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Six Markets to Watch: Mexico
SHANNON K. O'NEIL is Senior Fellow for Latin America Studies at the Council on Foreign Relations. She is the author of Two Nations Indivisible: Mexico, the United States, and the Road Ahead. Follow her on Twitter @shannonkoneil.See more by this author
Just over a year ago, as President Enrique Peña Nieto started his administration, the domestic and international press were touting “Mexico’s moment” and the rise of “the Aztec tiger.” Now, the naysayers have returned. Their pessimism stems in part from disappointing economic results: Mexico’s GDP growth has fallen, from nearly four percent in 2012 to around an estimated one percent in 2013. The negativity also reflects the impatience of pundits and markets, as the economic dividends from Peña Nieto’s ambitious economic reform agenda have yet to appear.
Today’s vocal disappointment discounts the positive changes Mexico has undergone and continues to make. Over the last three decades, Mexico has made the transition from a commodity- and agricultural-based economy to one dominated by manufacturing and services. It is also finally moving forward on a host of overdue domestic reforms. Internationally, the country is firmly situated within North American supply chains, augmenting its global competitiveness. And these advantages should only grow with Mexico’s involvement in both the Trans-Pacific Partnership (TPP) and the Pacific Alliance, two of the most dynamic free-trade negotiations of this century. If Mexico is able to make its legislative changes stick and harness its geostrategic potential, the country will excel over the next five years, benefiting its people and making it a good bet for investors.
ONCE UPON A TIME IN MEXICO
As the North American Free Trade Agreement (NAFTA) celebrates its 20th anniversary, many forget just how much Mexico has changed in the last two decades. Once hidden behind high tariffs, quotas, subsidies, and hundreds of state-owned enterprises, Mexico’s economy is now one of the most open in the world. Mexico boasts free-trade agreements with over 40 countries and a trade-to-GDP ratio -- a common measure of economic openness -- above 60 percent, surpassing the United States, Brazil, and even China. And whereas oil once represented over 75 percent of Mexico’s exports, today it is manufactured goods that produce three out of every four export dollars.