Over the last several decades, the growth and diversification of Mexico’s economy has been making steady strides forward, particularly in the manufacturing sector. While oil has historically generated a significant share of Mexico’s export economy revenues, strong growth in non-oil export manufacturing has offset some of the losses registered in recent months due to the falling per barrel price of petroleum. This is contributing to what some have described as a “paradigm shift” in the Mexican manufacturing, and the country’s economy as a whole.

Mexico Overtakes Canada

The economies of both Mexico and Canada have been hit hard by the recent slump in oil prices. In fact, economists now believe that Canada is entering into the early stages of a recession. But are oil prices the cause? According to Steven Englander, Citibank’s global head of G-10 currency strategy, this is not the case. Englander recently commented on the situation, and observed that Mexican manufacturing is the real story for the Canadian economy. He told Bloomberg TV that Mexico’s surge in North American export production is what Canadians, and their policymakers, should be focused upon. While there has historically been a rather large gap between the non-oil export production of the two countries, with Canada holding onto a sizeable lead for years, that is no longer the case. Mexican manufacturing is taking the lead.

Both Mexico and Canada now export around $30 billion worth of non-oil products to the US, with Mexico holding a slight edge at this juncture in time. Mexico’s maquila manufacturing industry has been strengthening and growing for decades, and this has resulted the notable forward momentum that has been created over the years. Mexico has significantly upped its economic performance vis a vis its North American economic partners.

Causes and Effects

For those that have been attentive to developments over the years, it is not difficult to determine the underlying factors driving Mexican manufacturing growth. In addition to investing heavily in technical training education, programs and centers, and workforce development, while modernizing legal infrastructure that includes Mexican labor law, for instance, Mexico also has enjoyed a consistently lower manufacturing wage rate than most developed, and many emerging, countries. In addressing the overtaking of Canada’s non-oil manufacturing production levels, Englander had this to say about Mexican manufacturing and its draw:

“I think Mexico’s just a less-expensive and more competitive place to produce, and you have enough human capital and engineering skills to produce almost everything you can produce in Canada, and do it a for a lot less.”

Companies are finding that products manufactured in Mexico are now just as desirable as those made in many other countries, because word and experience is testifying that Mexican manufacturing quality rivals that of a host of global competitors, including both Canada and the US. Additionally, trade deals with 44 countries means further savings for export manufacturers as regards any
duties and tariffs that otherwise would normally be applicable to certain, specific products and product categories. Furthermore, as some Asian currencies strengthen against the US dollar making exports from these countries more expensive, the exchange rate for Mexico’s peso remains rather low. These factors all contribute to an overall strengthening of the Mexican manufacturing sector. This favorable confluence of a number of economic variables is causing other nations to sit up and to increasingly take notice of the Mexican manufacturing sector.