Mexico: In-Depth PESTLE Insights

COUNTRY ANALYSIS REPORT
Mexico
In-depth PESTLE insights
Publication Date: August 2011
OVERVIEW Catalyst
This profile analyzes the political, economic, social, technological, legal, and environmental (PESTLE) structure in Mexico. Each of the PESTLE factors is explored in terms of four parameters: current strengths, current challenges, future prospects, and future risks.
Summary
Key findings Mexico's dynamic foreign policy has expanded its international footprint; however, drug-related violence continues to prove a challenge
Mexico has developed a dynamic foreign policy, and has become more active in terms of multilateral affairs, climate change, human rights, and regional issues. Furthermore, it maintains excellent relations with its North American Free Trade Agreement (NAFTA) partners. The country is inclined towards developing relations with its Southern and Central American neighbors, as well as the Caribbean countries, through high-level meetings with the heads of state or heads of government of the region, and is continuing its dialogue with member countries of the Caribbean Common Market. Strong and dynamic foreign policies will foster international trade and provide an expanded international political footprint for the country. However, unprecedented increases in drug-related violence threaten both the country and the government. President Felipe Calderons crackdown on the drug cartels and the ensuing violence has claimed around 40,000 lives since 2006. Instances of arbitrarily detaining, torturing, and killing individuals allegedly as part of the fight against criminal gangs have been reported. Loopholes in the current justice system have been exploited to prosecute thousands of people without fair trial. Although the government faces a serious problem from the drug cartels, it must also focus on improving its human rights record.
Country Analysis Report: Mexico

Datamonitor. This brief is a licensed product and is not to be photocopied
Published 08/2011 Page 1
Increasing free trade agreements are currently driving external trade; however, overdependence on the US is a cause for concern
After the implementation of the NAFTA in 1994, Mexicos trade with the US and Canada has almost tripled. The country has 12 free trade agreements with over 40 countries and other parties, including Guatemala, Honduras, El Salvador, the European Free Trade Area, and Japan. More than 90% of Mexicos trade comes under free trade agreements. In 2010, Mexico signed bilateral agreements and initiated discussions with Brazil, Japan, South Korea, China, India, Vietnam, Singapore, Malaysia, Australia, Indonesia, New Zealand, South Africa, Algeria, Ethiopia, Kenya, Rwanda, Saudi Arabia, UAE, Qatar, Uganda, Bahrain, Egypt, Kuwait, and Lebanon. More than 80% of its exports and around 50% of its imports were from the US in 2010. However, Mexicos increased dependency on the economic cycle of the US may not be sustainable in the long term. With the US facing its own economic challenges (which include high budget deficits and a debt of more than $15tn) Mexico is taking a significant risk.
Mexicos educational system has witnessed a noticeable increase in investment, but healthcare coverage has not kept pace with other social benefits
There has been a noticeable increase in educational investment over the past decade and a half, complementing the rapid rise in student numbers, which have risen in line with population growth. During 19972009, spending on educational institutions in Mexico increased from 4% to 7% of GDP. Mexico is one of the three countries with the largest increases in educational expenditure as a percentage of GDP over this 12-year period. In 2009, the share of public budget on education was 22%, which was the highest among Organisation for Economic Co-operation and Development (OECD) countries. In spite of the formulation and implementation of several social programs, healthcare services remain poor in Mexico. According to the country's National Institute for Public Health, the healthcare services provided at state and local levels leave many questions unanswered due to issues of transparency, efficiency, and accountability. State governments receive funds for healthcare services, but there is no accountability mechanism as to how they spend the money. This has led to poor and inefficient healthcare systems in some states. In January 2011, Mexicos health minister Jos e Angel Cordova acknowledged that 8% of the countrys municipalities lacked healthcare facilities , and that the government was behind on targets to reduce infant and maternal mortality in certain states. Universal healthcare coverage is yet to be achieved in the country.
A strong pool of technical workers has encouraged manufacturing in Mexico, but low R&D expenditure limits innovation
Over the past decade or so, the nations policymakers have been building up enrolment in four-year engineering degree programs, developing a group of technical institutions that grant two-year degrees, and initiating advanced training schemes with multinational companies. This has resulted in Mexico cultivating a large technical workforce, allowing multinationals to set up complex operations and sophisticated research and development (R&D) centers across the country. Furthermore, Mexico is becoming a favored destination for business process outsourcing services in Latin America. However, public investment in science and technology is poor. Between 2000 and 2010, average public expenditure on R&D was around 0.4% of GDP, which is not even half of the 1% stipulated by Mexicos 2002 science and technology law.

