Mexico, the Partner Country of Hannover Messe 2018, is leading the way of the fourth industrial revolution in Latin America. The country is in the process of adapting government programs to promote the new technologies and facilitate the development of Industry 4.0 models.
by Silvia Crespi
Mexico is Hannover Messe 2018 Partner Country, the first Latin American, Spanish-speaking nation ever to star as.
Among the topics to receive special attention are energy and environmental technologies, IT and digitization of industrial processes, automotive and aerospace, technology reform and diversification as well as education development, start-ups and export promotion. Mexico also intends to exploit its presence at Hannover Messe to strengthen and advance its international trade relations and, among other things, to further its efforts to secure a free trade agreement with the European Union. The Mexican government’s strategic objectives include expanding bilateral initiatives to improve education quality and workforce qualifications. One of the big challenges here is to improve the quality of the basic and vocational education received by the burgeoning youth segment of the country’s labour market. Mexico’s government is working on a number of initiatives in this regard, including a reform of the education system and moves to overcome the country’s skills shortage by stepping up the introduction of aspects of the German-style dual vocational training model at upper-secondary level. Mexico’s presence at Hannover Messe is organized and coordinated by ProMéxico, the Mexican government’s international trade and investment promotion agency.
Mexico leads the way of the fourth industrial revolution in Latin America
The stated aims of Mexico’s government include putting in place the strategies and infrastructure necessary for a successful fourth industrial revolution. According to Paulo Carreño King, CEO ProMexico “Mexico has several mature niches that have already adopted 4.0 practices. Since they have established in Mexico about a decade ago, automotive and aerospace companies have become highly digitalized and use data analysis to optimize their operation… The improved efficiency and productivity that come with adopting these advanced technologies translate into substantial reductions in manufacturing costs and, in turn, greater competitivenes”. Here are the words of Rogelio Garza Garza, undersecretary of Industry and Commerce, on the same topic: “Mexico has been paying a lot of attention to the Fourth Industrial Revolution. We lead the way in Latin America… internationally we are among the countries that are most interested in adhering to best practices, so that we catch this huge wave and ride it to our advantage… Industry 4.0 will impact all sectors. Some of these, like the aerospace and automotive industries, are slightly more advanced that others because of their dynamics and the product standards required”. About the actions under way to develop the applications of the new technologies, the undersecretary stated “One concrete action we have taken has been to teach new skills to the factory workers and train new human capital. As regards technology we have pinpointed the main areas that are going to take off and that are going to be a priority in the future – Big Data, the IoT, network security, 4.0 logistics, automation and robotization.
According to Rogelio Garza Garza, also the small and mid-sized companies will be vital to the process as in Mexico, SMEs create almost 90 percent of the country’s jobs.
Growth mode for the world’s 15th largest economy
Mexico is an up-and-coming industrial nation with a population of some 120 million. It is an OECD member, the world’s 15th largest economy and generally seen as an advanced emerging market.
Mexico is the world’s 13th largest exporting nation and its 12th largest importing nation. In terms of industry, the country’s main strengths lie in automobile and automotive parts manufacturing, aerospace, electrical engineering, oil and chemicals. It is a major producer of automobiles, and is in fact the world’s fourth largest exporter in the automobile sector. Mexico traditionally has close economic ties with the USA. North America accounts for some 80 percent of Mexico’s foreign trade. Mexico is Latin America’s second-largest economy, achieving a GDP of USD 1,043 billion in 2016 – an increase of 2.3 percent on 2015. The country’s GDP comes primarily from the services sector, industry and commerce and in 2016 worked out at about USD 8,623 per capita. About one third of Mexico’s GDP comes from industry, which generates some 35 percent of the country’s exports. The energy market reform process, which began in 2013, has breathed new life into the country’s oil, gas and electricity sectors. The reforms have brought various private investors into the energy market alongside the country’s big state-owned companies PEMEX and CFE. Over the past seven years, Mexico’s overall energy requirement has grown by 25 percent. This growth includes a 50 percent increase in the country’s electricity requirement. While this energy requirement is currently met primarily from oil and gas, the government now has a diversification strategy aimed at generating 35 percent of the country’s total energy requirement from a mix of renewables, such as wind and hydro power, and nuclear by 2024. The growth areas of the Mexican economy include renewable energy, mechanical engineering, healthcare and logistics. Of particular interest is the logistics industry, which currently generates about 15 percent of Mexico’s GDP. The bulk of this relates to transportation.
Mexico is currently working on improving its logistics performance, a score on which it aims to join the ranks of the global top 20 by 2030.
Exporting all around the world, primarily to North America
Mexico’s foreign trade has long been focused primarily on North America. Indeed, the USA is still indisputably Mexico’s most important trading partner, accounting for close to 80 percent of the latter’s exports and 50 percent of its imports.
However, the Latin American country’s government and industrial leaders are now increasingly looking across the Pacific and Atlantic. Foreign trade is a key part of the Mexican economy and is currently supported by 12 free trade agreements covering a total of 46 countries. Mexico generates some 33 percent of its GDP from exports.
The country is currently seeking to negotiate a new, reformed free trade agreement with the European Union aimed at expanding trans-Atlantic trade and investment. Mexico also has its sights set on free trade agreements with several other countries, including Jordan, Paraguay and Turkey. It is also a member of the Pacific Alliance trade bloc, alongside Colombia, Peru and Chile, has plans to secure trade deals with Australia, New Zealand, Singapore, Vietnam, Malaysia and Brunei, and is extremely interested in developing closer economic relations with China.
Taking a more specifically German perspective, Mexico is by far the Federal Republic’s biggest export destination in Latin America. From 2014 to 2015, Germany’s exports to Mexico increased by 24 percent to US$11.09 billion – more than it exported to countries like Brazil and India. By contrast, Germany has hitherto been a fairly unimportant export destination for Mexico – as can be seen from the fact that Germany accounts for only 0.9 percent of Mexico’s total exports. Mexico’s economic growth is very much export-led. For instance, in 2016, the country’s automobile and automotive subcontracting industries exported 3.46 million vehicles, an increase of just on two percent compared with 2015, not to mention an all-time record. Put simply, automobiles and auto parts make up half of Mexico’s exports.
An attractive location for foreign direct investment
Mexico is a very attractive location for foreign direct investment. Its immediate proximity to the USA is a major plus, despite the current uncertainties, as is the fact that being based in Mexico opens the door to favourable customs treatment for exports to a whole range of countries. Other advantages include sound economic policy, energy, infrastructure and tax reforms, and relatively low labor costs. The lion’s share of foreign investment goes into automobile manufacturing and automotive subcontracting, the pharmaceuticals and chemicals industries and logistics. Mexico is an increasingly important market and production location for companies all around the world. German companies are a case in point. Volkswagen has had a large-scale manufacturing presence there for many years. Volkswagen, Daimler, BMW and Audi have all recently either opened up new or expanded existing plants in Mexico. And when new plants are opened, new subcontractors tend to follow. Figures released by the German Association of the Automotive Industry (VDA) indicate that the number of German subcontractors in Mexico has jumped from 40 to 150 since 2010. The total number of German companies in Mexico has also increased sharply, and, according to the German-Mexican Chamber of Commerce, is currently sitting at around 2,000. Market opening and economic growth are also opening up new business opportunities in areas other than the automotive industry. Key areas here include the energy sector, the aerospace industry, pharmaceuticals and medical technology, mining, electrical engineering and logistics.
Sources: ProMexico Trade and Investments