Compared to Europe, Mexico entered the covid-19 pandemic late. The first wave culminated in the summer months of 2020, to return with a new force at the turn of 2020/21. The Mexican economy, already on the brink of recession, was hit by the pandemic in several sensitive areas – foreign trade, tourism and the oil industry.
In 2020, therefore, the economy fell by 8.3% of GDP, for 2021, growth of 4.5% is expected. To a certain extent, this can also be attributed to the rapid recovery of the US economy, with which Mexico is economically strongly linked. It was the confirmation of this strong link in the form of the effectiveness of the Mexico-US-Canada Free Trade Agreement (USMCA) that was important positive news for the Mexican economy in 2020.
After the not entirely convincing management of anti-pandemic measures, the government’s clear vaccination strategy gives hope for a full opening of the economy in the second half of 2021. However, a return to the real GDP values of 2018 is expected in 2023 at the earliest.
What is specific to the case of Mexico is that while other countries in the world have announced record financial injections into their economies in response to the pandemic, the Mexican government is facing the crisis mainly through savings. The government’s measures to support the world’s 16th largest economy in response to covid-19, amounting to 1.2% of GDP, are considered insufficient, even by regional comparison. The economic rescue package focuses on supporting the socio-economically weakest part of the population and family businesses (in the form of microcredits and social programs).
However, over 90% of the companies did not receive any form of state support and over 20% of them disappeared. The Mexican Central Bank tried to partially replace the minimalist support, which, in an attempt to help the financial system, repeatedly lowered the base interest rate and announced a liquidity injection of 3.3% of GDP to finance corporate loans and stabilize the currency.
In the fall of 2020, the government announced 68 infrastructure projects co-financed by the private sector in a total volume of USD 26 billion to support the economy. Although the government’s austerity approach in the short term will prevent greater state indebtedness and ensure the stabilization of public finances, it will be reflected in the longer term necessary for the recovery of the economy, and thus also shortfalls in tax revenues of the state budget in the coming years.
Post-covid-19 opportunities for foreign exporters
Automotive
According to allcountrylist, Mexico is the 7th largest producer and 4th largest exporter of automobiles in the world. Most of the production (75%) goes to the USA. All major world brands are represented in the Mexican market. Czech companies, especially manufacturers of individual parts, most often get their products to Mexico through multinational companies. The new US-Mexico-Canada Trade Agreement (USMCA) increases the required share of components of North American origin from 62.5% to 75%, leading many suppliers to shift manufacturing investments to Mexico.
The pandemic has helped speed up the process of digitization and automation of production processes, the demand for new technologies is also growing significantly in this field. This segment is expected to be one of the fastest recovering parts of the market, driven by the US market and the financial reserve of the international parent companies of the Mexican subsidiaries.
Transport industry and infrastructure
Major infrastructure works are also flagship projects of the Mexican government. Work on them did not stop even during the pandemic, on the contrary, new projects were launched to support the poor economy. This is mainly the construction of a new railway called Tren Maya in the south-east of Mexico (the Yucatán Peninsula), which is to reach a length of 1,500 km and will lead through five states of Mexico.
Another major project is the construction of a corridor between the Gulf of Mexico and the Pacific Ocean. It is a road and rail connection spanning the 250 km long Isthmus of Tehuantepec, which is supposed to facilitate the transport of goods and be an alternative to the Panama Canal.
For Czech manufacturers, there is the possibility of interesting subcontracting in these large-scale projects, even in view of the interest of European companies to participate in them. Another major government project is the construction of an international airport for the capital city of Mexico City, which is coordinated by the Ministry of Defense of Mexico and in which a number of Czech companies have already expressed interest.
Energy industry
Strengthening energy independence is one of the main priorities of the Mexican government, which is reflected in the unprecedented investments in the field of energy. While in the previous period the emphasis was placed on the development of production capacities from renewable sources with significant involvement of the private sector, the current political course supports energy from conventional sources and also tends to make the energy sector more closely tied to the state again. Some of the government’s actions favoring state-owned producers are causing international criticism and may have a negative effect on the inflow of private investment.
It is therefore expected that instead of private investors, the state itself will invest more in energy development in the future. Currently, the government’s main project is the construction of the new Dos Bocas refinery in the state of Tabasco, with an estimated budget of 8-10 billion USD.
ICT
Demand for advanced technologies and innovative products across sectors continues to rise in Mexico. The covid-19 pandemic has accelerated digital transformation and intelligent manufacturing automation. With the change in the functioning of society as a whole, the demand for new solutions for internal company processes, systems enabling remote work, remote traffic control, and of course the internet business and FinTech services also increased several times.
New trends also bring new threats to which security must be adapted. Therefore, companies and individuals are also in great demand for technologies for secure data management and sharing.
In the long term, there is also interest in cooperation in applied research, but also in specific areas such as Industry 4.0, Smart Cities, Life Sciences, IT and others.
Defense industry
The long-term poor security situation forces the Mexican government to invest more not only in arming the security forces and the army, but also in protecting critical infrastructure. Spending on internal security has therefore been steadily increasing since 2016, in 2020 the increase even reached 39%.
Companies and private individuals also invest considerable resources in the increased protection of their production facilities and goods. With the deterioration of the economic situation due to covid-19, an increase in migration is expected, and with it the need for increased border protection, and unfortunately also greater poverty, and with it an increase in both petty and organized crime. Further strengthening of the public security forces has therefore already been announced.
In this case, the good news for Czech manufacturers is the fact that from 2019 the Czech Republic belongs to Mexico’s prioritized countries for the purchase of defense and security equipment, thanks to the signing of the Memorandum of Understanding between the ministries of defense of the Czech Republic and Mexico.
Healthcare and pharmaceutical industry
Before the pandemic, Mexico was already the 4th largest medical technology market in the Americas, which is 90% dependent on imports. Most hospitals are concentrated in the large agglomerations of the states of Baja California, Querétaro and Mexico City.
Almost 70% of hospitals are private, which is why even before the covid-19 pandemic, private hospital chains were an important buyer of medical equipment and material, as well as medicines. However, with the increase in the state budget for health care in response to the covid-19 pandemic, greater investment is also being seen in public health care, which provides the majority of health services in the country.
In addition to medical facilities, proven end clients are also specialized companies involved in the construction, equipping and sometimes even operating hospitals, mostly on the basis of a public-private partnership (so-called Public-Private Partnership).
Mexico is also the eleventh largest pharmaceutical market in the world and second in Latin America after Brazil. With regard to the aging population and the increasing incidence of chronic and civilization diseases (especially obesity), this market will also grow at a rate of around 6%.