The countrys R&D expenditure as a percentage of GDP declined from 0.54% in 2007 to 0.40% in 2010. Under the 2011 budget, the government plans to spend $3.9bn (or 0.34% of GDP) on science and technology. The country needs to increase its investment in higher education and create an environment to enable greater exchanges between academia and industry so as to create high-technology jobs.
A swift business registration process boosts the Mexican investment climate; however, uneven competitive practices remain a cause for concern
After years of maintaining a slow registration process for private entities, Mexico revamped the structure of its business legislation. The new registration requirements are simpler than the previous ones, and allow private investors to set up operations within a very short time span. The present government has laid down a business registration structure that allows firms freedom from unwanted disturbances. According to the Heritage Foundation's and the Wall Street Journal's 2011 Index of Economic Freedom, the country has been given a high score of 87.3 for business freedom. According to the index, starting a business takes an average of 13 days, compared to the world average of 35 days. Obtaining a business license requires less than the world average of 18 procedures and 209 days. However, President Felipe Calderon has admitted to the fact that overly powerful companies are holding back development in Mexico, and his National Action Party has announced its intention to fight business monopolies. His plans to open up the energy sector to foreign direct investment have not received legislative support. It is clear that, to enhance the competitiveness of the country, lifting barriers in some sectors will be required, along with the proper implementation of competitive practices.
Mexicos diverse biodiversity is a major asset for the country, but rampant deforestation poses a major threat
Overall, the biodiversity of Mexico's forests is noteworthy. The country is one of the world's five high biodiversity countries, home to no less than 26,000 species of vascular plants (of which 48% are endemic), and to nearly 2,800 known species of amphibians, birds, mammals, and reptiles (of which 34% are endemic). Mexico is also one of the few nations in the world where most of the forests are owned by indigenous and local communities (in this case around 80%). Tropical forests have traditionally been a source of livelihood for rural citizens while sustaining a wide range of mammalian and aquatic species. However, Mexico has witnessed substantial deforestation, an issue of particular alarm in view of the high levels of biodiversity in the country and the importance of its natural resources to the underprivileged. In total, during 19902005 Mexico lost nearly 7% of its forest cover, or around 4.78 million hectares. International environmental activist groups have criticized the Mexican government for failing to protect the country's dwindling forests.
PESTLE highlights Political landscape

President Felipe Calderons government has continued to undertake reforms to boost the countrys competitiveness and growth, including in the critical area of infrastructure.

Human rights abuse is an area for concern as the country has drawn international criticism from Amnesty International and the United Nations International Childrens Emergency Fund.
Economic landscape
Although the economy contracted by 6% in 2009, it rebounded with growth of 5.5% in 2010, largely driven by government stimulus packages and external demand. According to Datamonitor forecasts, the economy will grow by 4.7% in 2011. Mexicos total external debt increased from $196bn in 2009 to $247bn in 2010. As a percentage of GDP, it has risen from around 21% in 2008 to around 26% in 2010.
Social landscape
As of 2010, nearly 64.9% of the population was between 15 and 64 years old. The country has a large working population, with a low median age of around 26 years. The country has more than 5 million families living in poverty, totaling around 25 million people. Around 12.5% of the population survives on less than $2 a day.
Technological landscape
The Mexican Employers' Confederation plans to set up an innovation network and a communications platform to bring together 3,500 companies that have national and international research centers. In 2010, the number of patents granted increased to 115, significantly below the totals recorded by Brazil and India, which were granted 219 and 1,137 patents respectively.
Legal landscape
In the World Bank's 2011 Doing Business report, Mexico climbed 23 spots to place 67th. Starting a business takes six procedures and nine days, compared to the OECD average of 5.6 procedures and 13.8 days. Piracy is a major issue in the country. According to the attorney general, piracy of CDs and DVDs generates around $2m in cash every day.
Environmental landscape
The countrys Sustainable Electricity Program is expected to lead to reductions of 2.8 million metric tonnes of CO2 emissions every year. The country is not restricted by the Kyoto Protocol in terms of greenhouse gas emissions; however, CO2 emissions are expected to grow to 464 million metric tonnes by 2015.

Key fundamentals
Table 1:
Mexico key fundamentals
2009 GDP, constant 2000 prices ($bn) GDP growth rate (%) GDP, constant 2000 prices, per capita ($) Inflation (%) Exports, total as a percentage of GDP Imports, total as a percentage of GDP Mid-year population, total (millions) Unemployment rate (%) Mobile penetration per 100 people 764.6 -6.0 6,922.7 5.3 32.5 35.1 110.4 5.5 75.6
2010 806.7 5.5 7,181.7 4.2 30.5 35.5 112.3 5.4 78.1
2011 844.3 4.7 7,433.6 3.5 29.7 35.9 113.6 4.4 80.0
2012 878.5 4.1 7,650.5 3.5 28.9 36.3 114.8 3.7 80.9
2013 913.3 4.0 7,868.5 3.5 27.9 36.6 116.1 3.5 81.3
2014 948.7 3.9 8,087.6 3.4 26.9 37.0 117.3 3.4 81.3
2015 984.7 3.8 8,307.4 3.2 25.8 37.3 118.5 3.6 81.1
Source: Datamonitor
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Table of Contents
TABLE OF CONTENTS
Overview Catalyst Summary Key Facts and Geographical Location Key facts Geographical location PESTLE Analysis Summary Political analysis Economic analysis Social analysis Technological analysis Legal analysis Environmental analysis Political Landscape Summary Evolution Structure and policies Performance Outlook Economic Landscape Summary Evolution Structure and policies Performance Outlook Social Landscape Summary Evolution Structure and policies 1 1 1 11 11 12 13 13 15 19 23 26 29 32 35 35 35 37 43 44 45 45 45 46 49 62 63 63 63 64

