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Canadian Chamber Of Commerce In Mexico

Introduction

Mexico is Canada's most important trading partner in Latin America. Trade between the two countries was worth more than CDN $5 billion in 1994 and has grown significantly since the mid 1980's. Exports from Canada to Mexico increased by 2.5% in 1993 reaching CDN $790 million. In turn Mexico exported CDN $3.6 billion to Canada in 1993.

In the middle of the economic emergency caused by the peso devaluation, modernization and structural change continue to take place in Mexico and the long-term prospects for increased trade and investment are good. Emphasis is being placed on encouraging private sector investment and positioning Mexico as a productive and highly competitive member of the international economic community. Accordingly, a wide range of policy changes have been carried out in recent years to enhance the competitiveness of the Mexican economy.

Parastatal Sector

The Mexican government has continued to stream-line the parastatal sector by reducing subsidies and liquidating, merging, transferring and selling companies. Of the 1,155 state-owned companies in existence in 1983, three quarters have been divested. All 18 banks, an insurance company and the state steel company have been sold. Those remaining are mainly service industries, but a few are important government firms such as Pemex (petroleum), Federal Power Authority, and the National Railroad.

Even in these areas, privatization moves are underway. In December 1994, the Mexican Congress passed legislation allowing for private sector investment in the electricity and water industries under renewable, long-term concessions, Some 60 petrochemical plants belonging to Pemex are being sold. The new administration has announced that privatization and deregulation will be intensified in the short term, allowing more private sector participation in railways, communications, harbours and airports.

Foreign Investment

The new Law to Promote Investment was approved by the Mexican Congress in December 1993, stimulating higher inflows of direct investment throughout 1994. By September 1994, cumulative Canadian investment in Mexico reached US $734 million or 1.5% of total direct foreign investment in Mexico, Generally, Canadian investments are distributed among 300 firms, with majority ownership held in 110 firms. In the last five years, Canadian investment increased by US $266 million, up 79.2%.

Monetary and Financial Policies

With NAFTA in force at the start of 1994, Mexico benefited from the announcement of the creation of a North American Financial Group made up of the Finance Ministers and Central Bank governors of the three nations and a trilateral currency swap facility that creates a permanent US $6 billion line of credit for Mexico from the USA and a CDN $1.5 billion credit line from Canada. These lines of credit have been activated and increased after the major devaluation of December 1994 and should help stabilize the exchange rate in 1995.

Privatization of all 18 national commercial banks brought the government some US $18 billion in additional revenue in 1991 and 1992. These funds were used to reduce Mexico's national debt. The government has been authorizing new private banks and since 1994 foreign banks have been able to operate in Mexico. In April 1994, Mexican authorities issued regulations for foreign banks to operate in Mexico with a minimum capital requirement of about US $20 million. In the same month, the central bank (Banco de México) became autonomous although not completely independent of the Finance Ministry. In October, the Finance Ministry authorized 52 new foreign financial institutions to start operations in Mexico. In the last quarter of 1 994, the same Ministry authorized the operation of foreign institutions in Mexico, including banks, brokerage houses, exchange houses, insurance, leasing and factoring companies under NAFTA rules.

Petroleum Sector

In recent years, Mexico has exported around 1. 37 million barrels per day of crude petroleum for an export income of approximately US $ 6 - 7 billion per year. For 1 995, the government is forecasting a blended price of US $13.60 per barrel for Mexican oil on the world markets. Major reforms and changes to the organization of Pemex in the fall of 1992 were designed to create a modern, efficient petroleum company capable of competing in the world market- Four separate operating divisions (Exploration & Production, Gas & Basic Petrochemicals, Refining, and Secondary Petrochemicals) were created to operate and compete as individual profit centres. Further initiatives have been undertaken with the move to privatize petrochemical plants as well as natural gas transmission and storage.

Agricultural Sector

In November 1991, the Mexican government enacted new agricultural legislation intended to reform and modernize the sector by allowing more private investment, However, agricultural output has not been dynamic for many years due to productivity problems and the antiquated landholding system faced by Mexican farms. In 1992 agricultural output e]14.2%, but recovered 1.8% in 1993 and experienced growth of 5% in the first half of 1994.

In October 1994 the government announced a new agricultural support program by which close to US $4 billion would be used to promote output and boost the country's international competitiveness, This program will institute direct subsidies to farmers based on acreage, including subsidies for Mexico's basic grains. Canada's exports to Mexico of grains, oilseeds, livestock genetics and processed foods may increase as a result of this new program. The program will last 15 years.

Land

Mexico is the third largest country in Latin America. In land area, it is about 20% the size of Canada. Mostly a highland plateau bordered on the east, west and south by mountains, it rises gradually to the south where Mexico City lies at 7500 feet altitude.

Climate

The range of altitudes and the effect of the Pacific Ocean and the Gulf of Mexico provides Mexico with a wide variety of climates. Mexico City and the high central plateau have a temperate or semi-tropical climate. The entire north is arid or semi-arid while the coastal regions are mostly humid and tropical.

The rainy season lasts from May to September with little rain outside of this period except on the coasts. The nation's capital, Mexico City, has an average mean temperature of 17 degrees Celsius with a range from -4 degrees in January to 32 degrees before the rainy season begins.

Population

Mexico's population grew by 2,3% annually in the 1 980's and is currently growing by about 1.8% yearly. At last count, the population was 87.6 million in 1994. Demographically, the population is very young, with about 40% under the age of 20 and 50 million between the ages of 15-64 years. In terms of geographic distribution, the population is 60% urban and 40% rural.
Published or Updated on: January 1, 1996
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