Emerging Markets; Mexico
Introduction
Emerging markets are countries that are changing their economies to market-oriented economy. These countries have many trade opportunities for both imports and exports; high tech technology transfers and attracts a lot of investors thereby encouraging more foreign direct investment to the country. Emerging markets are usually large economies in their respective regions, have large populations, resources, markets, and have transitioned from developing to emerging economies. They are in-between developing countries and developed countries. Good examples of such countries are China, India, Indonesia, Russia, Mexico, South Africa, Poland, Turkey, South Korea, Brazil and Argentina.
The emerging markets’ countries are rapidly growing economically and are characterized by fast growth in infrastructure, manufacturing industries, general industries and have matured politically and socially. These factors have been the key movers of the economy. However, these countries are also facing certain challenges. Some of these challenges pose great risks and may discourage investors and laborers if they are not well addressed. Emerging countries have been trying their best to address these challenges in different ways. No wonder there is a great influx of people of all walks of life to Mexico every year (Li, n.d). This paper will analyze Mexico as an emerging market, opportunities and challenges faced.
Global Overview
Mexico is the 14th largest country by total land area and the 11th most populous country in the world today. It is made up of 31 states and one federal district with Mexico City as the capital, housing most important administrative and legislative offices. The city is among the largest in the world with a population of ore than 20 million people. Mexico has an interesting history. It had many ancient civilizations, including Maya, Aztec, Olmec, Zapotec, African, Toltec, Inca, French and Spanish. The country is accredited for having the first printing press in North America and for introducing chilies, chocolate and corn to the world. Mexico got independence from Spain in 1810, and the constitution was introduced in February 1917. The Mexican government is made up of the legislature, the executive and the judiciary (World Fact Book, 2013).
Social Factors
Mexico has a population of about one hundred and twelve million people. About fifty-one percent of the population is women, and the remaining forty-nine percent are men. The wealthy represent just about ten percent of the Mexican population yet they control more than 90 percent of the economy. Majority of Mexicans are poor and the economic changes that are witnessed there currently have been changing this. The very poorest population in Mexico account for just about 1 percent of the economy while the rich 10% absorb more than forty percent of the economy. Poverty levels have been decreasing, and the middle class group has been increasing exponentially. Mexico has one of the fastest growing middle class populations in the world today (Johnson, 2012).
Economic Factors
Mexico has been changing rapidly in the last three decades, thanks to the policies and reforms introduced by the government in the late 1980s and early 1990s. This played an important role in changing the economy of Mexico at that time, and that pace has been gaining momentum year after year. There are several statistics that can be used to show these changes. Take, for example, the trade with United States, the major trading partner of Mexico. The value of goods traded between the two countries was about 130 billion dollars in 1997. The value increased to a staggering 450 billion dollars in the year 2011. That is close to four times the 1997 value (Villarreal, 2012).
Mexico has many resources, which have been attracting investors from across the world. Other emerging markets countries are becoming expensive to live in and to set up industries. A study by Damien Cave, A renowned New York Times writer indicates that Mexico is attracting many immigrants every year. Increasing wages spending and transportation costs in emerging market like China is encouraging investors to look for other emerging markets to invest in, Mexico being one of the leading. This has a great positive impact on the Mexican economy. This can be confirmed by the economic growth which improved remarkably in both 2011 and 2012. Mexican economy has been growing at a rate of more than 10% per annum recently. This was much better than its economic peers in the western hemisphere; United States, Canada and Brazil. These facts have attracted fortune seekers from elite businessmen to laborers. Number of American workers in Mexico has also been increasing rapidly; at more than ten percent every year (Cave, 2012).
Ideological Factors
Most countries, especially the developed countries in the world are facing economic hardships currently. In fact, most of them are in economic recession in some way. Europe, for example, has been having economic challenges in the last few years. It is worse in Greece, Portugal, Spain, Ireland and Italy. These concerns have been discouraging investors from other regions and persuade them to look for other good investment places. This has also been encouraging some people in these countries to relocate to greener pastures like Mexico. In the article For Migrants, New land opportunity is Mexico; Cave interviews a foreigner who relocated from Spain. The Foreigner stated that everything in his home-country Spain was a problem making almost everything impossible. On the other hand, Mexico presented good opportunities, and He was confident enough to state that everything seems possible in Mexico (Cave, 2012).