Table of Contents
Performance Outlook Technological Landscape Summary Evolution Structure and policies Performance Outlook Legal Landscape Summary Evolution Structure and policies Performance Outlook Environmental Landscape Summary Evolution Structure and policies Performance Outlook Appendix Datamonitor consulting Disclaimer 69 72 73 73 73 73 76 80 82 82 82 82 86 87 88 88 88 88 89 91 92 92 92

Table of Contents
TABLE OF FIGURES
Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Figure 8: Figure 9: Figure 10: Figure 11: Figure 12: Figure 13: Figure 14: Figure 15: Figure 16: Figure 17: Figure 18: Figure 19: Figure 20: Figure 21: Figure 22: Figure 23: Map of Mexico Mexico political events timeline Mexico key political figures Composition of the Mexican Parliament, 2010 Historical GDP growth in Mexico, 19912010 GDP and GDP growth rate in Mexico, 200414 Sectoral composition of GDP in Mexico, 2010 Agricultural output of Mexico, 200510 Industrial output of Mexico, 200510 Services output of Mexico, 200510 Mexico's current account balance, 200510 Mexicos external trade, 200610 FDI trends in Mexico, 200510 CPI and CPI-based inflation in Mexico, 200414 Number of unemployed individuals and the unemployment rate in Mexico, 200414 Number of employed people in Mexico, 200414 Religious composition in Mexico Expenditure on healthcare in Mexico, 200312 Government expenditure on education in Mexico, 200213 Growth of mobile and fixed line telephony in Mexico, 200212 Growth of Internet users in Mexico, 200213 Total expenditure on R&D in Mexico, 200110 Mexico judicial structure 12 37 38 40 46 50 51 52 53 54 55 56 57 59 61 62 66 70 71 77 78 80 84

Table of Contents
Figure 24:
Carbon dioxide emissions in Mexico, 200310
90

Table of Contents
TABLES
Table 1: Table 2: Table 3: Table 4: Table 5: Table 6: Table 7: Table 8: Table 9: Table 10: Mexico key fundamentals Mexico key facts Analysis of Mexicos political landscape Analysis of Mexicos economy Analysis of Mexicos social system Analysis of Mexicos technology landscape Analysis of Mexicos legal landscape Analysis of Mexicos environmental landscape Mid-year population by age and gender in Mexico (millions), 2010 Patents granted by the US Patent and Trademark Office 5 11 15 19 23 26 29 32 64 75

Key Facts and Geographical Location
KEY FACTS AND GEOGRAPHICAL LOCATION Key facts

Table 2: Mexico key facts
Country and capital Full name Capital city United Mexican States Mexico City
Government Government type Head of state Head of government Federal republic Felipe de Jesus Calderon Hinojosa Felipe de Jesus Calderon Hinojosa
Population
112.3 million
Currency
Mexican peso
GDP adjusted per capita (PPP)
$13,900
Internet domain
.mx
Demographic details Life expectancy 76.47 years (total population) 73.65 years (men) 79.43 years (women)
Ethnic composition (2000 data)
Mestizo (Amerindian-Spanish) 60%, Amerindian 30%, white 9%, other 1%
Major religions (2000 census)
Roman Catholic 76.5%, Protestant 6.3%, other 0.3%, unspecified 13.8%, and none 3.1%
Country area
1,964,375 sq km
Languages
Spanish, various Mayan, Nahuatl, and other regional indigenous languages
Exports
Manufactured goods, oil and oil products, silver, fruits, vegetables, coffee, and cotton
Imports
Metalworking machines, steel mill products, agricultural machinery, electrical equipment, automotive components, aircraft and aircraft parts
Source: Central Intelligence Agency (CIA), The World Factbook
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Key Facts and Geographical Location

Geographical location
Mexico is to the west of the Gulf of Mexico and the Caribbean Sea, and to the east of the North Pacific Ocean. It borders Guatemala and Belize in the south and the US in the north.
Figure 1:
Map of Mexico
Source: CIA, The World Factbook
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PESTLE Analysis
PESTLE ANALYSIS Summary

