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Mexico - market overview

Important facts about Mexico 

Attractive features of the Mexican market

Sectoral opportunities in Mexico

Aerospace

Mexico is the 12th aerospace producer and exporter worldwide. Its exports represent USD $8.5 billion of exports (pre COVID-19), and from 2017 to 2019 it had an average annual growth of 12%-14%. There are 368 aerospace industrial installations in Mexico (86% manufacturing (MFG), 12% maintenance, repair, and overhaul (MRO), and 11% design and engineering (D&E)), which generates more than 55,000 jobs in 19 of the 32 Mexican states. Having key clusters there is important for Canadians in this sector.  

The Mexican market is very price sensitive and investment in Mexico for Canadian companies requires being able to supply original equipment manufacturers (OEMs) or T1. The goals set by the Ministry of the Economy and the aerospace sector for the year 2025 include to:

  • place the country among the first 10 countries in terms of exports
  • export more than $12 billion USD of aerospace goods
  • have a strong index of the industry job base and foster its growth
  • maintain a value-added higher than 20% in the sector  

The aerospace industry is one of the manufacturing sectors that suffered most damages from the Covid-19 crisis in Mexico. This year, it could see a growth of only 7%, which is 50% less than the average growth over the past 15 years. This may be an opportunity for Mexico to expand its production and business in second-tier suppliers as the industry continues to be a great area of opportunity for the productive chain in Mexico. One of the challenges for Mexico is to attract cutting-edge projects or projects with greater technological content, as well as broadening the base of local suppliers. Canadian companies could bring state of the art technology to aerospace companies located in Mexico.   

Agriculture and processed food

Mexico is the world’s 9th largest importer of agri-food products. It imports approximately 40% of what is consumed in the country. In 2020 (January to November), it imported US$25.3 billion in agriculture and agri-food products. Mexico is a net importer of animal feed and it is highly dependent on the import of grains, oilseeds and meats. In Mexico, opportunities exist for Canadian exporters in the following subsectors:

  • health and wellness products
  • private label
  • gourmet and specialty products
  • ready-to-eat or ready-to-cook food
  • food ingredients
  • feed and animal feed ingredients    

With regards to the AgTech sub-sector, Mexico is experiencing growth in farm mechanization. For example, the use of technology is being used to increase food productivity. In addition, sustainable efficiency is being implemented to feed the growing population and meet the demand for Mexican products in export markets. Modern technologies and equipment are required to enable producers to increase quality, productivity, and to ensure food safety.  

Growth in the Mexican pet food market is expected to continue (5-10% annually) as pet owners increasingly feed their pets with healthier prepared food. The industry is therefore in need for innovative, healthier products and ingredients. The highest potential for growth is in dog food, followed by cat food, which is a more saturated segment.  

As of December 1, 2020, Mexico implemented new front-of-package (FOP) warning seals and other labelling changes for foods and non-alcoholic beverages destined for retail sale included in the Mexican Official Standard (NOM-051-SCFI/SSA1-2010).  Canadian exporters are strongly advised to work with their Mexican importers and/or private verification units authorized by the Mexican government to make any required adjustments to their labels in order to make them compliant with the new provisions. This will avoid any disruptions to the sale of their products in Mexico. 

New provisions related to NOM-051 are also set to come into effect on April 1, 2021. Among these provisions, NOM-051 states that the use of stickers to comply with the new FOP warning seals would no longer be allowed after March 31, 2021. Other provisions include:

  • the use of cartoons, celebrities and other characters appealing to children would not be allowed on products with warning seals
  • the need to declare added sugars in the list of ingredients
  • the need to include the name of the product in the main exhibition surface of the package with certain characteristics
  • include the word “imitation” (IMITACION), etc. in the case of substitute products

Please review the full text of the Amendment to NOM-051 (only available in Spanish) to see all the new changes coming into effect on April 1, 2021.

