The Importance of Exports in Pushing Mexico Into the FutureBy Enoch Castellanos Férez | Wed, 10/21/2020 - 09:27
"Before thinking, observe," Raúl Prebisch recommended in one of his most emblematic phrases. The outstanding Argentine economist and his thinking guided the development of Latin America for almost three decades at the end of the 20th century, achieving productive diversification and national industrialization. In Mexico, the arrival of NAFTA in 1994 allowed the country to go from being mainly an exporter of crude oil to one that exported manufactured products.
Following Prebisch’s recommendation, it is important to first look at the international environment in 2020 before analyzing Mexican exports. The most unfortunate fact is that so far, just over 1 million people have died and a projection of what the final number will be is very difficult to make. At the same time, all economists agree that it will be severe, and it is hard to estimate the negative impacts on economies. Emerging economies have been hit hardest by COVID-19. The pandemic has put health systems in check around the globe. All the financial markets were brought down by it. Tourism and manufacturing, which were not considered essential activities and had to suspend their activities in some countries for one , two or even three months, were the main sectors affected.
Economic activities considered to be non-essential in Mexico were suspended from March 20, resuming as of July 1. Important sectors of industry and the economy have generally ceased to operate for at least 100 days. Today, in spite of the resumption of these activities, the rules introduced in the new normality mean that economic, commercial and service activities remain limited and, therefore, do not generate the same revenue as before the pandemic.
Among the most serious repercussions brought about by the isolation in Mexico due to the health crisis was that 12 million people lost their source of income, of which more than a million were formal jobs and whose impact on exports translates into $50.853 billion less compared to the same period in 2019, a contraction of 16%.
In general, all exports fell as of August: oil exports dropped 7.7 percent, agricultural exports slid 5 percent, mining exports plummeted 41.7 percent and manufacturing exports decreased 8.3 percent, all in annual accumulation. Even the food and beverage sector saw a 2.4 percent annual contraction, despite being deemed essential and never stopping.
The automotive sector is one of Mexico's most dynamic and solid export sectors. Exports of automotive products contracted 7.2 percent in the first half of 2020 and products in other transport segments (trains and the aerospace industry) contracted 45.6 percent.
One cannot talk about economics without analyzing the political environment. It should, therefore, be noted that Mexico has 12 major trade agreements but the USMCA is the most important, allocating more than 80 percent of our exports.
The complexity of the realities are present both in Mexico and in our neighboring country, the United States, which is our main market. Here, many of the processes necessary for export have been slowed down by the change of administration, the lack of respect for the rule of law, the increasing wave of violence and the lack of certainty, which has caused our level of investment to drop, losing significant capital coming from abroad.
Our only goal should not be the USMCA. We have 12 more treaties, as I mentioned earlier, and despite the fact that most of the infrastructure is set up to send products north, we can detonate our exports exponentially if we look at the other treaties, improve our ports, consider the link between the two oceans, and turn to other latitudes. Just as an example, Central America, with which we have treaties, has a potential market of 50 million people. There are almost 400 million inhabitants in South America, and there is still a lot more potential if we take advantage of the Asian economies. The advantage we need to conquer these markets lies in innovation, in the development of science and technology. Unfortunately, COVID-19 reduced government revenues and, as part of its resource-providing plan, reduced the budget for science and technology development while closing the door to new product development in order to conquer new markets.
Our economy has been radically transformed over the past 25 years. We're an active part of the new global environment, we have important trade and investment flows, but why haven't we managed to grow and develop sustainably? Well, because there are many opportunities that need to be improved in Mexico as well, such as access to competitive energy, corruption, legal certainty and even infrastructure.
The difficulties lie in the country 's strong social inequalities combined with strong public and private interests that make the Mexican economy less competitive. Evidence of this is the cancellation of the New Mexico City Airport and the Constellations Brands Brewery. The COVID pandemic revealed fundamental issues that have now arisen and that should not be postponed.
Exports are not only a source of well-being for Mexicans and important for Mexico, they can also help us get on the train toward an advanced world civilization. In this way, we can access new technologies, new energy sources and other ideas of how to do things.