), artificial intelligence, and robotics. Manufacturers should prioritize investments in digital transformation initiatives to improve productivity, reduce costs, and enhance customer experiences. Mexico City is encouraging digital transformation among SMEs by doing free assessments of their use of technologies. 

What partnerships could the manufacturing community unlock to attract and retain talent? 

Educational partnerships: Collaborating with educational institutions, such as universities and vocational schools, can help to promote the manufacturing industry as a viable career option. This includes developing curricula that align with industry needs and providing opportunities for students to gain hands-on experience through internships and apprenticeships. Mexico City has the RedECOs, which is a collegiate technical advisory and analysis body of the government of Mexico City in the planning and improvement of higher education in science, technology, research and innovation.

Industry partnerships: Collaboration between manufacturers can help to promote the industry as a whole and showcase the potential for career growth and development. This includes sharing best practices and successes, collaborating on industry-wide initiatives, and promoting the industry to the broader public. The Ministry of Economic Development of Mexico City regularly organizes specific industry meetings to encourage coordination between companies within the same industry and across industries. 

Community partnerships: Partnering with local community organizations, such as workforce development programs and chambers of commerce, can help to promote the manufacturing industry as a vital part of the local economy. This includes participating in job fairs and other community events, promoting the industry to high schools and career centers, and engaging with community leaders to showcase the benefits of manufacturing.

Technology partnerships: Collaboration with technology companies and startups can help to promote the manufacturing industry as a leader in innovation and digital transformation. This includes partnering with technology companies to implement new technologies and develop cutting-edge products and services.

Overall, manufacturing activities contribute significant benefits to the economy, society, and the environment. Economically, manufacturing plays a crucial role by generating employment opportunities, fostering innovation, and driving economic growth through the production of goods. It stimulates various sectors of the economy, such as transportation, logistics, and services, creating a ripple effect of economic activity. Moreover, manufacturing often leads to increased productivity and technological advancements, enhancing overall economic competitiveness. 

From a societal perspective, manufacturing provides goods that meet the needs and desires of consumers, improving their quality of life. It also promotes skill development and career advancement, offering stable and well-paying jobs. Additionally, manufacturing can strengthen local communities by attracting investments and supporting local businesses. 

In terms of the environment, manufacturing has the potential to contribute to sustainability through the adoption of eco-friendly practices. Many manufacturers are adopting cleaner production methods, reducing waste and emissions, and implementing energy-efficient technologies. These initiatives help minimize the environmental footprint from manufacturing activities, preserving natural resources, and mitigating climate change. 

Certainly, manufacturing activities create a positive impact by driving economic prosperity, enhancing societal well-being, and fostering sustainable practices in Mexico.