Mexico makes money from a variety of resources. The country is known for its beaches and resorts which brings in millions of tourists every year. Mexico often benefits from other countries. Especially in the industrial sector. A large majority of the lower class works for outsourced industry coming from the U.S. because of Mexico’s lack of minimum wage. In the U.S., employers must pay their workers at the very least $7.25 per hour. In MX, those regulations aren’t in place and lower income people are willing to work for pennies. The labor is cheap. Also it has large offshore oil wells that are very lucrative. Agriculture is another source of income for the country. They produce mostly sugar and potatoes. Finally drugs are the final and potentially most lucrative business of Mexico, however, it can’t be gaged because it is obviously under the counter and illegal. Drug rings employ all social demographics and have positions in government.
Mexico exports a huge amount of agricultural products that it exports. It is recorded to be the third largest exporter to the U.S. and brings in about $17.7 billion with its product. It exports things like beer, liquor, wine, vegetables, chocolate and other foods that dare cheaper to produce and sell.
Mexico is the 14th largest importer in the world. Last year alone it brought in billions of dollars of imports in the form of refined oil and car parts. While Mexico is self sufficient agriculturally, it lacks industrial amenities that the US and other more developed countries are privy to.
Gross domestic product is the total value of goods produced and services provided in a country during a one year time frame. This number is used to determine the strength of a country’s economy. According to The World Bank, Mexico’s gdp in 2015 was $1.144 trillion USD. Which is a 2.5% growth from the previous fiscal year. Even though this number is pretty high global economist expect Mexico’s economy to weaken because of its increasing debt-to-GDP rate. In the last decade Mexico’s debt-to-GDP rate has grown from 29% in 2007 to 50.5% at the end of 2016. This number has increased mainly due to the lack of revenue created from oil, the cash cow.
Mexico’s current form of money is the Mexican Peso. One Mexican Peso is equivalent to 5￠ in U.S Dollars. One main reason that the Peso is so weak is due to the fact that The Mexican government has made it acceptable to accept USDs in some parts of the country. Especially up North in tourist towns. Allowing people to spend USDs instead of converting currency to the Peso is creating less demand for the Peso which means it going to continue to get weaker. To counter this trend Mexico should try to decrease their imports and increase their exports. Easier said than done.
Mexico’s involvement in trade zones:
One major trade agreement that Mexico is involved in is NAFTA. Which is an agreement between Canada, Mexico, and United States, and it was signed on January 1, 1994. This allows Mexico to try and increase the worth of its economy. Until recently Mexico has used oil as one of its main exports. Not to long ago Mexico established its first free trade zone. This trade zone is located in San Luis Potosi,on 1,300 acres perfectly situated by a railroad line that runs North and South. They could use this railway to transport goods. Their customs office has made it to where duties and tariffs are deferred until the merchandise is about to enter the local market.
Mexico’s economy is as diverse as it is specialized. Agriculture, industry, production, manufacturing and the contributions produced by each of these economic components have changed rapidly in recent years. However, Mexico’s resilience and flexibility in reaction to a wave of neoliberalism, the banking crisis in 2008 and declining GDP growth can be seen in the ways that the economy has adapted.
Agriculture in Mexico, while a major part of GDP in the mid-1900s, now constitutes only 3.9% of GDP and 18% of labor. The last claim to legitimacy for agriculturists was the Mexican ejido, a communal landholding system that was abolished in the 1980s. As global economics trended toward neoliberalism, Mexico followed suit and sought to end the socialist ejidos. Most ejidos remain intact to this day because ejidatarios (ejido landholders) benefited from the system and chose not to privatize and risk selling their land to commercial farming.
Common agricultural products in Mexico include: corn, wheat, soybeans, rice, beans, cotton, coffee, fruit, and tomatoes. Of these crops, Mexico’s comparative advantage in agriculture is not in corn, a staple of Mexican diet, but in horticulture, tropical fruits, and vegetables. There’s also a booming market for potatoes in the commercial industry, less so for household consumption. Mexico faces the dilemma of a large labor population for agriculture, with little return as far as GDP is concerned. Many of these laborers end up seeking an alternative income by migrating seasonally for work in US, which presents political and economic issues on both sides of the border.
While Mexico might not be investing in agriculture, the country’s young minds are investing in a future of strong engineering, design, and manufacturing employment opportunities. Mexico brags of almost half a million students enrolled in engineering programs who are strengthening the workforce with specialized skillsets. This educated workforce is developing Mexico’s manufacturing sector into doing more advanced work such as research, design, and the manufacture of advanced electronics. In fact, one out of every four consumer appliances sold in the United States was of Mexican design in 2008. Both electronics and the automotive industry are highly regarded by consumers familiar with Mexican manufacturing. Automotive production has had a solid and growing presence since the 1930s with the The “Big Three” (General Motors, Ford and Chrysler). Later, Nissan, Volkswagen, Toyota, Honda, BMW, and Mercedes-Benz would seek out Mexico for manufacturing and design needs.
The Mexico economy cannot be discussed without noting the government owned and regulated oil industry. Approximately 20% of government revenue comes from the state-owned oil company, PEMEX. This revenue is due to the 62% tax imposed on PEMEX, though even this state-imposed tax has been a disappointing source of income for the Mexican government as oil prices have fallen recently. Mexico has been put on the radar of global rating agencies as risky investment due to the slowed grow and low oil prices.
Mexico has $176.4 billion in reserves of foreign exchange and gold, according to the CIA World Factbook, and is ranked 14th in the world for its reserves. How does a country’s reserves affect its economy? It directly affects whether or not a country is considered reliable for paying back the debt it possesses. Mexico is considered 26th in the world for external debt, which rounds up to $485 billion. Having a large reserve of foreign currency is good when a country has a lot of liabilities, as it is seen as proof that the country might be able to pay back its debts. When considering how the foreign exchange reserves can affect a restaurant’s presence in Mexico, one must think in how the country’s foreign reserves affect its exchange rates for its domestic currency. A country can use its reserves of foreign currency to influence the strength of its domestic currency in its favor. When a country’s currency is stronger, it is more likely that the citizens of that country will be able to buy more and afford more luxuries; such as going out to eat. Therefore, if a country is going through a time of inflation and its currency is weak, that country can but a lot of its own currency to raise the demand for it, and make is stronger in value. This could be a tricky task as it can cause inflation. In particular, Mexico has much more external debt than it does in foreign reserves. Mexico has more foreign reserves than other countries in the world, yet it has much more debt than many other countries. That being said, Mexico seems to be a place where, in a large populous city, the right restaurant would be able to thrive.