The US represents 80 percent of Mexico’s commercial exchange; geographic proximity, legal frameworks and the sheer size of the American market have been advantageous. But they have also been a determining factor in Mexican businesses not needing to develop new markets.
The last few years have, however, demonstrated great uncertainty and volatility in the relationship with the US. This has forced many businesses to look for new commercial opportunities in countries that were previously not seriously considered as potential trade partners. Among them we find Arab countries.
According to information from The World Bank, the 21 countries that make up the Arab League have a population of 456.7 million inhabitants (2019) and a GDP of US$3.7 trillion. It is worth mentioning that each of these countries have different levels of development and needs, so each offers different commercial opportunities.
With regard to the commercial relationship between Mexico and Arab countries, the commercial exchange between both regions represents less than 1 percent of Mexico’s total trade. This is due to various factors, including the lack of a legal framework to facilitate trade, lack of bilateral or free trade agreements, geographical distance and, above all, a lack of familiarity between each, which generates misapprehensions.
Nonetheless, it is worth mentioning that there are Mexican companies that have maintained a presence in the region for over 20 years and new ones continue to open successful operations. In the last 10 years, there has been a significant increase in both exports and imports between Mexico and Arab countries.
Governments, specialized chambers and companies have sought ways to foster and strengthen relationships: the various Gulf governments have in the last five years signed several agreements, updating the treaties signed in the 1970s with other countries, while air routes have been opened that facilitate tourism and trade.
Regarding the initiatives by the chambers (in this case the Arab Mexican Chamber of Industry and Commerce, with the support of COMCE), the organization of promotional events, the implementation of trade missions to Arab countries and continuous participation in regional fairs, have all been fundamental factors in the increase in commercial exchange.
BUSINESS OPPORTUNITIES AND COVID-19
As we are all painfully aware, the COVID-19 pandemic has caused significant policy changes in governments all around the world in order to better protect populations and curb the spread of this infectious disease.
These emerging policies have changed lifestyles and consumption habits and have, as a result, triggered businesses to adapt supply chains, processes and resources to this new, and often volatile, market dynamic.
This sanitary crisis, along with the humanitarian impact, will have a significant economic effect that will indubitably test the business community and their companies. But as in all crisis, it will also present opportunities to those who can position themselves. One such opportunity could well be the diversification of market access for Mexican companies as they look for alternative markets in need of their products and services.
One such opportunity presents itself in Arab countries; these countries depend on the reliable supply of consumer, pharmaceutical and particularly food products for their national security. This has forced national and local governments to significantly increase efforts to facilitate trade in order to guarantee a steady and opportune supply of these goods.
As restrictions are lifted in Arab countries, particularly Gulf countries, governments are actively implementing strategies to re-activate the economy. Significant stimulus packages have been passed to incentivize banks, the private sector in general, and particularly small and medium businesses with industrial activity. These efforts can also be seen in the digitalization of trade platforms, where government procedures for foreign trade are now accessible online.
In addition, the region’s trade is now more connected due to the opening of new trade routes, such as the new Jebel Ali-Jedda-Sokhna route, connecting the UAE, Saudi Arabia and Egypt, three of the area’s largest markets. Also, leveraging the exponential growth that is being experienced in online sales in various sectors, producers find themselves closer to the final consumer than ever before.
This growth in e-commerce has been a lifeline for the region’s economy. It has aided in maintaining sales and distribution channels for multiple product sectors; in particular, consumer products, personal care, superfoods and health products have found a notable conduit through which to make their products available. This has in many ways prevented economic deceleration.
Governments have identified key economic sectors for the reactivation of the economy. Some of the identified sectors are large-scale road infrastructure, construction and tourism, the latter adapted to the new sanitary and safety requirements.
Given the current volatility of supply chains, and the clear economic policies dictated by the various governments, this could be the opportunity for Mexican suppliers to substitute traditional sellers in the area and place themselves as reliable source of goods for a region that is, and will continue in an economic boom.