Market Access Plan 2015-2017
|Mexico City||119.7 million||1,943,950 km²||Peso|
Why Mexico Matters
- a priority emerging market under the Global Markets Action Plan;
- Canada’s third-largest trading partner;
- the 15th-largest economy in the world (International Monetary Fund, World Bank, 2014). Global Insight Forecast projects that it might become the eleventh largest economy by 2045;
- a populous country with nearly 120 million people with a rising middle class of 60 million people (Wilson CenterFootnote 1); and
- driven by a relatively skilled, young and educated workforce; low-cost labour; favourable demographics (50 percent of its population is under 27 years old); above average productivity growth (Economist Intelligence Unit, 2015); abundant natural resources (especially minerals, oil and gas); and a stable currency.
Canada and Mexico recently celebrated 70 years of diplomatic relations. The bilateral relationship encompasses cooperation in trade and investment, labour mobility, education, migration, security and defence, governance, health, climate change and energy.
Being a member of the North America Free Trade Agreement (NAFTA) has given Mexico a considerable advantage in achieving its development and economic growth objectives, with gross domestic product (GDP) growing 143 percent since 1994Footnote 2.
Mexico has demonstrated a commitment to bring about much-needed economic and political reforms to modernize its economy, strengthen public institutions, and ensure long-term growth and stability. Most recently, President Peña Nieto has secured constitutional amendments and primary legislative changes to implement 12 structural reforms: market-based regulatory reforms in the energy sector; breaking up of monopolies to strengthen Mexico’s competitiveness; opening up the telecommunications market; banking reforms; putting tax policy and law on a more self-sustaining basis; as well as much needed reforms in education, elections, labour, criminal law, and steps to improve transparency.
Mexico has become a major export-based manufacturing hub in North America. The increasingly integrated supply chains within North America have attracted manufacturers from Asia and Europe wishing to take advantage of its competitive production platform. Mexico has a growing number of its own globally active multinational enterprises (MNEs) (three of the Global Fortune 500) and hosts an expanding group of foreign-headquartered MNEs that have invested in the automotive, aerospace, information technology, food processing and energy sectors. Other contributors to Mexico’s economic growth have been a strong and growing tourism sector (eighth largest tourist destination: UN World Tourism Organization), as well as a continuing flow of remittances from Mexicans living abroad, mainly in the United States.
The Canada-Mexico Partnership (CMP), launched in 2004, is a key bilateral mechanism to deepen cooperation between the Canadian and Mexican governments, the business sector and other stakeholders. The CMP encompasses a variety of working groups that aim to enhance collaboration in their respective sectors including: energy; agri-business; labour mobility; human capital; trade, investment and innovation; environment; and forestry.
Domestic Economic Environment
For several years, Mexico has enjoyed sound macroeconomics, with moderate growth in the 2-5 percent range during the 2010-15 period, low inflation in the 3 percent range, and unemployment at around 5 percentFootnote 3. According to the International Monetary Fund (IMF), Mexico has a strong banking system that is both well capitalized and profitable. Mexico also counts on a US$270 billion financial buffer to protect itself against high volatility and external shocks, which includes US$195 billion of international reserves, a US$70 billion flexible credit line with the IMF, and a hedge fund for oil exports, which will be renewed for 2016.
Services are the largest segment of the Mexican economy at 62.7 percent, followed by industry (33.8 percent), and agriculture (3.5 percent). Within industry, the most important sectors are food manufacturing, transportation equipment, chemical, primary metals and beverages and tobacco. Services are led by wholesale and retail, transportation and storage, real estate and rentals, government, and education (INEGI).
With the Mexican government deriving approximately one-third of its revenues from Pemex, the state-owned petroleum company, the 2014 drop in oil prices has had serious implications for the government. In response, the government has announced capital spending cuts, including in public infrastructure, and general belt-tightening for each agency.
Despite these cuts, the Economist Intelligence Unit is expecting that the government budget deficit will rise to 3.5 percent of GDP in 2015, up from 3.2 percent in 2014. In the last year, both the Banco de Mexico (Banxico, the central bank) and the IMF have revised their growth rates for the Mexican economy to 3.0 percent in 2015 and 3.3 percent in 2016.
|GDP per capita||$11,830|
|Canada’s merchandise exports||$5,506.0 million|
|Canada’s merchandise imports||$28,831.2 million|
|Canada’s service exports||$1,034 million|
|Canada’s service imports||$2,518 million|
|Foreign direct investment from Mexico into Canada||$884 million|
|Canadian direct investment in Mexico||$13,046 million|
|Potential long-term annual export growth||3.8%|
Canadian Commercial Interests in Mexico
Canada-Mexico two-way merchandise trade amounted to $34.3 billion in 2014, an increase of over 650% since 1993, the year before NAFTA came into force.
