The change in Mexico’s economy over the last several years has been dramatic. The country was hit hard in 1994 when the peso dropped and triggered a recession, but it has since made an amazing recovery and is now one of the largest economies in the world. Mexico has successfully set up trade agreements with 43 countries, including the North American Free Trade Agreement (NAFTA) with the United States and Canada.
More than two thirds of the nation’s gross domestic product (GDP) comes from the service sector which includes commerce, tourism, financial services, transportation and communication. Mexico has invested in tourism development with stellar results, becoming one of the top ten destinations for travelers according to the World Tourism Organization. The 20 million or so visitors a year help employ about one third of the workforce.
Industry is the second largest sector in terms of GDP and it includes manufacturing and exporting of food, beverages, tobacco, chemicals, iron, steel, clothing, automobiles and petroleum. Petroleum is currently a major driver for the economy, though that is changing. The petroleum industry is controlled domestically by the state owned company Pemex and has greatly contributed to the country's revenue, however reserves are in decline and Pemex posted losses in 2007.
Traditionally, coffee, sugar and mining were the primary industries in Mexico, but those have given way to the growing industries of vehicles, processed food, steel, chemicals, paper and textiles. Exports to the U.S. alone account for about a quarter of the GDP. The most important sources of foreign income, in order of dollars received, are oil, industrial exports, food exports and remittances. Remittances are funds sent to relatives in Mexico from workers in the U.S. and abroad and amounts to billions of dollars every year.
Foreign investment has been increasing in Mexico since the 1990s when the government opened the country to outside business interests. The United States makes the largest contributions, accounting for almost half of the foreign investment in manufacturing.
With deserts and mountains making up a significant percentage of the land space, Mexico doesn’t have much room for agriculture, and is a net importer of grains. The most important commodities they do produce are corn, tomatoes, sugar cane, beans and avocados as well as beef, poultry, pork and dairy products. While agriculture accounts for only about 4% of Mexico's GDP, it employs 16% of the workforce. NAFTA has made it difficult for some small farmers to compete with larger industrial farms. Many laborers are leaving the farms to seek work in the cities or across the border.
Even with a growing economy, Mexico still has a huge poverty problem. Underemployment is high and many people live below the poverty line. There is a large disparity of wealth among the different regions, and when comparing rural versus urban areas. The southern states are significantly poorer and haven’t benefited from the foreign investment in factories that the north has seen. The dire straits of many communities has resulted in a migration across the border to the U.S. for work, where much of the income earned is sent home to other family members. In fact, such remittances amounted to over USD$60 billion in 2008. While it aids in the country’s unemployment situation, it leads to the separation of families in a culture that is centered on close family connections.
Some statistics say that as many as half the working population are not officially registered as taxpayers. Their income is derived from street vending, working at home or criminal activities. They make very little income and don’t pay taxes.
Economy Fast Facts
- GDP: $1.567 trillion (2010 est.)
- Per Capita Income: $13,900 (2010 est.)
- Inflation Rate: 4.2% (2010 est.)
- Unemployment Rate: 5.4%. Underemployment may be as high as 25% (2010)
- Industries: food & beverage, tobacco, chemicals, iron & steel, petroleum, mining, textiles, clothing, motor vehicles, consumer durables, tourism
- Agriculture: corn, wheat, soybeans, rice, beans, cotton, coffee, fruit, tomatoes; beef, poultry, dairy products; wood products
- GDP by sector: Agriculture 3.9%, Industry 32.6%, Services 63.5% (2010)
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