Under CUSMA, most Canadian agri-food products have duty free access to Mexico, with the exception of poultry, eggs, dairy and sugar.  Under CPTPP, some Canadian products with no preferential access under CUSMA can be exported to Mexico duty free or with preferential duty under country-specific permanent tariff rate quotas established by Mexico.  These include products such as:

  • milk powder
  • evaporated and condensed milk
  • butter
  • cheese
  • dairy-based preparations

Automotive

Mexico is the 6th world producer of light vehicles and the 4th largest exporter. Its output represents around 20% of production of automobiles in North America. CUSMA includes more stringent rules of origin for this sector, which is already the most integrated amongst the three North American countries, representing additional opportunities for Canadian exporters of auto parts to Mexico. OEMs and T1s will substitute imports from non-North American regions.  More than 60 Canadian suppliers have factories in Mexico, which gives Canada an important advantage to further expand its share in this market.  

Clean-tech

The “International Business Development Strategy for Clean-Technology”, shows that the sector is a prominent priority for Global Affairs, in order to position Canada as a global leader in clean technology.
The global activity in the sector is expected to exceed $2.5 trillion by 2020. Canada is well-positioned to seize the opportunities this growth presents, as Canadian clean technology developers have already proven their capacity for practical, real world, results- driven innovation. Canada has ambitious, export-focused targets for clean technology, becoming one of the top five exporting industries by 2025. Given the size of Canada´s domestic market, strong export growth is crucial, making Mexico an attractive market.

In the national plan of energy 2020-2024 of the Mexican federal government, it is apparent that Mexico is not considering renewable energies as a priority. Furthermore, they want to achieve self-sufficiency in the energy sector with technology acquired on a national level. This is why we have considered  redirecting trade commissioner service efforts towards sectors where greater potential for Canadian involvement exists such as:

  • energy efficiency
  • green mining
  • water

Energy efficiency

While the energy reform of 2013-2014 created many opportunities for companies operating in the renewable energy sector, current government policy is making the sector incredibly instable with limited opportunities.

However, as energy rates increase in the country, there is an opportunity to pursue opportunities in energy efficiency, particularly in the industrial sector. A mapping of opportunities in this sector is required.

Green mining

The mining-metallurgical sector in Mexico contributes 4% of the national gross domestic product (GDP). Mexico is the top ranked country in the production of silver worldwide and ranks among the top 10 producers of 16 different minerals. It is the first destination in investment in mining exploration in Latin America and the fourth in the world.
Canadian companies are the largest foreign investors in Mexico’s mining sector, making it a key element of the bilateral commercial relationship. During the new administration, President Obrador has promised to review the environmental impacts of mining, making companies further commit to sustainability and best practices.
Implementation of sustainable business through Canadian clean technology can address current business pressures such as:

  • energy sources
  • energy storage
  • reduce carbon emissions
  • water treatment

Canadian mining companies are important players in encouraging Mexico to move towards a more sustainable mining sector.

Water 

According to the National Water Commission (CONAGUA), approximately 10 million people do not have access to potable water or sanitation services. This represents roughly 8% of the national population, and therefore a potential opportunity for Canadian business.

Mexico’s per person consumption of water is about half that of Canada. Proportionately more is allocated to agriculture, roughly 75%, which contributes to the pollution of surface water. Furthermore, nearly 60% of the total groundwater extracted is withdrawn from overexploited aquifers. As expected, these over-exploited aquifers are in the heaviest populated and the most arid areas. Total water extraction exceeds recharge in Mexico City, Monterrey and other northern areas such as Sonora and Baja California.
Furthermore, an aging hydraulic infrastructure causes leaks of up to 40% of the country’s water supply, demonstrating additional infrastructure related opportunities for Canadian companies.

Consequently there is a shortage of potable water across Mexico, with almost 30 million homes relying on water delivery services.

Problems around water shortage and excess of water have forced the Mexican government, and large companies, to invest in waterworks and facilities to provide clean water. The escalating use of water for industrial processes has spurred the need for water and wastewater treatment, boosting the demand for water and wastewater treatment chemicals in Mexico. Fast-growing industries and rising water prices have compelled several plants in Mexico to install their own water treatment facilities, sustaining investments in the country’s treatment chemical market. The water sector in Mexico has been very attractive to companies that offer very competitive high-end technologies making this an important market for Canadian capabilities.