NAFTA has been a key catalyst for enabling greater trade and investment between Canada and Mexico and for developing a globally competitive North American “production platform”, with regionally integrated supply chains across sectors.
Mexico is Canada’s fifth-largest merchandise export market with total exports valued at just over $5.5 billion in 2014. Canadian exports to Mexico have increased by 10 percent since 2010. Leading Canadian exports to Mexico include motor vehicles, motor vehicle parts, machinery, scientific and precision instruments, mechanical appliances, and equipment, iron and steel, oilseeds, wheat and meat.
Mexico is Canada’s third-largest source of merchandise imports, valued at $28.8 billion in 2014. Mexican firms have been increasing their share of the Canadian import market for several years, and represented just over 5.6 percent of the Canadian import market in 2014. Major Canadian imports from Mexico include electrical machinery and equipment, motor vehicles, machinery, mineral fuels and oils, and furniture and bedding.
Canada and Mexico also share a rapidly growing bilateral investment relationship. The stock of Canadian direct investment in Mexico has increased significantly, reaching over $13 billion in 2014, up from about $4.9 billion in 2010. Today, according to the IMF, Canada is the fifth-largest source of foreign investment in Mexico.
Mexican direct investment in Canada totaled approximately $884 million in 2014, representing an increase of 882 percent from 2013Footnote 4. The flow of Mexican investments into Canada through acquisitions has been mainly fueled by an interest in gaining market access, enhancing market share in a developed economy, increasing access to different food ingredients, and offsetting market volatility.
Mexico presents many opportunities for Canadian companies over the next five years, especially as Mexico continues to pursue structural reforms in energy, education, financial services and telecommunications. Additionally, the government's ambitious infrastructure program, which includes highways, ports and a new international airport in Mexico City, will be of interest to Canadian companies.
Mexico is also witnessing tremendous growth in the automotive and aerospace sectors, and is poised to become one of the top world players in the production and export of light vehicles. Other sectors that provide opportunities for Canada are mining, financial services and electricity. The Mexican armed forces modernization will also likely create business opportunities for Canadian companies supplying maintenance, repairs and overhaul services, as well as new equipment to improve surveillance and law enforcement activities. Finally, Mexico’s growing middle class, with its access to credit, will provide Canadian businesses with opportunities in areas such as education, tourism, agri-food, and services.
Key Elements for Exporters to Consider
Mexico is a competitive global marketplace, and the country has become a formidable competitor to Canada in advanced manufacturing, including the automotive and aerospace sectors.
In the World Bank’s Doing Business 2015 report, which measures the regulations that enhance or constrain a country’s business activity, Mexico is ranked 39 for its ease of doing business, compared to Canada’s 16-place ranking. While Mexico’s banking reforms have been implemented to ease access to credit and resolve insolvency issues, the report found that starting a business has become harder, while there are added complexities related to paying taxes and obtaining construction permits. These issues are consistent with Canadian companies’ reported experiences in the country.
While agriculture regulations can be complicated, there are very few trade irritants to resolve, and Canada and Mexico have a long history of cooperation. Still, Mexico currently restricts access for beef and bovine animals over thirty months of age, and there are ongoing challenges with border inspections of grains, and burdensome requirements for seed potatoes and apples. The Canadian government is currently advocating on behalf of Canadian companies to encourage the removal of these impediments.
One of the best ways of achieving success in Mexico is through cooperation with a local partner. Partnering can assist in assessing customers’ specific needs and provide access to the traditionally closed supply networks.
Sector-specific Opportunities and Challenges
The Mexican aerospace production base has grown to become the eighth-largest supplier of aeronautical products to the United States. Mexico´s aerospace exports have increased 13.2 percent annually over the past nine years.
The Mexican aerospace industry has more than 280 companies. Many of the major aerospace MNEs have facilities in Mexico, including Bombardier, Cobham, EADS, Embraer, Eurocopter, Goodrich, Gulfstream, Honeywell International, Lockheed Martin, Meggit, Parker, Pratt and Whitney, Rockwell Collins, Rolls Royce, SAFRAN, Textron, Triumph and Zodiac.
Canadian companies can capitalize on Mexico’s fast growing aerospace sector through supply chains in areas such as composites, high precision machining, avionics, surface and heat treatments, design and engineering, machinery and equipment, and non-destructive tests. The MRO subsector offers interesting opportunities in civil and military aircraft. Canadian small and medium-sized enterprises (SMEs) may diversify their client base by partnering with Mexican SMEs.