With the importance of economic liberalization having been realized within the country, Mexico has transformed into a market-oriented economy that supports foreign investments. The private sector has been encouraged to acquire stakes in public enterprises, and incumbent President Felipe Calderon has emphasized the role of private entities in the development of the country, while taking efforts to increase competitiveness. However, Mexico faces an unprecedented increase in drugrelated violence, and the issue of illegal immigration from Mexico to the US has been a topic of debate in both countries for some time; the two nations continue to look at ways of resolving the problem. The country is also on the brink of historic reforms in the energy sector, although the proposed restructuring is not without opposition. The Mexican economy contracted by 6% in 2009, due to the effects of recession. However, growth of 5.5% was recorded in 2010, largely driven by strong external demand. The country's economy depends heavily on commercial relations with the US and remittances from migrant workers based there. The decreasing current account deficit and investments in infrastructure augur well for the economy. However, increasing unemployment and strong dependency on the US economy are cause for concern. Mexico has been able to maintain a high life expectancy rate compared to other Latin American nations for many years, and boasts a large pool of young workers who will provide a boost to economic productivity. The country has added greater impetus to educational investments over the past 15 years, complementing the rapid rise in student numbers, which is in line with population growth. However, the country suffers due to its inadequate healthcare services, although the government has initiated steps towards introducing programs such as universal health coverage, with the aim of providing coverage to all Mexicans by the end of 2011. Mexico has a strong technical workforce, which has encouraged multinational companies to open manufacturing centers across the country. The government has established numerous technological parks, in order to provide an impetus to develop indigenous technology in the country. According to the Mexican Academy of Sciences, the country buys 94% of its technology from outside sources, which reflects both a lack of innovation and low research and development (R&D) spending. The private sector needs to increase and improve its R&D expenditure. The governments revival of the tax exemption scheme is expected to drive R&D expenditure in the country. Mexicos legal structure includes a business registration system that allows for businesses to be set up within a very short time period, and the country has lowered its corporate tax rate to encourage the creation of more companies. However, judicial delays and a large number of pending cases continue to tarnish Mexicos legal structure, and concerns about intellectual property rights (IPR) implementation are widespread across the entertainment, pharmaceutical, software, and publishing industries. Mexico is considered to be one of the top five countries globally in terms of biodiversity; however, air and water pollution are major areas of concern, with Mexico City considered to be one of the most polluted cities in the world. In an attempt to alleviate environmental contamination, the government has embarked upon an Environmental Service Payment Program

PESTLE Analysis
and a Sustainable Electricity Program to reduce CO2 emissions and expedite afforestation programs in the country. Mexico's primary goal is to balance its economic ambitions with a sustainable environmental program.

PESTLE Analysis
Political analysis
Overview
Under President Calderon, the present government has encouraged investments in a host of essential sectors. The government has maintained excellent relations with its North American Free Trade Agreement (NAFTA) partners, and in recent times has achieved considerable success in developing economic and geopolitical proximity with the US, although the issue of illegal immigration continues to be a bone of contention between the two countries. The government has also taken efforts to increase competitiveness in the country, and has established the Comision Federal de Mejora Regulatoria (COMEFER), which is expected to increase transparency in the regulatory framework. Mexico is facing an unprecedented increase in drug-related violence, and the political class has been accused of colluding with narcotics cartels, which indicates the well-entrenched nature of the country's drug mafia. Significant volumes of violent crime are related to drugs and alcohol, making it imperative that the country acts forcefully. Other issues facing the government are the disparity in development between the north and the south and the diplomatic row with France.
Table 3:
Analysis of Mexicos political landscape
Current strengths Strong democratic setup Efforts to increase competitiveness
Current challenges Immigration issues with the US Human rights abuses
Future prospects The US to help Mexico fight drug violence Dynamic foreign policy
Future risks Diplomatic row with France Regional disparity
Source: Datamonitor
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Current strengths Strong democratic setup

Mexico has a robust democratic setup. Formal government institutions are defined by the constitution drafted in 1917, which is regarded as an expression of popular opinion that ensures civil and labor rights, electoral democracy, and national sovereignty. The drafters of the constitution, inspired by social and liberal political philosophy, prescribed a republican system of government with separate powers for the executive, the legislative, and the judiciary. They further recognized a broad range of political and social rights including the right to freedom of expression, the right to unionize, and the right to conduct peaceful protests against higher authorities.

PESTLE Analysis
Efforts to increase competitiveness

Although bureaucracy continues to be a problem in Mexico, the country is making efforts to increase competitiveness across its various industries. The government has established COMEFER, which is expected to increase transparency in the regulatory framework. COMEFER successfully initiated Sistema de Apertura Rapida de Empresas (SARE), a fast-track business start-up scheme. SARE reduced the time taken to establish a business from 58 days in 2006 to 27 days in 2008. Under SARE, companies can gain operating approval in just one business day, with a three-month grace period for the completion of the necessary legal requirements. In the World Bank's 2011 Doing Business report, in the ranking for starting a business the country moved up 23 places to 67th compared to 2010; according to the report, starting a business takes six procedures and nine days, as opposed to the Organisation for Economic Co-operation and Development (OECD) average of 5.6 procedures and 13.8 days. The Mexican government needs to continue with the process of reducing bureaucracy and promoting business-friendly practices. In April 2010, President Calderon declared that his government is set to undertake reforms during 201011, aimed at boosting Mexicos competitiveness and growth. Any reforms should be focused on boosting the infrastructure in every sphere of the economy.
Current challenges Immigration issues with the US

The illegal immigration of Mexicans to the US has been a matter of serious political concern for both countries for many years. Despite the Immigration Worker Program, launched in the mid-1990s to resolve the issue with the US, political strife regarding the matter continues. The issue has gained increased significance recently as more and more members of the poorer sections of Mexican society pass illegally across the less guarded parts of the border to seek employment in major cities in the US. President Calderon has long been a staunch supporter of several ultimately unsuccessful efforts of the US Congress to legalize the status of millions of immigrants who either overstayed their visas or passed illegally across the border. Compounding the problem, illegal immigrants also smuggle guns and other related equipment across the border, weapons that have become instrumental in the country's escalating drug wars. In early 2010 it was estimated that more than 10.8 million illegal immigrants live in the US, mostly from Mexico and Central America. Both countries continue to explore methods of curbing illegal immigration.
Human rights abuse