Creative industries 

Creative Industries represent 3.2% of Mexico's total GDP according to data from the National Institute of Statistics and Geography (INEGI) published in November 2019. Creative industries generate 1,395,000 jobs and their economic impact is higher than other industries such as agriculture and electric energy generation and distribution. 
The variety and convergence of the industry’s subsectors make it one of the most dynamic places to do business, particularly in light of the positive momentum of the Canada-Mexico relationship. While there is certain visibility of Canadian creative industries in Mexico, there is potential for developing strategic alliances that could translate into:

  • investment
  • trade
  • coproduction
  • innovation opportunities

Books/publishing, film and the music industry have been identified as the three most important sub-sectors with greater economic contributions for creative industries in Mexico. Despite this, these sub-sectors, along with performing arts, exhibitions and museums, have been the most economically affected by the COVID-19 pandemic. Some examples of the economic impact on each industry are described below. 

Books/publishing

The Association of Mexican Bookstores calculates an 85% drop in sales for 2020, losing incomes from fairs and professional events, since they cannot be held. Nevertheless, an increase in e-books sales has been reported during the COVID-19 crisis, but only companies that had implemented a strong e-commerce structure have been able to have a presence in the market. 

Film

More than 80 events that promote national and international cinema have been turned into online or hybrid events, such as:

  • Guadalajara
  • Los Cabos
  • Morelia
  • Guanajuato Film Festival

Filming activity have been reactivated in some states with strict health protocols and limited staff per crew according with the Mexican Film Commission. Cinemas have reopened with strong health protocols and limited capacity. The firm PwC expects cinemas in Mexico to lose 68% of their revenues in 2020.  

Music

Shows and music festivals have been cancelled or postponed. Although streaming concerts have not been entirely well-received by the Mexican public, some companies are still making efforts to promote their platforms for online concerts.

Education

Canada is recognized in Mexico as an excellent destination for study and research. In addition to the high quality education in Canada, Mexican students are attracted to Canada because of the:

  • standard of living and quality of life
  • secure cities
  • work opportunities while studying
  • immigration opportunities after graduation

Mexico was Canada’s 11th largest source of international students. In 2019, 8,710 Mexican students held study permits in Canada for a period of six months or more. An additional 17,065 participated in short-term language courses which was an increase of 17% compared to 2018. This accounted for an approximate inflow of more than 25,000 Mexican students to Canada in 2019.
Mexicans do not require a visa to study in short-term programs (up to six months in Canada) and only require a study permit when the chosen program exceeds that time. The primary challenges that persist are:

  • a lack of knowledge about Canadian institutions in comparison with main competitor country institutions
  • language barriers
  • limited opportunities to obtain scholarships or financial support

Nevertheless, Mexico remains the second most important source country in Latin America for international students in Canada. 
Due to Covid-19 situation, the Mexican economy has been greatly affected, specially on families’, the economy and public funds. There is a lot of uncertainty about the future of international mobility. However, the Mexican market continues to be interested in Canadian education. Agents, Canadian colleges and universities continue to recruit Mexican students to Canada. New models of international program delivery have also become more attractive to Mexican institutions such as:

  • virtual mobility programs
  • online academic collaboration
  • hybrid/blended courses
  • research collaboration

Forestry and wood products

The forestry and wood products sector in Mexico is small in comparison to Canada’s other export markets. However, the sector holds opportunities for Canadian lumber exporters, with approximately 70% of Mexican domestic consumption of wood products dependent on imports.  These imports support the local furniture manufacturing, flooring, packaging, and construction industries and predominately come from the following countries:

  • USA
  • Chile
  • Brazil
  • Canada
  • China

According to Mexican federal import statistics, in 2019, Mexico imported globally CAD $442,239,025 worth of coniferous wood sawn, softwood lumber (HS 440710). Close to 12% of this, or $52,988,135 CAD, was reported as Canadian lumber. CUSMA retains preferential tariff rates of 0% for Canadian lumber and increases access to advance customs rulings through the Secretariat of Finance (Servicio de Administración Tributaria). This provides the framework of increased certainty for Canadian exporters. Canadian lumber is recognized to be of superior quality, with the cold weather causing the wood grain to be tighter which is both more visually appealing and structurally sound.  

