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Reasons to invest in Mexico
Mexico has a territory of 1,964,375 sq.km., of which 1,959,248 sq.km. are continental territory and 5,127 sq.km. are islands. To this surface area we must add the Exclusive Economic Zone consisting of territorial seas of 3,149,920 sq.km, for a total surface area of 5,114,295 sq.km. Mexico is divided into 32 federal states, and the capital city is the Federal District, which is the seat of the Powers of the Union. Mexico borders with the United States of America, Guatemala and Belize in 4,301 kilometers which are distributed as follows: The United Mexican States are a federation with a representative, democratic and republican government based on a congressional system according to the 1917 Constitution. Mexico is constituted by 31 free and sovereign states and its capital, Mexico City. The federal government is constituted by the Powers of the Union, the three separate branches of government: Executive, Legislative and Judiciary. Executive: the President of the United Mexican States, who is the head of state and government, at the same time. The President also appoints the Cabinet and other officers. The president is selected to serve one six year term, and there is no possibility of being reelected. Since 2006 Felipe Calder¢n Hinojosa is in charge of the presidency. Legislative: the bicameral Congress of the Union is composed of a Senate and a Chamber of Deputies. The Senate is conformed of a total of 128 senators (three per state and 32 elected by proportional representation). The Chamber of Senators is completely renewed each 6 years, concurrent with the presidency's term. All elected executive officials are elected by plurality (first- past- the- post). The Chamber of Deputies of the Congress of the Union is constituted by 300 deputies elected by plurality and 200 deputies elected by proportional representation. Each state is represented in the Chamber of Deputies by at least four legislators. Elections for legislators in the Chamber of Deputies are carried out every three years. Congressmen (senators and federal deputies) may not be re-elected for the immediately succeeding term. Judiciary: The Supreme Court of Justice and the inferior and specialized tribunals. The Supreme Court is comprised by eleven judges appointed by Congress approval. The Minister of the Supreme Court occupies this position for a 15 years term. The Mexican federation is composed by 32 Federal States. Each state is free and sovereign and has one Constitution (except the Federal District) and its own Congress. All constituent States have a republican form of government composed of three branches: the executive, represented by a governor elected for a six year term, with no possibility of being reelected; the legislative branch constituted by a unicameral congress and the judiciary, also called a Supreme Court of Justice. They also have their own civil and judicial codes. Mexican States are also divided into municipalities. 2,438 municipalities exist in the Mexican Republic. The state with the largest number is Oaxaca, with 570. In contrast, Baja California and South Baja California only have five municipalities each. The municipal city councils are headed by the municipal president. The municipal president is elected every three years, in different dates according to the electoral calendar of each state. Each municipality possesses a town council integrated by 'regidores' (counselor) and syndics, who are elected also for a three-year term. Municipalities can be further subdivided into non-autonomous auxiliary presidencies (delegations). Mexico City, the Federal District, is the capital of the federation and seat of the powers of the Union. The City was ruled by a governor, until the charge was cancelled in 1928. Later on, it was governed by a Regent (regente) who was directly nominated by the President. On July 6, 1997 residents directly elected the first head of government (Mayor) (Jefe de Gobierno), and the representatives of a Legislative Assembly (1994). The Federal District is divided in political delegations, and since 2000 the head of each political entity is elected by plurality for a three-year term. Mexico has the world's third largest number of Catholics, after Brazil and the United States. Nonetheless, the Mexican State is officially laic since anticlerical laws imposed the separation between religious institutions and political affairs according to the Constitution of 1857, and later ratified in the Constitution of 1917. As of the second half of the XX century, the introduction of creeds, different from the Catholic, began. According to data from the National Statistics, Geography and Information Technology Institute (INEGI, in Spanish), most Mexicans are Christians and in their majority Catholic (over 74,600,000 members). The second Christian group is the Jehova's Witnesses (over one million members), which ranks this Mexican congregation in the world's second place in that Christian branch. The Church of the 'Light of the World' is ranked in third place with its center in La Hermosa Provincia, in the City of Guadalajara. The Pentecostals and its denominations are also important, mainly in the cities near the border and in indigenous communities. In fact, Pentecostal churches claim to have over 1,300,000 believers; ranking them as the second Christian creed in Mexico in net numbers. This fact changes when different Pentecostal denominations are considered as separate entities. The proportion of Catholics varies according to the different social ambits. It is usually lower in the cities, although there are some indigenous regions where protestant members reach up to 30 percent. Even, in some regions of the state of Chiapas, the native Muslim community reaches 5,000 believers. The major religious diversity is shown at the north of the country, in the border with the United States, and in the southeast which population is mainly indigenous. The center, and especially the Bajio region, is overwhelmingly Catholic. For example, 95 percent of the natives of Aguascalientes, is Catholic, the same as more than 90 percent of the population of Jalisco and Guanajuato. The number of persons who have no religion is also important; more than 2 million of the total considered (84 million people aged five years or more); approximately 3% of the universe estimated by the INEGI).