Agriculture and Processed Foods
Mexico is a priority market for Canadian agri-food and seafood exporters. Sales in this sector have increased by 19.6 percent from 2010 to 2014. Canada is the country’s second-largest foreign supplier of agriculture and seafood goods.
Opportunities in Mexico exist for Canadian exporters given the country’s growing population, its young demographic, its growing middle and upper classes, and an increasing demand for high-quality and healthier products. Mexico also has the fourth-largest private label industry when compared to countries in Latin America, and it is growing rapidlyFootnote 5.
While opportunities exist to export more value-added products to Mexico, the majority of Canada’s exports continue to be bulk and intermediate products, such as grains and meat products.
The recovery of the automotive industry in North America has benefited Mexico, which has experienced sustained growth since 2010, reaching new record levels of production and exports consistently year after year. With annual production of 3.4 million vehicles (cars and trucks) in 2014, Mexico is now the seventh-largest manufacturer of automobiles in the world. Since new automakers have announced expansion plans for Mexico, the country could be producing up to five million light vehicles by 2020Footnote 6. This additional production will continue to create important supply-chain opportunities for Canadian parts and tooling manufacturers.
Mexico represents a strong growth market for Canadian auto parts and associated tooling and machinery suppliers, and companies are expected to continue localizing production in the region.
Defence and Security
Canadian Commercial Corporation (CCC) and the Mexican Ministry of Defense (MOD) signed an MOU in the fall of 2013. Shortly after the MOU was effective, a contract was awarded to CCC, by the MOD, for the maintenance, repair and overhaul services on two Mexican Air Force C-130K Hercules aircraft. Cascade Aerospace of Abbotsford, BC, has been contracted by CCC to complete this work.
Mexico provides an important market for attracting international students to Canada, with Canada’s International Education Strategy identifying the country as one of six priority education markets. According to Citizenship and Immigration Canada, there were over 5,100 Mexican students enrolled in Canadian education institutions in 2014.
For Canadian education institutions seeking to recruit international students, opportunities in Mexico are expected to continue to grow. Since taking office in 2012, President Peña Nieto has placed unprecedented focus on education both domestically and internationally, with the view that international educational linkages are one of the fundamental building blocks of more vibrant and sustainable bilateral connections with its partners.
In addition, foreign language skills, especially English, will continue to be of importance for Mexico’s global competitiveness. The Mexican government has recently offered new funding to facilitate English training for Mexicans in Canada. Furthermore, French is considered the second most important foreign language in Mexico (after English), which offers further opportunities for Canadian educational institutions.
Information and Communications Technology (ICT)
The Mexican ICT market is worth $51 billion in revenues of which 52 percent comes from telecommunications services. The Information Technology (IT) subsector alone is worth around $24 billion in revenues and is expected to grow by 7.9 percent in 2015Footnote 7.
Reforms in Mexico’s ICT sector are enabling the entry of more competitors, especially in the telecommunications sector.
Key drivers in the Mexican ICT market include innovative technologies such as mobility (smartphones, tablets and apps), big data and analytics, security solutions and cloud services, all of which will show double-digit grow rates in 2015Footnote 8.
The World Economic Forum’s economic competitiveness index ranks Mexico’s infrastructure as 69 out of 144 countries globally. When compared to countries in Latin America, Mexico went from ranking fifth in 2011 to seventh in 2013, according to the Latin Business Chronicle. To improve this situation and to complement the recently approved competitiveness-enhancing reforms, Mexico is implementing a National Infrastructure Program (2014-18) with planned investment equivalent to US$594 billion. The original program included 743 projects distributed across six key economic sectors: energy (50 percent of the total); urban development (24 percent); communications and transport (17 percent); water (5 percent); tourism (1 percent); and health (1 percent). About 63 percent of this investment will be funded through federal or state budgets and the remainder via funds generated by the recently implemented law on public-private partnerships (P3s).
As a result of diminished oil revenues and slower economic growth, the Mexican government announced in 2015 the cancellation of railway projects and a further reduction of $11 billion in infrastructure funding. Despite budget cutbacks, the authorities have stressed that construction of Mexico City’s new airport, the most important planned infrastructure project, will continue. It will be the third-largest airport in the world, and could be the most important infrastructure deliverable of the current administration.
Infrastructure opportunities for Canada in Mexico are mainly related to advanced technologies and materials (e.g., intelligent transportation systems, and intelligent buildings with features including energy-efficient materials). Canada is recognized as one of the most mature and best-performing P3 markets in the world, and as such, its infrastructure companies are well positioned to export their P3 expertise to Mexico in collaboration with local partners.