The Mexican market for wood products is price-sensitive; however, niche opportunities exist for specialty Canadian products such as cross-laminated timber and high-end wood furniture. A large focus of the Mexican furniture manufacturing industry is on exports destined for the USA; however, there is a notable niche domestic market for high-end furniture, currently originating from Spain and Italy.

Several challenges exist for Canadian exporters, including fluctuating product pricing, freight costs and limited sizing standardization. While the Canadian market share has steadily increased in recent years, it is important to note that its market share increase has been dwarfed by the increase in imports of Brazilian lumber during the same time period. In addition, from a regulatory perspective, there is a restriction on the presence of bark on imported lumber products. That said, there is room for optimism. In a market experiencing extreme economic challenges in the context of COVID-19, the furniture manufacturing industry in Mexico has demonstrated versatility, with domestic manufacturing and exports showing their capacity to recover from pandemic related restrictions.

Information and Communications Technology (ICT) and digital industries   

With over 4,000 ICT companies and roughly 2.6 million corporate buyers of ICT solutions, Mexico´s ICT market is worth CAD 43.5 billion. Although COVID-19 will cause a contraction in the sector of -4.1% in 2020, the ICT market is expected to experience a rebound of between +6.4% to +6.6% in 2021. Special opportunities for Canadian suppliers that aim at enhance digital transformation are offered by the following sub-sectors:

  • software development
  • connectivity solutions
  •  industry 4.0 (internet-of-things and Big Data)
  • cybersecurity

The telecommunications and broadcasting sectors alone account for 3% of Mexico’s GDP and are responsible for the creation of over 260,000 jobs.
CUSMA will increase certainty for Canadian companies operating in the digital marketplace as it addresses both intellectual property protection and data localization. E-commerce has been growing consistently and online sales in Mexico experienced an 81% growth in 2020 compared to the previous year.

Life sciences

The Mexican pharmaceutical market is one of the leading markets in Latin America and one of the largest markets in the world. Mexico’s market size is estimated to be USD $ 22.5 billion by 2020 and the market has seen and continues to see annual growth rates of about 6%. There are about 186 pharma firms in Mexico and about 650-750 consumer health companies. 

According to the OECD, Mexico records the second highest spending in medicines as a percentage of total health spending (28%), surpassing the OECD average (17%). In addition, spending in medicines as a percentage of the GDP (1.7%) also exceeds the OECD average (1.4%).

Natural health product spending has also seen a substantial increase in recent years and continued growth is expected with the increasing importance of online sales in the country. Mexico has consolidated itself as a first-class manufacturer of medical devices and an important innovation hub in Latin America. With the capacity to manufacture at a quarter of the cost in the US, Mexico is now the tenth largest exporter of medical device worldwide, the largest in Latin America and the leading supplier for the USA. 

The sector represents interesting key opportunities for Canada, particularly in the medical device, cannabis, and natural supplement industries. The COVID-19 pandemic has created potential new opportunities for Canadian companies for a diverse range of health products including medical devices, digital solutions, as well as health-related services. Finally, medical cannabis represents a sector of importance due to the imminent regulation of this industry by the Mexican government. 

In all cases, Canadian exporters must be ready to invest time in establishing networks and identifying the right partners for the import process and the distribution aspect for their products.   
Key Canadian capabilities in this sector are found in research and development, particularly in:

  • clinical medicine and biomedicine research
  • medical devices
  • digital solutions (health artificial intelligence being an emerging field, and health-related training)

Canada is the tenth largest pharma market and eighth largest market in medical devices.  