Human rights abuse is an area in which Mexico has drawn international criticism. According to the 2010 Amnesty International Report for Mexico, there has been an increase in the number of serious human rights violations by the military and the police while carrying out law enforcement activities in the country. The report added that women were exposed to high levels of gender-based violence with little access to justice. Migrants, journalists, human rights activists, and marginalized communities have been abducted, harassed, and in many cases even killed. The current justice system has too many loopholes, and also views all individuals arrested as guilty, which has led to the prosecution of thousands without a fair trial. Evidence suggests that false stories and dishonest witnesses have been used to condemn the innocent as guilty.

PESTLE Analysis
Other human rights concerns include the level of police brutality and impunity, poor prison conditions, violence towards communities such as the Chiapas and the Oaxaca, and hostility towards street children. The killing of journalists and ransacking of media properties by drug traffickers and the governments inability to penalize the culprits has also been universally condemned. In April 2011, mass graves with more than 120 bodies were found in the San Fernando municipality of Tamaulipas, where drug traffickers and criminal gangs operate in collusion with police officers. A total of 16 officers have been arrested in connection with this case. Tamaulipas is part of the migrant route to the US. In August 2010, the bodies of 72 migrants were found in the same municipality. The government has acknowledged that gang-related killings have taken more than 34,000 lives since President Calderon took office. Although the government faces serious problems in the form of organized drug gangs, it must also focus on improving the human rights record of the country.
Future prospects The US to help Mexico fight drug violence

In March 2010, the US government stepped up its co-operation to combat organized drug smugglers in Mexico. Officials from both countries have considered and implemented various joint and unilateral efforts to reduce the demand for drugs in both the US and Mexico. The US has acknowledged that the drug consumption of its citizens is fueling Mexicos brutal drug wars. US officials have offered to deploy special intelligence agents within Mexican law enforcement units for the first time. The administration of President Barack Obama views spiking drug violence in Mexico as a direct threat to US security, and the country looks more inclined than ever to take unprecedented steps towards direct co-operation with Mexican authorities. The US is seeking an additional $310m beyond an already approved $1.4bn for drug enforcement aid for Mexico in its 2011 budget. These co-operative efforts are expected to bring about improvements in the medium term.
Dynamic foreign policy

Mexico has developed a dynamic foreign policy and became a more active partner in multilateral affairs, climate change, human rights, and regional issues. Although Mexico is frequently in dispute with the US on issues relating to illegal immigration, relations in the spheres of trade and investment are robust. One of Mexicos primary political ambitions is to secure a guideline for immigration to the US that includes the naturalization of illegal immigrants already residing in the country. Mexico continues to stress the valuable contributions made by migrant workers to the US economy. Furthermore, under the Obama administration, Mexico is expected to closely co-operate with the US on security. In terms of military policy, Mexico traditionally takes a non-interventionist stance. Mexico maintains excellent relations with its other NAFTA partners, and is also inclined towards developing relations with its Southern and Central American neighbors. The Pueb la Panama Plan is designed to encourage Central American states to foster comprehensive economic growth. It has also established positive links with the Caribbean countries through high-level meetings with the heads of state or heads of government of the region, and through dialogues with member countries of the Caribbean Common Market. Strong and dynamic foreign policies will foster international trade and provide an expanded international political footprint for the country.

PESTLE Analysis
Future risks Diplomatic row with France

In February 2011, Mexico pulled out of planned cultural events in France due to the diplomatic row between the two countries involving the arrest and conviction of Frenchwoman Florence Cassez, who was sentenced for 60 years for kidnapping. Mexico alleged that the French presidents plan to use the Year of Mexico Festival to discuss Cassez was a serious breach of the Mexico-France Joint Statement signed in September 2010. Earlier in 2009, Mexico turned down President Nicolas Sarkozys request, made under the Strasbourg Convention, to allow Cassez to serve her jail term in France. The incident has soured relations between the two countries.
Regional disparity
Mexicos political landscape is divided by strong regional differences. The northern regions of the country receive considerable attention from incumbent governments in terms of industrialization and the development of public infrastructure, but attempts to attract investors to the nine southern states have been minimal, meaning that the majority of individuals living in the south lack basic facilities such as healthcare, education, and sanitation. The continued apathy of the government towards these regions may lead to political and social tensions.