Mexico has one of the world's largest mining sectors and the Mexican Mining Chamber estimates that Mexico is the sixth-largest recipient of exploration investment in the world. Mexico is open to foreign investment in the sector thanks to an absence of restrictions on foreign ownership and capital flows, and a straightforward legislation and concession regime.
Canadian companies represent approximately 70 percent of the foreign mining investment in Mexico. The Canadian government advocates for more transparency and certainty for Canadian mining companies operating in the country. The size of Mexico's mining sector and the number of Canadian companies operating there make the country a promising market for Canadian mining equipment and services exports.
Oil and Gas
Mexico is a major player in the global oil and gas business. It was the tenth-largest producer and the tenth-largest exporter of oil in the world in 2014 (International Energy Agency, 2014). In 2013, the Mexican government ended the 75 year-old monopoly of Pemex over the country’s hydrocarbons sector, creating significant opportunities for foreign investment. Private companies are now allowed to bid for exploration and production contracts, and the reform is expected to attract US$50 billion in private investment by 2018Footnote 9.
Canadian suppliers are well positioned to provide oil and gas services (including training) and equipment to Pemex, and to the new and expanding private sector operators in the country, such as Grupo Alfa, which has already visited Canada in search of expert partners. While Canadian companies have been relatively successful in penetrating Mexico’s energy supply chain, opportunities exist for a much larger Canadian market share. According to figures by Export Development Canada, there were at least 85 Canadian oil and gas companies providing equipment and services to Pemex, with sales of more than US$156 million in 2013.
Establishing strong relationships with Pemex and its MNE contractors such as Schlumberger, Weatherford, Halliburton, and Baker Hughes will remain important for Canadian oil and gas companies to penetrate the market.
Mexico’s energy reforms have opened its electricity industry to private investment and competition. The country’s new structures, policies, legislation, programs and incentives for renewable energies will translate into opportunities for Canadian companies offering products, services and technologies in the solar, wind, nuclear, small hydro and biomass energy subsectors.
Canadian companies with expertise in bioenergy from municipal waste, agricultural residues, forest residues, crops and industrial residues may find opportunities in Mexico, as its Secretariat of Energy identified those bioenergy resources as having the highest development potential.
Building efficient local water utilities is a key government priority as water availability is a significant challenge in most of Mexico’s territory, especially in the large urban centres in northern and central Mexico. The commercial opportunities in Mexico’s water sector are mainly for equipment and service suppliers. Mexico has a strong base of companies in the water sector ranging from large infrastructure development companies to small equipment and component suppliers. Having a local presence through a distributor or representative or by directly supplying the large infrastructure companies that develop projects will improve Canadian chances for success in the market.
Major Negotiations and Agreements
Trans-Pacific Partnership (TPP)
The TPP Agreement is the most comprehensive and ambitious regional trade agreement in the Asia Pacific and will deepen Canada’s trade ties in this dynamic and fast growing region. The TPP currently comprises 12 countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam), representing a combined market of nearly 800 million people and a GDP of $28.5 trillion.
North American Free Trade Agreement (NAFTA)
Chief among Canada’s agreements with Mexico is the NAFTA. In 2014, NAFTA marked its 20th anniversary of coming into force. NAFTA was the first comprehensive trade agreement of its type, setting a new standard in trade liberalization worldwide. Since then trilateral trade has more than tripled and the North American economy has doubled in size, creating jobs and prosperity and benefiting citizens of Canada, the United States and Mexico.
North American Agreement on Labour Cooperation (NAALC)
In conjunction with NAFTA, the NAALC came into effect in January 1994. It is one of two parallel accords to the North American Free Trade Agreement between the United States, Canada, and Mexico. The Agreement is administered by the Commission for Labour Cooperation, which consists of a Council of Ministers and a tri-national Secretariat. Currently four provinces (Quebec, Alberta, Manitoba and Prince Edward Island) are signatories to the NAALC through an intergovernmental agreement.
North American Agreement on Environmental Cooperation (NAAEC)
The second parallel accord to NAFTA, the NAAEC established the Commission on Environmental Cooperation (CEC) in 1994. The CEC is mandated to enhance regional environmental cooperation, reduce potential trade and environmental conflicts and promote the effective enforcement of environmental law. It also facilitates cooperation and public participation in efforts to foster conservation, protection and enhancement of the North American environment.
Air traffic between Mexico and Canada is governed by the Bilateral Air Transportation Agreement (ATA) of 1961 and its subsequent updates. The most recent update of the agreement was signed during Prime Minister Stephen Harper’s visit to Mexico in February 2014 and the new ATA entered into force on July 17, 2015.