To consult census, see: http://www.inegi.gob.mx Mexico has 103,263,388 inhabitants according to the latest census by the National Statistics, Geography and Information Technology Institute (2005) composed in 60% by mestizos, 30% Amerindians, 9% Europeans and 1% others. The official language of Mexico is Spanish and it has over 66 Amerindian languages. The currency is the mexican peso ($). For population census, visit: http://www.inegi.gob.mx Responsible authority: National Statistics, Geography and Information Technology Institute (INEGI). Working-age Population During the first quarter this year (2008), the country's WAP was 45.1 million people, one million more than in the same quarter in 2007. When comparing this figure with population aged 14 or more, we find that a little more than 58 out of every 100 persons in working age took part in working activities, either because they were occupied or because they were seeking to be (unemployed population). Employed Population It is possible to identify which part of the WAP took part in creating an economic good or rendering a service (employed population), which as of January-March 2008 amounted to 43.3 million people (27 million men and 16.3 women), 920 thousand more than for the same quarter last year, 42.4 million people. If we consider the economic sectors where the working population works, we find that 5.7 million (accounting for 13.1% of the total amount) are in the primary sector, 10.9 million (25.2%) in the secondary or industrial sector, and 26.4 million (60.9%) work in the third party or service sector. If we analyze the amount of hours worked by the working population per week, we can clearly see the following: on the one hand, 6.7% people work less than 15 hours per week, while in the opposite side there are 27.2% people who work more than 48 hours per week. In average, working population worked 42-hour week in the reported quarter. Another approach for working population is that it refers to the size of the economic unit where it works. Thus, 36.9 million people (excluding the agribusiness sector), a total of 17.8 million (48.2%) are working in small businesses; 6.6 million (17.8%) in small businesses; 4.3 million (11.5%) in medium businesses; 3.9 million (10.7%) in large businesses and 4.3 million (11.8%) in other kind of economic units. Between January and March of 2007 and the same quarter of 2008, small businesses generated the highest number of employments, occupying 429,000 more employees. This figure also rose in large and small companies, occupying 169,000 and 152,000 workers, respectively. In contrast, employees lowered in medium companies by (-) 59 thousand. Data about occupation allow knowing that most working people (66.3%) are employees and receive compensation. This group is composed by 28.7 million employees who receive compensation, followed by (in amount of workers) independent workers, who account for 22% of the total working population, that is, 9.5 million. Non-compensation employees are 3 million (6.8%), and finally, employers (principals) add for a total of 2.1 million people (4.9%). The State of Mexico and the Federal District are the largest labor markets in the country, with 5.8 and 4 million people employed, respectively, almost accounting for 22.5% of the national population. They are followed by Jalisco with 3 million, Veracruz de Ignacio de la Llave with 2.9 million and Puebla 2.2 million working persons. In the other end and corresponding to their population structure, we find the smallest states as regards the size of the labor market: Baja California Sur with 255,000, Colima 276,000, Campeche 338,000, Nayarit 419,000, Aguascalientes 426,000, Tlaxcala 432,000 and Zacatecas 487,000 working people. The federative entities that showed larger participation rates in the economic activity (WAP/population of 14 years old or more) were: Quintana Roo 69.9%, Baja California South 64.7%, Colima 64.4%, Jalisco 62.6%, Yucatan 62.4%, Nayarit 62.3% and Campeche 60.4%; while those that showed the lowest rates were: Zacatecas 52.5%, Durango 54.8%, Guanajuato and Chiapas 55.4% each, Veracruz of Ignacio de la Llave 55.6%, and Hidalgo 56.2% It is worth mentioning that data per state are an important source of information in order to learn about the different occupational and employment situations in each of the states of the country. Underemployed Population Underemployed population, that is, people who claimed having the need and availability to work more hours that those required by its current occupation, amounted during January-March of 2008 2.9 million people, which represents (-)391,000 less people than the same period of one year before. Underemployed population is less in all the productive sectors, in the primary and secondary sectors, 7 out of 100 people are in this situation, whereas in the tertiary, 6 out of 100 people. Unemployed population During the first quarter of 2008, a total of 1.8 million people were unemployed in the country, which means an unemployment rate (UR) of 3.9% nationwide. This WAP figure is lower than the 4% reached in the same quarter in 2007. Non-working Age Population Non-working Age Population comprises the people who are not participating in the economy either as employed or unemployed. For the first quarter of this year, 31.7 million people were part of the NWAP, 26.7 million of which were unavailable (21.4 million had no interest in working due to other obligations), and 5 million were available to work. Responsible authority: National Minimum Wage Commission.
