Our comprehensive assessment of Mexico's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Mexico, as well as the latest industry developments that could impact Mexico's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Mexico before your competitors.

Country Risk

Mexico Country Risk

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Core Views

  • We remain optimistic toward Mexico's long-term growth outlook on the back of a booming manufacturing sector, an increasingly strong private consumer and favourable demographics.

  • The passage of energy sector reform will bolster sentiment towards Mexican assets and contribute to stronger real GDP growth in the coming years.

  • The 2015 mid-term elections will be key for the main centre-right opposition party, the Partido Acción Nacional, to position itself to return to the presidency in the next general elections in 2018.

Major Forecast Changes

  • We have revised down our 2014 real GDP growth forecast to 3.1% from 3.3%, compared to growth of 1.1% in 2014, due to weak private consumption growth in Q114.

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Mexico Operational Risk Coverage (9)

Mexico Operational Risk

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BMI View:   Mexico's integrated supply chain network, open markets and low levels of trade bureaucracy make the country an attractive investment destination. That said, the country's high crime rate, rigid labour market, pervasive corruption, and high tax rates mean that investors face a number of heightened operational risks, which serve to depress Mexico's overall score in our Operational Risk Index.

Overall, Mexico is an attractive country for investors, but a number of high risk factors depress the country's final score in our Operational Risk Index. We identify the most pressing risks as emanating from the high crime rate and terrorist threat, which pose significant risks to foreign workers, who are often specifically targeted. In addition, the Mexican workforce is highly unionised and regulated, making the hiring and firing process time consuming and costly.

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Mexico Crime & Security

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The most significant security risk facing Mexico is its high crime rate, which may be underestimated by official statistics. Mexico's crime rate is elevated by drug cartels, which are responsible for a range of crimes in addition to drug offences, including murder, kidnap, extortion and rape. The majority of these violent crimes are between cartels, but the general public and foreign business travellers have been targeted. Crime occurs across the country, even in affluent areas. Drug cartels are also responsible for Mexico's high risk from terrorism, as their activities and attacks are often similar to those of terrorist groups. On the other hand, the country's close relationship with its powerful northern neighbour, the US, and lack of involvement in international interventions, means that there is a low risk from interstate conflict. Overall, however, the instability created by the drug cartels mean that Mexico is a regional underperformer in the BMI Crime and...

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Mexico Labour Market

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Mexico has a relatively large and flexible labour market, with a significant informal employment sector. The country particularly stands out on a regional comparison in terms of the high quality of tertiary education. Mexico's overall Labour Market Risk score is above the regional and international averages, demonstrating the country's attractiveness to foreign investment. However, there remain a number of risks in Mexico's labour force which investors should be aware of, including expensive labour costs and poor secondary school enrolment rates. These factors contribute to increased overheads for businesses in the form of high minimum wages and extra training which will be necessary for Mexican workers in more formal or technical roles. Mexico scores 54.6 out of 100 for Labour Market Risk, ranked only eighth in Latin America, suggesting that investors may be tempted to opt for other countries in the region, such as Chile or Argentina, which can offer cheaper and...

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Mexico Logistics

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Mexico is a Latin American logistics outperformer. The country's utilities infrastructure and transport network are focused on its role in the global manufacturing supply chain, with Mexico's logistics offerings geared toward meeting the country's trade demands with its main import and export partner, the US. Mexico's developed logistics sector is reflected in the country's overall Logistics Risks score of 64.7 out of 100, which places it in a competitive third position in a regional comparison.

While Mexico's connections with the US have ensured a demand market for its exports and the development of high-quality transport links, this overreliance on one market leaves Mexico's growth outlook exposed. This has been the case in recent years with the US, with the country's economy currently in a recovery phrase and so Mexico experiencing low growth on the back of this. This slow growth outlook in Mexico's Market Size component and the fact that...