There are also sub-national air agreements between various Canadian and Mexican jurisdictions and government agencies and organizations.
A cornerstone of Mexico’s trade policy is its participation in the Pacific Alliance, an integrative trade and cooperation bloc created by Chile, Colombia, Peru and Mexico in 2011 to build on their existing free trade agreements and create an area of deeper commercial integration. Its purpose is to promote the greater competitiveness and growth of the economies of its member countries, as well as to expand economic relations with the Asia-Pacific region. Canada has been an observer in the Pacific Alliance since October 2012.
Selected Trade Initiatives – Seize the Opportunity!
- Agriculture and processed foods
- ABASTUR, Mexico City, Fall 2015
- Expo ANTAD, Guadalajara, March 2016
- Expo Carnes, Monterrey, Every other year
- Mexico’s Aerospace Summit, Queretaro, Fall 2015
- Mexico’s Aerospace Fair, State of Mexico, April 2017
- Mexico’s Auto Industry Summit, Guanajuato, December 2015
- International Automotive Congress, Mexico City, April 2016
- Automotive Meetings, Queretaro, February 2017
- Mexico College Fair Tour 2015: Puerto Vallarta, Guadalajara, Mexico City, Queretaro, Monterrey, Torreon, Chihuahua, October 2015
- FPP EDUMEDIA FAIR, Puebla, Mexico City, Guadalajara, Queretaro, Monterrey, October 2016
- Languages Canada Congress, Puerto Vallarta, February 2016
- ICT Business Mission to Mexico, October 2015
- Mobile World Congress (MWC), Barcelona, February 2016
- Expo CIHAC, Mexico City, October 2015
- Mexico Infrastructure Summit, Mexico City, February 2016
- XXXI International Mining Congress and Exhibit, Acapulco, October 2015
- Prospectors and Developers Association of Canada (PDAC), Toronto, March 2016
- Oil and Gas
- Mexican Petroleum Congress 2016
- Global Petroleum Show, Calgary, June 2016
- Sustainable Technologies
- The Green Expo, Mexico City
- Globe, Vancouver, March 2016
- Green Solutions, Mexico City, October 2015
- Embassy of Canada in Mexico: Canadian government offices abroad provide a variety of services, including consular services.
- Trade Commissioner Service (TCS) in Mexico: With three offices located across Mexico (Monterrey, Guadalajara and Mexico City), the TCS offers foreign market intelligence, introductions in key networks, cost- and risk-reduction advice, business problem troubleshooting and on-the-ground support.
- Agriculture and Agri-Food Canada: Representatives are located in Mexico City.
- Canada Border Services Agency: Representatives are located in Mexico City.
- Canadian Food Inspection Agency: Representatives are located in Mexico City.
- Citizenship and Immigration Canada: Representatives are located in Mexico City.
- Export Development Canada: Representatives are located in Mexico City and Monterey.
- Canadian Commercial Corporation (CCC): CCC provides assistance with government-to government contracting.
- Department of National Defence: Representatives are located in Mexico City.
- Royal Canadian Mounted Police: Representatives are located in Mexico City
Where not otherwise indicated, the information is provided by the Embassy of Canada in Mexico. This document is not intended to provide specific advice and should not be relied on as such. It is intended as an overview only. No action or decision should be taken without detailed independent research and professional advice concerning the specific subject matter of such action or decision. While Foreign Affairs, Trade and Development Canada (DFATD) has made reasonable efforts to ensure that the information contained in this document is accurate, DFATD does not represent or warrant the accurateness, timeliness or completeness of the information contained herein. This document or any part of it may become obsolete at any time. It is the user’s responsibility to verify any information contained herein before relying on such information. DFATD is not liable in any manner whatsoever for any loss or damage caused by or resulting from any inaccuracies, errors or omissions in the information contained in this document. This document is not intended to and does not constitute investment, legal or tax advice. For investment, legal or tax advice, please consult a qualified professional.
- Footnote 1
- Footnote 2
The World Bank, 2014
- Footnote 3
Economist Intelligence Unit 2015
- Footnote 4
Statistics Canada, Table 376-0051
- Footnote 5
The Nielsen Global Survey of Private Label, http://www.prnewswire.com/news-releases/global-perceptions-of-store-brands-improve-but-share-of-basket-varies-by-country-283041661.html
- Footnote 6
Asociación Mexicana de la Industria Automotriz AMIA, 2015
- Footnote 7
Select Consulting, February 2015
- Footnote 8
- Footnote 9
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