NOTE: Information of the National Minimum Wage Commission, providing the general and professional minimum wages for 2008, effective as of January 1, 2008. For detailed information on minimum wage, visit: http://www.conasami.gob.mx Foreign Trade Exports-Imports
Gross Domestic Product GDP
Inflation
Exchange Rate
Interest Rate
Foreign Public Debt Responsible authority: Foreign Investment Office. Ministry of Economy. Foreign Direct Investment (FDI) in Mexico
Foreign Direct Investment (FDI) by country of origin
Foreign Direct Investment (FDI) by economy sector
Refer to Flow Reports on Foreign Direct Investment in Mexico, at: http://www.si-rnie.economia.gob.mx/cgi-bin/repie.sh/reportes/selperiodo Worldwide, Mexico is highly ranked in several areas:1 Mexico is located in a privileged geographical position, being able to supply the North American market "just in time", having as well preferential access to potential world inputs and to the 'state of the art' technologies.
Trade between Mexico and the US has increased significantly between 1997 and 2007; the value of merchandise and services traded went from $176.37 billion dollars (USD) to $363.97 billion dollars (USD). That is, the total value of bilateral trade increased, in average, in 7.5 percent a year; this behavior is due to a yearly average increase of 9.0 percent in Mexican exports and 5.5 percent in imports. On a global scale, the US is Mexico's most important goods and services buyer'between 1997 and 2007, close to 11 percent of total goods and services imports carried out by the US came from Mexico, its third largest commercial partner, after Canada and China (Table 1).
Hispanics in the US represent the largest minority and are a significant opportunity for Mexico in terms of potential Mexican brand, product, and service introduction; it is estimated that two out of three Hispanic inhabitants in the US are Mexican; the number of people with Mexican origins in the US is over 28 million, half of which belong to the age group ranging between 15 and 34. This constitutes an important potential market in terms both of consumption and employment. Mexico has enjoyed macroeconomic stability in the latest years, thanks to the fiscal and monetary appropriate policy. It arose in the last decade like the best destination in Latin America for the placement of foreign capitals with the most favorable atmosphere of business. It is the fourth recipient of foreign direct investment between the emergent economies and second in Latin America. Its sound economic stability has attracted foreign direct investment of more than 30 thousand companies that currently are doing business in the country. Because of its economic stability, Mexico is a good place for doing profitable business. During the last decade, Mexico has fostered public policies that have consolidated its macroeconomic stability: in 2007, the GDP grew at an annual rate of 3.3 percent, while the inflation rate stayed convergent to the range forecasted by the Central Bank (Banco de México), that is, 3.76 percent, the lowest rate in Latin America's most important economies and below the US and Spain rates (4.1 percent and 4.2 percent, respectively). Growth estimates for Mexico's GDP in 2008 are below 2.8 percent due mainly to an adverse external environment. However, the timely implementation of counter cyclical economic measures allows anticipating a higher economic growth as of 2009.