Mining

Mexico has one of the largest mining sectors. It is among the top 10 producers of 16 different minerals, and is the first place in silver production worldwide, with around 3.2% of national GDP. The mining sector is a key element of the Canada-Mexico trade relationship. In 2019, Mexico became the seventh largest recipient of Canadian mining assets abroad with around CAD$ 8 billion (4.5%). It is important to mention that 125 of the 179 foreign companies active in the mining sector in Mexico, have headquarters in Canada or have Canadian capital.. 
Canadian mining investors in Mexico face longstanding challenges related to:

  • rule of law
  • security
  • land access
  • labor
  • taxation
  • unclear requirements on community engagement
  • consultation with indigenous communities

In 2018, there was the lowest level of investment in mining exploration of the past 12 years.  
 
The importance of Mexico’s mining sector combined with the importance of Canadian footprint makes Mexico a promising market for Canadian mining equipment and service suppliers. Mexico has a renewed focus on sustainable mining, and a growing need for specific solutions to make mining more efficient (reducing costs), innovative, sustainable, and safer. However, the market tends to be price sensitive and competitive. Despite the considerable Canadian investment in the mining sector in Mexico, it is not unusual for a Canadian mining company to opt for local sourcing rather than Canadian sourcing for social acceptability and local reputation reasons. 

At the beginning of the COVID-19 crisis, the mining sector was not considered an essential activity. Operations were interrupted for around two months, resuming activities in June at a very slow pace. It has been necessary to implement a very strict sanitary protocol in the mining sites, and still, mining companies do not have all their employees working on site because some of them have delicate health conditions or are considered as vulnerable people. 

Oil and gas

The arrival of Andres Manuel Lopez Obrador (AMLO) to the Presidency of Mexico in December 2018, represented a radical change in direction for the country's energy sector. With the flag of recovering Mexico's energy sovereignty, AMLO has implemented a series of modifications in terms of policies, structure, and operation of the sector.  The new paradigm is not necessarily based on economic or market principles, but on ideological assumptions, as well as a nationalistic approach that restrict private participation in the Mexican energy market. 

The Mexican government has the objective of achieving national production of 2.8 million barrel of oil equivalent (BOE) by 2024. PEMEX retains 396 of the approximately 500 oilfields in Mexico, with the rest awarded to private companies during the reform.  Private operators have committed to produce 200,000 BOE by 2024, and PEMEX is making efforts to reverse its rather long and deep exploration and production decline. Nevertheless, achieving the objective is considered almost impossible by analysts.

One of Mexico’s most urgent needs is the development of its gas transport, storage and distribution network. Although Mexico has considerable natural gas resources, its national production is modest. In fact, it has become a net importer of natural gas, with most imports arriving via pipeline from the United States. Currently, Mexico has roughly 18,800 km of gas pipelines compared with 490,000 km in the United States. 

On December 12, 2017, the Minimum Storage Policy for Petroleum Products was enacted with the purpose of safeguarding the supply of petroleum products within Mexico based on international best practices. Starting July 1, 2020, marketers and distributors of petroleum products are required to maintain a minimum inventory equivalent to five days of sales. Currently, PEMEX has more than 90% of the storage capacity in Mexico, and is positioned as the only player in the Mexican market with the capacity to comply with the new hydrocarbon storage rules. According to the Secretariat of Energy (SENER), almost 70 storage terminal projects have been set up in the country since 2013. However, in order to achieve its objectives, Mexico requires an integrated infrastructure system that interconnects its transportation and storage facilities.  

PEMEX’s market share in gasoline sales has been slowly and continuously fading over the last few months, but it still has a dominant position in the gasoline market in Mexico. PEMEX’s market share fell from 99.3% in January 2018 to 86.8% in December 2019 (Source: Oil Price Information Service - OPIS). The trend of multiple new private terminals starting operations in Mexico during 2019 will likely continue in 2020.  

Canadian companies are well positioned to provide effective solutions to PEMEX and the private oil and gas operators in Mexico, in an ample range of areas. PEMEX continues to be the biggest player in the market; however, its fragile situation could jeopardize the entire supply chain of the oil and gas sector in Mexico. This includes companies selling to the state-owned firm, directly or through other service providers. 

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