Why Isn't Mexico Richer?
Mexico should be rich. And I don’t just mean doing okay—I mean loaded. Think about it: geographically, it’s next to the United States, with which it has a free trade agreement. It has the fifth largest oil reserves in the world and access to both the Atlantic and Pacific Oceans. By all accounts, Mexico should be rolling in wealth. But it’s not. Instead, it’s struggling with poverty, with a per capita income that's a mere third of Spain or Italy’s. So, what gives? Why isn’t the land of the Aztecs living it up?
Mexico's Industrial Potential
Let’s dive into this. Mexico could become the industrial sibling of the United States. Until recently, China was the world’s factory, but rising labor costs and geopolitical tensions with the US have companies looking elsewhere. And guess who’s the top contender? That’s right, Mexico. It’s close to the US, has a free trade agreement, cheap labor, and a solid industrial base in sectors like the automobile industry. So, why isn’t Mexico the new hotspot for tech and industrial development?
Mexico vs China Manufacturing
Well, let’s burst that bubble right now—Mexico is blowing this golden opportunity. And you can blame the politicians for that. While countries like Thailand are positioning themselves to attract investment, Mexico’s leaders are making all the wrong moves. First off, the news that Mexico has overtaken China as a US supplier is misleading. What’s really happening is that China, facing tariffs, is rerouting its goods through Mexico to dodge fees. It’s not that Mexico’s exports are booming—it’s that China’s playing a shell game with its exports.
Why Aren't American Companies Investing in Mexico?
Now, what about those big American companies like Apple and Tesla setting up shop in Mexico? Spoiler alert: they aren’t. Foreign direct investment in Mexico hit its lowest point in a decade in 2023, and most of that investment went to the service sector, not manufacturing. So, despite all the potential, Mexico’s industrial growth is stagnant.
Mexico Infrastructure Problems
Let’s talk infrastructure, or the lack thereof. Roads, railroads, airports, internet—Mexico is failing in all these areas. High-speed internet is still a dream in many parts of the country, and the roads are so unsafe that investing in Venezuelan public debt seems like a safer bet. Every day, an average of 36 trucks are stolen, mostly by organized crime syndicates, not petty thieves. Companies like Coca-Cola have already shut down factories because of these risks. President López Obrador’s approach of “more hugs and fewer bugs” has done nothing to improve security.
Security Issues Affecting Mexico's Economy
And then there are the blockades. Mexican highways are often paralyzed by strikes, further disrupting business. On top of this, AMLO’s government is not investing in useful infrastructure. Take the canceled airport in Mexico City that would have quadrupled passenger capacity. Instead, the government is throwing money at projects like the Tren Maya, which serves a region with little industrial activity.
Energy Challenges in Mexico
And let’s not forget energy. Clean, cheap energy is crucial for attracting companies, especially those committed to decarbonizing their processes. But AMLO has forced the national power grid to prioritize buying electricity from a state-owned company reliant on fossil fuels. This results in expensive, polluting, and unreliable electricity, scaring off potential investors.
Mexico High Housing Costs
Housing is another issue. Mexico has the third most expensive housing prices in the OECD, relative to income. Access to credit is limited, many people are paid under the table, and public housing is scarce. This forces many into informal settlements far from urban job centers, further complicating the labor market.
Impact of Politics on Mexico's Economy
But perhaps the biggest issue is politics. AMLO, a leftist leader, has not exactly endeared himself to the US, often cozying up to leaders like Cuba’s Miguel Díaz-Canel and Venezuela’s Nicolás Maduro. His antagonistic stance towards the US doesn’t help Mexico’s case as a potential industrial hub.
US-Mexico Trade Issues
And let’s not forget the US hasn’t been the best partner either. Since Trump, the US has pressured Mexico into unfavorable trade terms under the USMCA, which imposes strict labor and sourcing requirements that drive up costs for Mexican manufacturers. So, why did Mexico sign this deal? They had no choice. It was either that or lose free trade access to the US entirely. And Joe Biden hasn’t been much better, focusing more on using Mexico to address specific issues rather than fostering broad economic partnership.
Obstacles to Mexico's Economic Growth
High taxes, corruption, and a stagnant GDP per capita are all part of the problem. Despite some growth in the last two years, Mexico’s economy remains far below its pre-pandemic level. AMLO’s economic policies have been widely criticized, and his successor, Claudia Scheinbaum, doesn’t inspire much hope. The stock market plunged 5.7% after her election, reflecting a lack of confidence in her leadership. Scheinbaum, like AMLO, is a leftist and not exactly friendly to private enterprise. She’s likely to continue AMLO’s expensive social programs and questionable infrastructure projects. While she does seem more open to clean energy, she prefers state-owned companies over private investment, which is not a recipe for success.
Mexico's Growth Opportunity: Economic Future
Despite these challenges, Mexico’s geographic location and potential for political change keep a glimmer of hope alive. With the election of Claudia Sheinbaum, there is renewed optimism for Mexico's future. Her commitment to clean energy and a more inclusive economic approach could pave the way for substantial improvements. If Sheinbaum and her administration implement forward-thinking policies and attract private investment, Mexico could finally seize its growth opportunity. The vision of Mexico becoming a wealthy industrial powerhouse might soon be within reach.
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