Furthermore, the National Fund for Infrastructure, which is expected to trigger investments in infrastructure for amounts over $25 million dollars (USD) between 2008 and 2012, and the Program for Economic Support, aim to provide a backup to the country's productive activity through measures that promote economic activity, investment, and employment. Financial authorities have handled public finances correctly, and in 2007 there was a primary surplus equal to 2.4 percent of the GDP, and the Federal Government's budget remained balanced. This scenario has allowed Mexico to attract and retain more productive investments: in 2007, Mexico earned $23.2 million dollars (USD) of Foreign Direct Investment (FDI) that is, 20.8 percent more than the amount it earned in 2006, and equal to 5.2 times the deficit in Mexico's current account, which is proof of the country's macroeconomic robustness. Because of its demographic bonus Mexico has the creative talent. The demographic boom is for Mexico an unequaled opportunity: during the next thirty years (2030), the ratio of economically dependent population will reach a historic minimum estimated at 46.1 percent for 2025, because the number of individuals younger than 15 years of age will decrease as the ratio of the group of inhabitants in productive age, which will reach a historic maximum.
It is estimated that in the next thirty years, the number of individuals in working age in Mexico will reach 88 million, and the economically active population will increase to 69 millions. This demographic dynamics is an opportunity to avail the growth potential in economic terms and development of human resources abilities, since an increase in consumption and investment possibilities is foreseen. This is fundamental if we consider that human resources are the most important source of wealth and competitiveness in companies, and that a country's productivity is directly related to its population's learning ability. Because of its biodiversity Mexico is vast as is its nature. Mexico occupies the fourth place among the twelve countries in the world with mega diversity: Mexico is the habitat for 10 percent of animal and plant species on our planet. Mexico has promoted support programs that contribute to sustainable economic development. Also, Mexico has ratified international conventions and agreements in environmental matters, like the United Nations Framework Convention on Climate Change, the United Nations Convention to Combat Desertification, the Kyoto Protocol, the Convention on International Trade in Endangered Species of Wild Fauna and Flora, among others. Also the current government has set ambitious environmental goals, such as increasing in 24 percentile points waste water treatment, to go from 36 percent in 2006 to 60 percent in 2012; and to promote programs regarding renewable and alternative energy for methane recovery and carbon capture.6 Mexico is dynamic due to the consolidation of several production sectors. For the 2007-2012 National Infrastructure Program, it is crucial to establish conditions that allow Mexico to be part of the technological leadership in order to receive more foreign investment due to the several sectors participating in its development. Some of the more dynamic sectors which products have been successfully introduced in different international markets are: Automobiles. In 2007, Mexico ranked as the world's eleventh largest automobile manufacturer. In the commercial vehicle sector, Mexico ranks sixth globally, with a production of 900,000 vehicles in 2007.7 The automobile industry is a very important source of employment: it generates close to 520,000 direct jobs and one million indirect jobs, and it is the second sector that generates exports, right behind the electric and electronics sector. The US is the world's largest vehicle and auto part consumer; in 2007, Mexico exported vehicles and auto parts with a value of $41.9 million dollars (USD), and these products have seen an average growth rate of 11 percent in the last four years.8 These dynamics makes Mexico a strategic center not only for manufacturing, but for distribution for those countries that are interested in accessing the American market. It is estimated that one out of every eight vehicles sold in the US in 2007 was manufactured in Mexico. In 2007, national production experienced a record of 2,022,241 vehicles, while exports of automobiles manufactured in Mexico reached 1,613,313 automobiles, representing a 5 percent increase compared to units exported in 2006.9 Electric and electronics. In Mexico, the electronics industry is one of the pillars of the manufacturing industry; its main sectors are consumption electronics, personal computers, and telecommunications equipment. In 2007, exports in the electric and electronics industry exports reached $72 million dollars, that is, the country's main source of exports for the manufacturing industry.10 The electronics sector in Mexico is constituted by 700 companies that, in 2006, employed 315,000 individuals; it contributes to close to 4.5 percent of the industrial GDP and over 27 percent of exports in the manufacturing sector, and represents a participation of 8 percent in employment in industrial manufacturing. In the telecommunication services industry, Mexico has an important telephony sector, which contributes with 95 percent of income for the industry, 92 percent of fixed assets, and 71 percent of occupied employees. In 2007, Mexico exported 82 million mobile phones. Information technology (IT). Mexico has 2,095 IT companies that have contributed to the growth of this industry and have