Manufacturing in Mexico
Mexico's manufacturing sector has established itself as a cornerstone of the country's economic growth and its positioning in international trade. Indeed, manufacturing exports have been the driving force behind the Mexican economy for decades, transforming the country from a raw materials-based economy to an emerging industrial power.
History of Manufacturing in Mexico
The history of manufacturing in Mexico is a narrative of transformation and adaptation. Since the mid-20th century, the country has undergone significant evolution in its approach to industrial production and exports.
From the 1940s to the 1970s, Mexico adopted the import substitution model, an economic strategy designed to reduce dependency on foreign products and promote domestic industrialization. While this protectionist approach initially stimulated domestic industrial growth, it eventually revealed limitations in global competitiveness and productive efficiency.
Impact of NAFTA/USMCA on the Manufacturing Sector
The signing of the North American Free Trade Agreement (NAFTA) in 1994 marked a turning point for Mexico's manufacturing sector. This agreement opened new market opportunities, primarily with the United States and Canada, driving a wave of foreign direct investment into Mexican manufacturing.
NAFTA, now renewed as the United States-Mexico-Canada Agreement (USMCA), has been crucial for Mexico's integration into global value chains, facilitating the creation of highly specialized industrial clusters, particularly in sectors such as automotive, aerospace, electronics, and more recently, semiconductors.
Recent data from the National Institute of Statistics and Geography (INEGI) confirms the narrative. The Mexican manufacturing sector is characterized by its diversity and increasing sophistication. Key sectors contributing to manufacturing exports include:
- Automotive: Representing approximately 23% of total manufacturing production and nearly 4.5% of national GDP. This sector showed robust growth, with an 8.19% increase in automotive exports in the first five months of 2024 compared to the same period in 2023.
- Electronics: Including the production of electronic components, computers, and communication equipment.
- Aerospace: A rapidly growing sector, with Mexico emerging as a significant hub for aerospace component manufacturing.
- Machinery and Equipment: Encompassing a wide range of industrial and consumer products.
- Chemical and Plastic Products: A diversified sector including pharmaceuticals and construction materials.
The geographic distribution of manufacturing production in Mexico is strategically spread across the country, with significant concentrations in:
- North: States like Nuevo León, Coahuila, and Chihuahua benefit from their proximity to the United States.
- Center: The Bajío region, including Guanajuato and Querétaro, has become an important automotive and aerospace cluster.
- Central-West: Jalisco, known for its electronics and information technology industry.
These important states are included in our report about industrial corridors in Mexico made by Alejandro Mendoza, Prodensa’s President of Real Estate Solutions.
Upward Trend in Manufacturing Exports
Mexico's manufacturing sector has shown sustained growth over the last decade, with some fluctuations due to global economic factors. However, INEGI data reveals that manufacturing exports have maintained an upward trend, with particularly notable growth in recent years.
In May, 89% of the annual growth in non-oil exports was explained by manufacturing, which grew at an annual rate of 4.51%. Automotive exports grew by 1.51%, and other manufacturing exports grew by 6.48% annually. This increase is significant given the challenging global economic context.
While other export sectors, such as oil, have experienced volatility, manufacturing exports have proven to be more resilient and consistent in growth. The accumulated growth of total exports in 2024, amounting to $10.529 billion, is largely explained by manufacturing exports, according to Banco Base.
Contribution to GDP and Total Exports
Manufacturing exports play a crucial role in the Mexican economy, representing a significant portion of national GDP and dominating the country's total exports. In 2024, the manufacturing sector, excluding automotive, accounted for 35.6% of the accumulated growth of total exports in the first five months of the year.
Main Destinations for Mexican Manufacturing Exports
The United States remains the primary destination for Mexican manufacturing exports, benefiting from geographical proximity and trade agreements. Canada, as part of the USMCA, is also a significant trade partner.
Additionally, Mexico has diversified its export markets, including:
- European Union: Especially in sectors such as automotive and aerospace.
- Asia: With growing interest in countries like China and Japan.
- Latin America: Leveraging regional trade agreements.
Changing Export Patterns Over Time
There has been a gradual diversification in export destinations, although the United States remains the dominant partner. This diversification has been driven by free trade agreements with multiple countries and regions, government and private sector efforts to explore new markets, and the increasing competitiveness and quality of Mexican manufactured products.
Future Prospects for Manufacturing in Mexico
The future prospects for Mexico's manufacturing sector are encouraging, according to a recent analysis by Banorte. Experts expect it to maintain a positive trend, albeit with heterogeneous behavior within the sector.
Factors contributing to this projection include:
- Improvement in global supply chains, as indicated by the New York Fed's Global Supply Chain Pressure Index.
- Resilience of sectors with greater dependence on local demand.
- Continued strength of the automotive sector, expected to maintain robust performance.
However, some challenges are anticipated:
- Possible moderation in the third quarter of 2024, in line with general economic expectations.
- Potential stagnation in sectors with greater exposure to the US industrial sector.
Emerging Sectors in Mexican Manufacturing
Several emerging sectors are gaining prominence in the Mexican manufacturing landscape:
- Information and Communication Technologies (ICT): With a growing focus on software development and IT services.
- Renewable Energies: Manufacturing components for solar panels and wind turbines.
- Biotechnology: Including the production of medical devices and pharmaceuticals.
- Advanced Manufacturing: Incorporating technologies such as 3D printing and robotics.
In conclusion, manufacturing exports continue to be Mexico's economic engine, demonstrating adaptability and resilience in the face of global challenges. However, continued investment in innovation, infrastructure improvement, and deepening trade relationships will be crucial to maintaining and expanding Mexico's position as a global manufacturing leader in the years to come.
Conclusion: Key Points
- Manufacturing exports lead the growth of Mexico's total exports, with a 4.59% increase in the first five months of 2024.
- The automotive sector remains a primary driver, explaining 57.3% of total export growth in the same period.
- There is a recovery in the growth of non-automotive manufacturing exports, which had previously shown stagnation.
- Future prospects are generally positive, with expectations of continued growth, albeit with potential sectoral variations.
- Market diversification and the emergence of new manufacturing sectors offer opportunities for future growth.