According to Forbes magazine, “these days, investors are in love with Mexico.” While Brazil is the largest and most powerful country south of the border, Managing Director of Nomura Securities Tony Volpon believes that Mexico is on the upswing, and could overtake Brazil within ten years.Mexico is in third place in terms of percentage imports to the U.S., behind China and Canada. However, this ranking may be changing, as Mexico now produces more cars for the U.S. market than Canada. Moreover, China’s share of U.S. imports is stabilizing, while Mexico’s share continues to gradually rise. Analysts expect the shrinking U.S. real estate market to return labor to Mexico, improving the nation’s human capital and keeping wages stable to low as supply improves.
Rising labor costs in China have prompted many countries to turn to Mexico for manufacturing. In particular, Mexico is currently attracting high cost, human capital intensive value-added manufacturing such as aerospace. Growth in the U.S. manufacturing sector will also benefit Mexico thanks to strong linkages between the two economies bolstered by NAFTA.
Mexico’s predicted growth is dependent on structural reforms of the new government. According to Nomura’s senior Latin America strategist Benito Berber, “It is very difficult to fire people in Mexico, so that makes it harder to hire people. Labor, fiscal and energy reform are all important. Energy is dominated by the state, but the new government has been very adamant about the private sector being involved in the energy sector. If that happens, that could boost total production in the Mexican economy.”