PESTLE Analysis
Economic analysis
Overview
The Mexican economy contracted by 6% in 2009, due to the effects of recession. However, growth of 5.5% was recorded in 2010, largely driven by strong external demand. Mexico is a member of the NAFTA with Canada and the US, and became the first Latin American member of the OECD in 1994. The country has 12 free trade agreements in place with over 40 countries and other parties, including Guatemala, Honduras, El Salvador, the European Free Trade Area, and Japan. The economy depends heavily on commercial relations with the US and remittances from migrant workers based there. The country has a strong automotive sector, and the decreasing current account deficit and investments in infrastructure augur well for the economy. In addition, Mexico is one of the worlds top 10 oil producers. Pemex, the state-owned oil company, has a constitutional monopoly on the exploitation of Mexicos oil reserves. Although oil contributes only around 3% of overall GDP, the government is highly dependent on these revenues for its income. However, increasing unemployment and strong dependency on the US economy are cause for concern.
Table 4:
Analysis of Mexicos economy
Current strengths Free trade agreements Strong automotive industry
Current challenges Restrictions in certain sectors High unemployment
Future prospects Decreasing current account deficit Investments in infrastructure
Future risks High dependence on the US economy Falling oil output
Source: Datamonitor
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Current strengths Free trade agreements

After the implementation of the NAFTA in 1994, Mexicos trade with the US and Canada has almost tripled. The country has 12 free trade agreements in place with over 40 countries and other parties, including Guatemala, Honduras, El Salvador, the European Free Trade Area, and Japan. More than 90% of Mexicos trade falls under free trade agreements. Moreover, during its first year in office the Calderon administration was able to muster support from the opposition to successfully pass pension and fiscal reforms in 2007. Free trade agreements have substantially liberalized the countrys trade regime. In 2010, as part of efforts to improve external trade, especially with non-US countries, Mexico signed bilateral agreements and initiated discussions with Brazil, Japan, South Korea, China, India, Vietnam, Singapore, Malaysia,

PESTLE Analysis
Australia, Indonesia, New Zealand, South Africa, Algeria, Ethiopia, Kenya, Rwanda, Saudi Arabia, the United Arab Emirates, Qatar, Uganda, Bahrain, Egypt, Kuwait, and Lebanon.
Strong automotive industry

The country has a strong automotive industry; in terms of its share of the national economy, it is the second most important industry in Mexico, only preceded in importance by oil. The country has over 1,000 auto parts companies, and its automotive sector is the 11th largest in the world by vehicles manufactured. In 2008, Mexico produced 2.1 million cars, an increase of 4% on 2007, and exported 1,661,406 vehicles, 3% more than the previous year. However, due to the global economic crisis and reduced demand, vehicle production in 2009 contracted by 29%. The Mexican automotive industry focused on investment markets as much as on exports during 2010. In February 2010, American automobile manufacturer Chrysler Group announced an investment of $550m during 201011 towards the building of the compact Fiat 500 car in its Toluca plant in Mexico City. In addition, Japanese companies planned to invest a total of around $700m in the Mexican automotive sector across 2010.
Current challenges Restrictions in certain sectors

Mexico continues to impose restrictions in certain sectors. Hydrocarbons and electricity, with some exceptions, remain the preserve of the state. Domestic land transport is reserved for Mexican ownership, while certain telecommunications services, air transport, and port administration activities require majority Mexican ownership. Furthermore, in the case of airports and mobile telephony, prior approval is required to own more than 49% of the total capital of a company. Restrictions in certain sectors need to be progressively removed in order to attract foreign investment; however, foreign investors are impatient for Mexico to reform its tax laws, to relax its labor laws, and to allow more foreign investment in the state-controlled oil sector. The energy sector needs to be overhauled, and reforms must be undertaken to weaken monopolies in other industries.
High unemployment
The rate of unemployment steadily increased from 3.5% in 2006 to 5.5% in 2009, before recording a marginal dip in 2010, when it declined to 5.4%. However, unemployment remains high, while employment growth between 2007 and 2010 was a meager 1.2%. Increasing unemployment coupled with moderate wages will lead to lower domestic demand in the near future. It will also push more people into poverty, which in turn will increase the pressure on the government to expand its social welfare measures.
Future prospects Decreasing current account deficit

Mexico's current account deficit decreased from $16.2bn in 2008 to $5.7bn in 2009, or around 0.7% of GDP, as a smaller trade deficit offset the effects of lower remittances and tourism income, and deficits in other services. The current account

PESTLE Analysis
deficit further declined to $5.6bn in 2010, or around 0.6% of GDP. The decreasing current account deficit is a sign of the increasing strength of the external sector of the economy.
Investments in infrastructure
The Calderon government devised the National Infrastructure Plan to boost investment in infrastructure. The plan focuses on improvements to the country's transport infrastructure, with the help of a sharp increase in public and private investment. Targets include the modernization or construction of around 20,000km of roads, the expansion of railway and port systems , and the creation of at least three new airports. The countrys infrastructure has seen a massive decline in investment in infrastructure over the last decade, and this new plan focuses on addressing Mexico's infrastructure deficit. Major contracts have already been awarded, including the Atotonilco water treatment plant (which is both the largest of its kind in Mexico and one of the largest in the world), and several other tenders for projects in freight railways, ports, and water pipelines. These measures will address the country's infrastructure scarcity to a certain extent. The governments economic reforms and investment of MXN630m ($49.8m) on infrastructure in 2010 are expected to further economic growth.
Future risks High dependence on the US economy