achieved annual expansion rates of 9 percent. In 2007, the IT industry generated income with a value of $1.8 billion dollars (USD). An area that has experienced an outstanding evolution is the business process outsourcing (BPO) area, where income grew from $700 million dollars (USD) to $1.7 billion dollars (USD) between 2001 and 2005.11 Recently, the Ministry of Economy launched the Program for the Development of the Software Industry (PROSOFT, as per its acronym in Spanish), which intends to elevate the level of expenses in Mexico through information and communication technologies (ICT). It is estimated that there are over 500,000 IT professionals in Mexico, and every year over 65,000 new IT professionals join the work market. Furthermore, in Mexico, new generation wireless technologies, such as Wimax and 3G, register an important growth rate. Aeronautics and Aero spatial. In Mexico, there are 150 companies that belong to the aero spatial industry, that employ over 16,000 individuals and want to profit on the opportunities that Mexico provides to manufacturing parts as engine components, landing gear parts, audio and video systems, harnesses and cables, to name a few; steel, iron, and aluminum machining. Mexico exports over $600 million dollars in aircraft parts. Mexico has an Agreement with the European Aeronautics Agency to manufacture aeronautical parts that are exported directly to Europe. Also, the Mexican government signed a Bilateral Agreement for Air Safety with the US, to certify aero spatial parts and components.12 The aero spatial industry has qualified human resources because every year close to 65,000 engineers graduate from university. Also, Mexican companies have international certifications that are part of the requirements to participate in this industry. Tourism. The World Tourism Organization ranks Mexico as the eighth most important destination in the world, receiving 21.4 million tourists every year. In 2007, foreign tourists spent close to $12.9 billion dollars, that is, 6 percent more than what they spent in 2006. Mexico has a cultural, historical, and natural wealth that is among the most important in the world; it has 173 archaeological sites that are open to the public and 55,000 monuments that are considered to have historic value. Mexico is the first Latin American country in number of sites declared World Heritage by UNESCO. Because of its business relationship with the world, Mexico, at the same time, is beneficiary when having an extensive net of Free Trade Agreements, which assure preferential access to the markets of North America, the European Union, the countries of the Free Trade European Association , Israel, the countries partners of Latin America and Japan. This preferential access together with its young and qualified labor force, makes Mexico an attractive destination for investment. Mexico is the world's second country with more free trade agreements. It has 234 bilateral and 122 multilateral agreements, and it is the only country that covers two of the world's leading markets: North America and the European Union. Overall, Mexico covers 44 countries with its network of agreements, so it has been able to significantly increase its business participation in the world in the last 15 years. Between 1997 and 2007, value of trade between Mexico and countries that are part of the European Union grew at an average annual rate of 13 percent, while the value of commercial flow with Asian economies increased in 20.3 percent in average, and with Latin American business partners the value of goods and services traded grew at an average annual rate of 14.3 percent. 13 Mexico also grants legal security and protection to foreign investors through the Bilateral Investment Treaties that our country has signed with 24 countries. Mexico offers an attractive risk-return combination: Low risk:
High return on investment: Responsible authority: Ministry of Economy.
Investment Chapters in Free Trade Agreements
Responsible authority: Ministry of Economy. BITs are international agreements with regard to foreign direct investment (FDI) which, on reciprocity bases, are designed to promote and legally protect the flow of capital for the productive sector. These instruments are acknowledged as a confidence generator element for foreign investors since they help to create an appropriate investment climate. They also encourage productive investment while they promote the economy development in Mexico. BITs signed by Mexico
PENDING AGREEMENTS
OTHER AGREEMENTS
Responsible authority: Ministry of Treasury. The purposes of the agreements to avoid double taxation are: to standardize tax concepts of the fiscal jurisdictions from the countries that participate in the negotiation; to promote the exchange of fiscal information, allowing the contracting parties to follow the fiscal laws effectively and to combat with better effectiveness acts of evasion and avoidance. Likewise, the agreements provide for the elimination of double taxation by taxpayers. Both countries shall accredit foreign obligations and taxpayers shall calculate the tax according to the country where they reside, and shall accept that there are maximum retention rates in the country where the source of wealth from dividends, interests and profits is located. The Ministry of Treasury is responsible for the negotiations of this kind of agreements. Currently Mexico has agreements to avoid the double tribute with:
Refer to: http://www.sat.gob.mx/nuevo.html and http://www.sat.gob.mx/sitio_internet/informacion_fiscal/legislacion/52_3558.html |
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