Mexico’s Economic Overview For 2022 and the Role of the GDGI
STORY INLINE POST
As a new year unfolds, diverse opinions arise regarding the economic performance for Mexico and the rest of the world in 2021 and the prospects for 2022. Last year, Mexico’s central bank (Banxico) reported that the economy grew about 5.4 percent, while the Ministry of Finance (SHCP) registered growth of 6.3 percent. Furthermore, the economic growth forecast for 2022 is between 2.8 percent, according to Fitch Ratings, and 4.1 percent, according to SHCP. Despite the recovery achieved after the pandemic-related shutdowns in 2020 and 2021, the economy will not regain its pre-pandemic levels. Experts argue that the world’s economic growth can be either threatened or boosted depending on the level of control over the emergence of new COVID-19 variants, which can lead to further economic shutdowns.
What will 2022 bring for the Mexican economy? The primary concern is inflation, which has been at its highest in the country in 20 years. However, this is not just in Mexico. Latin America will be the region with the highest inflation on the planet this year. The causal mechanisms of inflation are complicated. On the one hand, disruptions of supply chains caused by shutdowns led to underproduction. Furthermore, the expansion of public spending with the aim to boost economic recovery increased the demand for goods, which replaced part of the demand for services and was higher than the response capacity of global value chains. This, in turn, resulted in a supply and demand imbalance. Moreover, higher consumption of natural gas, mainly in China, as well as the transition to renewable energy sources, which discouraged investments in fossil fuels, led to a global shortage of energy. These are some of the compounding factors that produced a general rise in prices.
Another critical concern is the recovery of consumption services. Faster distribution of SARS-CoV-2 vaccines, paired with the approval of new medical treatments, will allow people to get back to their workplace and return to more normal routines, thus increasing their spending on services. However, new virus variants can diminish the efficacy of vaccines and increase infections. The pandemic is still a threat.
In this scenario of uncertain economic recovery, the General Directorate for Global Investment (GDGI) has a key role to play. The GDGI, which I have the honor to lead, oversees the attraction of Foreign Direct Investment (FDI) to Mexico, with a focus on social and environmental sustainability. In addition, this office is responsible for the design, implementation, and support of economic promotion projects and serves as a platform to connect domestic and foreign companies working on priority projects of the Federal Public Administration. Furthermore, the GDGI is working on three main projects: the Prospective Territorial-Industrial Atlas for investment attraction; the California Economic Council; and the US-Mexico Task Force for the Electrification of Transport.
Mexico is an attractive country for FDI due to its geographical location and proximity to the US market, one of the largest free trade frameworks worldwide and a significant availability of a young, highly-specialized labor force (over 70,000 engineers graduate each year, according to the Engineer Observatory of CONACYT). The GDGI understands that investment attraction needs to be designed with a bottom-up approach that responds and is aligned to the UN’s Sustainable Development Goals (SDGs).
With these reasons in mind, we have worked for over two years with the United Nations Human Settlements Program and United Nations Industrial Development Organization to develop the Prospective Territorial-Industrial Atlas, a one of-a-kind project in our country. This exercise introduces an innovative methodology that identifies five industries with high potential for economic and social development in Mexico, as well as their corresponding five regional corridors that are highly suitable for the industrial development of these strategic sectors. The relevance of such findings is critical in a time characterized by the redefinition of the structures of global value chains.
Consequently, during 2022, the GDGI will promote the Atlas in collaboration with the private and academic sectors across the 32 states in Mexico, as well as overseas through our more than 160 diplomatic missions. Our embassies and consulates will be trained to use and promote the Atlas to attract international investment to the industries identified.
The California Economic Council will be a mechanism for formal, systematic, continuous and permanent dialogue between economic actors from Mexico and the US state of California. The project, which is expected to be launched in the first months of 2022, aims to provide Californian companies whatever support they need to materialize their investments in Mexico. At the same time, the Council also aims to help Mexican companies to internationalize their products and find economic growth opportunities in California.
Finally, the GDGI, in collaboration with the Mexico Alliance of the University of California (Alianza MX), is developing a US-Mexico Task Force for the Electrification of Transport. The objective of this project (still in an early stage) is to provide public policy solutions related to the transition of the automotive industry in Mexico and the US toward the production of electric vehicles. The project is a triple-helix initiative and includes public and private sector stakeholders from both countries, as well as academic experts from Mexican and American universities. In addition, the Task Force will present a binational roadmap with a one-year horizon that will provide a detailed diagnosis of the automotive sector and its opportunities in the electric transition.
Disruptive times require comprehensive long-term and mission-oriented projects to attract Foreign Direct Investment to Mexico. These projects need to encourage innovation, create new jobs in sustainable industries, promote human capital and investment in new technologies, enable an attractive business environment and integrate our country into international markets where Mexico can and must compete.
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In collaboration with Marisol Torres