Mexicos increased dependency on the economic cycle of the US may not be sustainable in the long term. More than 80% of its exports and around 50% of its imports were from the US in 2010. Significant dependency on a single country particularly one which is facing substantial economic difficulties is too big a risk to take. During the 2009 economic crisis, Mexicos economy contracted by 6%, and the country lost more than 1 million jobs and $66bn of export business. With the US currently facing extremely high budget deficits and debts, it would be wise for Mexico to expand its trade base to other countries at a faster rate than it is presently achieving.
Falling oil output

Mexico's oil production, a boon for the country in the 1980s and 1990s, declined drastically over 200509, mainly due to a lack of new projects to replace the state controlled Cantarell field. Output fell for the fifth straight year in 2009, with only 2.6 million barrels per day produced from November 2009 to April 2010, down from over 3 million barrels per day in 2008. The Mexican crude oil production industry had revenues of $79.4bn in 2010, representing a compound annual growth rate (CAGR) of -1.1% for 200610. Industry consumption volumes recorded a CAGR of -6.7% between 2006 and 2010, reaching a total of 1,019 million barrels in 2010. The industry's volume is expected to fall to 840.3 million barrels by the end of 2015, representing a CAGR of -3.8% during 201115. Mexico's Cantarell deposit, which reached peak output in 2004, is the main reason for the fall in output. State oil monopoly Pemex slowed down the output decline in Cantarell by drilling smaller fields, and increased the production at the Ku-Maloob-Zaap deposit faster than initially planned. A 2008 law was supposed to open the door to lucrative new contracts that would attract foreign oil companies to Mexico's oil industry, thus boosting deepwater exploration efforts and output for unconventional fields. However, in 2009 the contracts were stalled due to a legal challenge lying in the Supreme Court. According to the energy ministry, the planned new contracts will remain under wraps

PESTLE Analysis
until the court rules in the case. Considering all of these factors, oil output will continue to fall in the next few years due to Mexico's insufficient oil investments and legal delays.

PESTLE Analysis
Social analysis
Overview
Mexico benefits from a low median age, which is reflected in its huge working population; only 6.4% of its citizens are aged 65 years or above. The country has added impetus to educational investments over the past 15 years, complementing the rapid rise in student numbers, which is in line with population growth. However, the country suffers due to its inadequate healthcare services. While the developed northern states have access to sophisticated medical facilities, the poorer southern states are largely burdened with voluntary educational and health services. The government has initiated steps towards programs such as universal health coverage, with the aim of providing coverage to all Mexicans by 2011. The drug cartel menace is another issue the country is currently battling.
Table 5:
Analysis of Mexicos social system
Current strengths Impressive education system Large working population
Current challenges Inefficient healthcare system Drug cartel menace
Future prospects Universal health coverage Rising life expectancy
Future risks Uneven distribution of wealth
Source: Datamonitor
DAT AM ONIT OR
Current strengths Impressive education system

Mexico has an impressive education system, with both the private and public sectors playing an instrumental part in making university and vocational training in the country globally recognized. Education up to and including the university level is provided by the state and is mostly free, and universities such as the National Autonomous University of Mexico (UNAM) are highly regarded around the world. With around 290,000 undergraduate students and around 25,000 graduate students, UNAM is the largest university in Latin America, and is among the top 200 universities according to the Times Higher Education World University Rankings. The universitys scientific wing consists of 19 institutes and 10 research centers, which have published around 2,800 scientific papers in international peer-reviewed journals. During 19972009, spending on educational institutions in Mexico increased from 4% of GDP to 7% of GDP. Over this 12year period, Mexico is one of the top three countries in terms of increased educational expenditure as a percentage of GDP. In 2009, the share of the public budget allocated to education was 22%, the highest percentage of any OECD nation.

PESTLE Analysis
Large working population

As of 2010, nearly 28.7% of the population in Mexico is aged below 14 years, and just 6.4% are above 65 years, meaning approximately 64.9% of the population are aged between 15 and 64 years of age. Mexico has a large working population, with a low median age of around 26 years. However, the government has a responsibility to create job opportunities for the growing population, in order for its citizens to achieve their full potential.
Current challenges Inefficient healthcare system

In spite of the formulation and implementation of several social programs, healthcare services remain poor in Mexico. Although the country passed a bill to provide universal healthcare coverage to all Mexicans, such provision is very much a work in progress. According to Mexico's National Institute for Public Health, the healthcare services provided at state and local levels leave many questions unanswered due to issues of transparency, efficiency, and accountability. State governments receive funds for the provision of healthcare services, but there is no accountability mechanism in place as to how they spend the money, which has led to poor and inefficient healthcare systems in some states. According to Fundar, a Mexican watchdog group that has surveyed the poor states of Guerrero and Chiapas, on paper a significant proportion of individuals have signed up for government healthcare services in these states, while in reality there are no doctors, hospitals, or medicines to provide them. In January 2011, Mexicos health minister Jose Angel Cordova acknowledged that 8% of the countrys municipalities lacked healthcare facilities, and admitted that the government was behind on targets to reduce infant and maternal mortality in certain states. The sophisticated health facilities available in prominent cities, provided by both the private and public sectors, are either unaffordable or inaccessible to the rural population. Universal healthcare coverage remains some way off, as critical inefficiencies in the system are yet to be tackled.
Drug cartel menace