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Mexico Trade & Investment

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Investors in Mexico are exposed to relatively heightened trade and investment risks. A weak rule of law, combined with high profit taxes and widespread corruption, depresses the country's overall score in our Trade and Investment Risk Index. However, due to the government's laissez-faire attitude to foreign direct investment and relatively low levels of trade protectionism, Mexico's business environment can still offer a healthy return on investment. Mexico's score of 48.0 out of 100 for Trade and Investment Risks places the country 12th out of 28 Latin American states. That said, due to the country's large economy, any score relative to GDP punishes the largest markets in the region (Mexico, Brazil and Argentina in this case). This means that, in practice, Mexico is likely to have a more open trade and investment environment than appears in our Operational Risk Index.

The main risk to investment in Mexico is the relatively high degree of...

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Mexico Industry Coverage (24)

Agribusiness

Mexico Agribusiness

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BMI View: Overall, the long-term outlook for the Mexican agriculture sector looks less optimistic than previous years. Consumer demand growth is largely slowing, particularly in key areas like sugar and corn , where per capita consumption is already high. Competitiveness is also an issue, pa rticularly in the grains and livestock sector. Although we forecast a rebound in production for key sectors like corn and meat, we have a largely subdued long-term production outlook for these sectors, as cheap US imports, lower prices, and distortions due to government intervention reduce production incentives. We see the strongest growth potential in the poultry and coffee sectors, as Mexico remains a key coffee exporter...

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Autos

Mexico Autos

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BMI forecasts 5.8% growth in vehicle sales in Mexico in 2014 on the back of an expected 5.4% increase in passenger car sales and 6.5% growth in the commercial vehicle (CV) segment.

Over the first six months of 2014, light vehicle sales in Mexico declined 0.3% year-on-year (y-o-y), to 500,360 units. Recent tax hikes have impacted private consumption in the opening months of 2014, and this has weighed on car sales as consumers delay big ticket purchases. We expect to see a broader pick-up in retail spending later in the year, however, as the impact of these taxes wanes, consumer confidence improves, and the labour market picks up. Accordingly, we maintain our forecast for 5.4% growth in passenger car sales in 2014.

Heavy truck sales in Mexico declined 20.3% y-o-y in the first quarter of 2014, to 6,248 units. Manufacturing and construction activity in the start of the year also came in below...

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Commercial Banking

Mexico Commercial Banking

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Commercial Banking Sector Indicators 
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Mexico Consumer Electronics

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BMI View: W e expect robust growth to be maintained in the Mexican consumer electronics market over the medium term. We forecast demand to grow strongly in 2014, boosted by the proliferation of smartphone ownership, tablet sales and an uptick in TV set sales ahead of the FIFA World Cup.   Meanwhile, our bullish medium term outlook is based on the booming manufacturing sector combined with a stronger private consumer. This should filter down to the consumer electronics sector, and we forecast spending to rise from USD13. 1 bn in 2013 to USD 13.9 bn in 2014 , an increase of 5.7% .

Headline Expenditure Projections

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Defence & Security

Mexico Defence & Security

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We maintain our stance that security policy is likely to be the Achilles heel of President Enrique Peña Nieto's administration. Although the government announced that in February 2013, Mexico saw the least number of drug cartel-related deaths in 40 months, a poll conducted by a local news source suggests that citizens believe violence has risen during the first months of the new president's term, with a geographic breakdown showing that there is no region in which citizens perceive that the security situation has improved.

Nevertheless, the country enjoys a strong, formalised security relationship with the US, an expanding manufacturing base and an economic framework of low-costs and free-trade policies. Mexico's armed forces do not take part in UN overseas missions, meaning the country has not attracted the sort of terrorist attention experience by other pro-US Latin American nations. Even the country's main security issues - the...