Political Factors
Mexico can be considered politically stable. The Mexican government has been drafting policies and regulations to make the country better for the last few decades. Reforms that have been implemented in the country are already bearing fruits. President Enrique Peña Nieto who took office in December 2012 promised to change Mexico for even better. His government came up with a national development plan which includes Mexico in Peace, Prosperous Mexico, and Education for all, inclusive Mexico and Mexico as an actor of global responsibility. These development plans can proper Mexico to among large and competitive economies in the next decade (World Bank, 2012).
Challenges in Mexico
Although Mexico is one of the preferred emerging markets countries, it faces a lot of challenges. The drug cartel problem is probably one of the most discouraging factors to investors. Drug barons have been reigning in some regions, and even the government forces are unable to control them. News across many international Television Channels that drug barons have taken over villages and towns or killed dozens of people at once is not news. It is even more discouraging that this takes place in broad daylight.
Drug barons work by issuing orders to villagers and people living in small to medium-sized towns. If they fail to honor the orders given, they are killed in the witness of other villages or people living there. There are sporadic gun fights and battle between government forces and the drug barons. Drug cartels that have taken control over some regions fight from time to time. Sinaloa and Los Zetas cartels have been fighting each other in the quest to increase the areas they control for sometime now. Many people are caught up in these gun fights and are shot dead or nurse injuries, which will always remind them of what transpired in their lifetime. People in some Mexico regions live in fear as they do not know whether they will be alive the next minute or not (Schtulmann, 2012).
Investors are very cautious when they are considering establishing plants or industries in Mexico. They cannot establish their ventures just anywhere. Investors have to seek advice from well established businessmen or government officials on the region they can work from. Most investors prefer the latter as they do not trust the government. In fact, some investors blame the government for the current deterioration in the business environment.
Political Challenges
According to Schtulmann, the current government has relaxed. First, the government stopped crackdowns on the criminal gangs that terrorize people across Mexico. Most of the organized gang groups go about their business under the government’s watch. This will encourage the various outlawed organized criminal groups to regain influence across the country. At the same time, the government has not addressed important issues in reforms. No changes in the status quo and lack of better reforms really discourage potential investors (Schtulmann, 2012).
Mexican government does not discourage monopoly and cartels. There are many legal businesses that are out rightly monopolies and cartels, yet the government does not do anything about to control them. Investors dealing in products that can also be produced in Mexico, wonder if they will have a fair competing ground if they establish businesses in Mexico. As such, they prefer to go to other countries where fair competition is encouraged (The Economist, 2011).
The only industries that can work comfortably in Mexico are those that deal in products that are not produced there. Motor vehicles and sophisticated software serve as two good two examples. Monopoly in Mexico affects the common man, mostly. Charges for securing goods and services are way too high compared to other emerging markets and developed countries. For instance, getting connected to the telecommunications services, which are provided by a company owned by one of World’s richest Man, Carlos Salim is about four to ten tens more compared to emerging and developed countries. Even other things that are expected to be provided free of charge, for example, medicines are also very expensive, several times the standard costs in other countries (The Economist, 2011).
Economic Challenges
Flourishing counterfeit product is another issue of great concern in Mexico. Everything can be pirated in Mexico, including clothes, shoes, handbags, electronics, medicine, software and whiskey, practically anything. The counterfeit products cost much cheaper compared to the original products. Nakra Prema claims that most counterfeit products in Mexico cost less than a third of the original price. Many companies selling merchandise to Mexico lose millions of dollars every year due to the fake products. According to Nakra, giant software companies estimate that more than 65% of software used in Mexico is not genuine. These companies lose in excess of one billion dollars every year in Mexico alone (Nakra, 2008).
The infrastructure in Mexico is said to be one of the worst in the emerging markets. Poor infrastructure leads to increased costs of transportation. This in turn makes the producers of processed goods and manufacturers to increase the prices. Investors who would have wished to manufacture goods at low costs to sell cheap are usually discouraged.
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