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Food & Drink

Mexico Food & Drink

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BMI View: Several factors lead us to believe that the consumer sector in Mexico is past its worst and that household spending growth will accelerate in the coming months. First, sustained upticks in consumer confidence in March, April, May and June are strong evidence that households are rapidly adapting their spending patterns to the new taxes. Secondly stronger manufacturing activity, a key generator of employment, will also support greater private consumption growth in the coming quarters. We forecast real private consumption growth to accelerate to 3.1 % in 2014 and 3.7% in 2015, up from 2.5% in 2013. We also forecast real GDP growth to accelerate to 3. 3 % in 2014, from 1.1% in 201 3 , due to significantly stronger economic activity in H214.

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Freight Transport

Mexico Freight Transport

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After Mexico's real GDP growth came in at 1.1% in 2013, below our initial 1.6% estimate, we have revised our 2014 growth forecast. We now forecast real GDP to expand by 3.3% in 2014, compared to 3.5% previously. We have upgraded our 10-year average real GDP growth from 3.8% to 4.1%, following the passage of energy sector reform, which we expect will garner significant foreign investment in the coming years. We remain  optimistic toward Mexico's long-term growth outlook  on the back of a booming manufacturing sector, an increasingly strong private consumer and favourable demographics.

The latest release of GDP data show that manufacturing in Mexico grew 2.9% year-on-year (y-o-y) during the third quarter of 2013. In addition to favourable data out of the US, Mexico's key export market, we note that autos manufacturers Chrysler and  Nissan have...

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Information Technology

Mexico Information Technology

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BMI View: W e have a bullish outlook for IT sector development in Mexico over the medium term due to a convergence of income growth, declining device prices, a supportive policy environment and the development of a local IT ecosystem. There have been several improvements to the outlook in Q4, with Mexico's exposure to the US helping to boost domestic growth, while the government announcement of the Prosoft 3.0 IT development policy framework improved the policy environment. Over the medium term we identify particular opportunities including cloud computing, which is expected to further benefit from government projects such as the new National Digital Strategy and reforms to the telecoms sector , retail hardware demand and outsourcing . We estimate the size of the market exceeded MXN...

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Infrastructure

Mexico Infrastructure

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BMI View: Leading indicators support our view that Mexico's construction sector will return to growth in H214 . Following a 4.5% contraction in industry value in 2013, due to persistent delays in reviving public sector investment and a depressed housing market, we expect growth of 3% in 2014, accelerating to 4% in 2015. The recovery is being fuelled by the MXN7.7trn National Infrastructure Plan , which is supporting an uptick in public sector investment and financial support for construction activity.

We expect growth in Mexico's construction sector will return in H214, supporting a slow recovery in net output real growth. In line with this view, industrial production data for construction posted the first month of expansion in June 2014, following 19...

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Insurance

Mexico Insurance

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BMI View : We view the g overnment drive to invest in infrastructure over the forecast period, combined with new legislation to mandate vehicle insurance on national highways , as positive developments for the insurance sector, particularly the motory and property insurance segments. Although Mexico's insurance market has limited penetration, we believe that p remiums will continue to be boosted by product innovation and economic growth .

With the pace of Mexico's economic growth set to continue, we see the insurance sector benefitting from the opportunities this brings. The general expansion in financial services, increasing consumerism and a growing middle...

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Medical Devices

Mexico Medical Devices

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Espicom Industry View: The Mexic an medical device market ranks second in Latin America. Espicom forecas ts a high 2013-2018 CAGR of 13.4 % in US dollar terms, taking the market to US$6.9 bn. Medical device imports remain high but represent half the value of exports, as the country operates intensive maquiladora activities directed to the USA, Mexico's leading trade and investment partner. Mexico has strengthened its regulatory environment in recent years, but its power in Latin America is restricted by Brazil.

Headline Industry Forecasts

  • Mexico is the...

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Metals

Mexico Metals

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BMI Forecast: We expect expansion of the automotive, manufacturing, construction, and oil and gas sectors, all of which rely on steel and other refined metals as input s , will lead to steady production and consumption growth for Mexico's metal sector in 2014-2018. Domestic steel producers are likely to fac e pressure from both cheaper foreign imports and US duties on Mexican steel, though we do not believe either will significantly impact the sector.

We anticipate strengthening macroeconomic growth in Mexico over the next five years, driven by growth in automotive production, general manufacturing, and infrastructure, will drive production and consumption growth of Mexican metals, particularly steel. We forecast real GDP growth of...

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Mining

Mexico Mining

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BMI View: We forecast Mexico's mining sector will see steady growth through 2018 as mining companies continue to invest in both base and precious metals mining projects . We forecast the value of Mexico's mining sector to grow to USD16.9 bn by 201 8, representing average annual growth of 2.7% . The sector will benefit from a stable business environment , though mining royalties pose a downside risk .

Mexico Dominates Global Silver Industry, But Other Metals Increasingly...

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Oil & Gas

Mexico Oil & Gas

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BMI View:   We believe that the current Mexican energy sector reform marks the start of a fundamental paradigm shift for the country's hydrocarbons sector. Although it will take a number of years before results are felt in the country's production and reserves dat a, over the long term this will bolster investment and could reverse a nearly decade-long decline in oil production.

Headline Forecasts (Mexico 2012-2018)
  2012 2013e 2014f...

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Petrochemicals

Mexico Petrochemicals

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In our view, growth in the Mexican petrochemicals sector could be stimulated by liberalisation of the upstream energy sector. President Enrique Pena Nieto's reforms would allow more private sector participation within the petrochemical sector and the broader downstream industry. Under Nieto's plan, new constitutional and contractual arrangements could reverse the decline in oil and gas observed in recent years owing to a bar on foreign investment in upstream resources.

In 2013 Mexico's olefins capacities included 1.58mn tonnes per annum (tpa) of ethylene and 660,000tpa of propylene. These fed downstream capacities of 875,000tpa polyethylene, 590,000tpa polypropylene, 667,000tpa polyvinyl chloride (PVC) and 310,000tpa polystyrene. It is widely recognised that this is not enough to cover domestic demand, let alone take full advantage of Mexico's strategic position as a supplier to the US market.

Pemex...

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Pharmaceuticals & Healthcare

Mexico Pharmaceuticals & Healthcare

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BMI View:   The lack of a unified reimbursement system, the absence of widespread private health insurance, relatively low healthcare spending and the promotion of generic drugs in Mexico will continue to undermine revenue-generating opportunities for innovative drugmakers. However, over the long term, healthier fiscal revenue due to energy reform will encourage the Mexican government to further increase public spending on medical services and improve national healthcare standards. .

Headline Expenditure Projections

  • Pharmaceuticals: MXN171.4bn (USD13.4bn) in 2013 to MXN182.4bn (USD14.2bn) in 2014; +6.4% in local currency terms and +5.7% in US dollar terms. Forecast decreased from Q 3 14 due to...

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Power

Mexico Power

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BMI View:   The outlook for Mexico ' s power sector is good . Generation will rise by around 3.8% year on year in 2014 and 4.2% in 2015, driven by strong growth in manufacturing and construction output, and in household demand for electricity. Growth in the power sector will be facilitated by an expansion of Mexico ' s gas-fired capacity, which will draw in imports of natural gas from the US . Renewables and hydropower will also grow healthily as the government offers various incentives to producers of clean energy. In the longer term, the electricity market will benefit hugely from a package of reforms which allow for the generation  and...

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Real Estate

Mexico Real Estate

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BMI View: We are forecasting Mexico's commercial real estate industry to show a consistent, yet unremarkabl e performance over 201 4 , with rental rates across all sub-sectors expected to remain flat as the standoff between the market's long-term potential and macroeconomic headwinds continues. The country has one of the most stable growth outlooks in the region and an operating environment which is seeing tangible improvements and rising longer-term prospects . Nevertheless, the poor financial condition of many of the country's residential developers...

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Renewables

Mexico Renewables

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BMI View: While some investors remain cautious over the pace and implementation of Mexican energy reform, we maintain our constructive outlook of the country's renewables industry and our forecasts remain unchanged this quarter. The project pipeline continues to strengthen - with European and US developers and manufacturers in particular being drawn to the sizeable growth opportunities on offer.

Mexico's adoption of the 'General Law on Climate Change' in June 2012 set a target of boosting the renewable industry so that 35% of energy generated comes from alternative sources (including hydropower) by 2024 - an ambitious goal considering the prevalence of thermal energy in its power mix. However, progress has been made, and overall, we expect Mexico's non-hydro renewables industry to continue to expand robustly. Furthermore, we believe Mexico will maintain its position as a key renewable energy...

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Retail

Mexico Retail

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BMI View : Mexico's retail market continues to attract international retailers and investment due to its growing middle class and growth opportunities. Positive demographic trends such as the growth of the key young adult population bracket as well as the rise of household spending will further drive the growth of the retail sector. However the rise of informal vendors in the country is expected to continue chipping away at the overall growth of the retail market.

BMI forecasts total household spending will rise from USD323bn in 2015 to USD 426bn in 2018. In addition, the middle class continues to grow with 23% of households estimated to earn above USD25,000 in 2015. By 2018, this figure is expected to grow to 34%. Retail sales will be driven by the growth of wealth and rise in consumer spending power. Furthermore, Mexico's strong demographic...

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Shipping

Mexico Shipping

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BMI remains optimistic toward Mexico's long-term growth outlook on the back of a booming manufacturing sector, an increasingly strong private consumer and favourable demographics. As a result, we retain a cautious optimism towards the country's shipping sector.

We forecast real GDP growth in Mexico to accelerate from 1.1% in 2013 to 3.3% in 2014 and 3.7% in 2015. Following ongoing contractions in the construction sector and a slump in manufactured goods exports growth in late 2013 and early 2014 due to weather-related disruptions to production, we expect economic activity to re-accelerate in the coming months. Stronger public investment into infrastructure, after a government transition last year resulted in spending delays, will ensure the construction sector recovers from the contraction it experienced in 2013.

Ongoing signs of stronger US consumption bode well for Mexico's manufacturing sector...

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Telecommunications

Mexico Telecommunications

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A change in regulatory environment enforcing more market openness and competition marks a very positive change for the Mexican telecommunication market. Following the ratification of the new telecommunications law in July 2014, dominant broadband and telephony operator América Móvil and dominant broadcaster Televisa are forced to undertake measures to decrease their respective market shares. This will allow for new players to enter the Mexican ICT market and will likely result in redistribution of market shares among the existing market participants and potentially lower prices for consumers as a result of increased competition. Developing new networks will also become cheaper as infrastructure sharing deals are likely....

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Tourism

Mexico Tourism

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BMI believes Mexico's tourism industry has enormous long-term potential, largely owing to its proximity to the US. However, there are concerns with regard to rising levels of insecurity and the negative image this is sending to potential tourists.

BMI forecasts arrivals growth of 2.1% in 2014, to 11.0mn tourists. This is an increase in the growth rate from 0.04% in 2013, and we expect tourist arrivals growth to remain above 2% over the rest of the forecast period to 2018. We believe that this reflects returning confidence in Mexico's tourist industry, with arrivals from the US recovering, albeit slowly, and arrivals from Europe also growing steadily.

In April 2014, President Enrique Peña Nieto presented the 2014-2018 National Plan for Tourism, which we expect to provide valuable support for the industry. As part of the plan, the president emphasised the...

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Water

Mexico Water

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BMI View: In Mexico, there are a number of issues inhibiting the water sector's full development including widespread pollution, the over politicisation of the water sector and the numerous riots and public protests against n ew water developments. H o wever, at the same time, developments are occu r ring and there is strong government support and i n ve s tment in the sector (which is be c oming increasingly open to private involvement), as well as the potential revision of water regulations to create a more cohesive water management plan. Although infrastructure investment will improve efficiency, we expect overall extraction and consumption to...

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