There is constant fighting among the country's various drug cartels to establish supremacy, which has led to an increase in the number of murders over the last few years. Drug operatives are constantly killing individuals who belong to rival gangs in order to establish pre-eminence in their area of operation; murders relating to profit-sharing also occur with some frequency. With many cartels branching into other crimes, the problem has been compounded. US enforcement officials have noted that some of the cartels are transnational criminal organizations also involved in kidnapping, extortion, cargo robbery, smuggling, and piracy. Drug trafficking and other criminal activities infuse billions of dollars into the Mexican economy through a fine network of bankers, businesspersons, and figures in the Mexican establishment. Their financial reach has also spread to the US, where many local banks launder money for the cartels. One such case involved the North Carolina-based Wachovia Bank, which had to pay $160m to settle a government probe on allegations of laundering Mexican drug money.

PESTLE Analysis
Future prospects Universal health coverage

The Mexican healthcare system comprises the Mexican Social Security Institute (Instituto Mexicano del Seguro Social [IMSS]) and the Institute for Social Security and Services for State Workers (Instituto de Seguridad y Servicios Sociales de los Trabajadores [ISSSTE]). The IMSS covers private sector workers and their families, while the ISSSTE covers government employees and their families. However, the self-employed, the unemployed, and non-salaried and informalsector workers are not covered. To address this problem, the government has announced that all Mexicans will have access to universal health coverage by 2011, which will provide public insurance to the whole population. This will not only reduce out-of-pocket spending, but also improve the efficiency of the system and, more importantly, provide quality healthcare to all Mexicans.
Rising life expectancy

Life expectancy at birth for the total population recorded a rising trend over the last decade. According to estimates, as of 2010 life expectancy at birth for the total population stood at 76.47 years, an improvement over 2000, when the figure stood at 73.87 years. Total healthcare expenditure as a percentage of GDP stood at 6.4% in 2008, 6.7% in 2009, and almost 7.0% in 2010. Around 91% of the total population had free access to potable drinking water and 77% to sanitation. This high figure reflects government measures taken towards restructuring the countrys healthcare base. However, there is still further scope for improvements, given the vulnerability of the large rural population.
Future risks Uneven distribution of wealth

Mexico has perennially suffered from a severely uneven distribution of wealth, adding to the existing socioeconomic problems faced by the country. Individuals residing in the northern states, especially within areas that border the US, enjoy a higher standard of living than their counterparts in the largely rural southern regions of the country. The northern areas house prominent industrial clusters that provide lucrative employment opportunities for jobseekers. Mexico has not been successful in limiting disparities of income and wealth and restricting poverty; on the Gini coefficient, which ranges from zero (perfect equality) to 100 (perfect inequality), Mexico scored 51.6 for 200010, compared to the USs 40.8 and Canadas 32.6. Furthermore, new employment opportunities have diminished in the south, where agriculture is still the dominant sector.

PESTLE Analysis
Technological analysis
Overview
Mexico has a strong technical workforce, which has encouraged multinational companies to open manufacturing centers across the country. Mexico is also becoming a favored destination for business process outsourcing (BPO) services in Latin America, due to certain inherent advantages over competitors (such as India) in this field. The government has established numerous technological parks, to provide an impetus to develop technology in the country; however, the lack of state support, particularly in the field of biotechnology, continues to be an area of concern. According to the Mexican Academy of Sciences, the country buys 94% of its technology from outside sources, which reflects both a lack of innovation and low R&D spending in the country. The private sector needs to increase and improve its R&D expenditure. The governments revival of the tax exemption scheme is expected to drive R&D expenditure in the country.
Table 6:
Analysis of Mexicos technology landscape
Current strengths Strong technical workforce Strong IT services destination
Current challenges Lack of innovation Low R&D spending
Future prospects Revival of the tax exemption scheme Private initiatives in R&D
Future risks Weak science and technology policy set up
Source: Datamonitor
DAT AM ONIT OR
Current strengths Strong technical workforce

Mexico is renowned for its cheap reliable labor, perfect for assembling vehicles, consumer durables, and other goods in the export assembly plants know as maquiladoras, which line the border with the US. More intricate engineering and design work is traditionally carried out in developed regions such as the US, Europe, and Japan, but with assembly type work increasingly migrating to countries such as India and China, Mexico has turned its attention to the development of a technical workforce in order to stay in the global race. Over the past decade or so, the nations policymakers have successfully encouraged greater enrollment in four-year degree programs in engineering, developed a group of technical institutions that grant two-year degrees, and initiated advanced training programs with multinational companies. This has resulted in the country developing a greater technical workforce. Since President Calderon came to power, the government has created 75 higher education institutions, with

PESTLE Analysis
plans to establish 20 more institutions by the time his tenure ends in December 2012. According to OECD Education at a Glance 2010, in Mexico student enrolment in tertiary education and expenditure on tertiary educational institutions in Mexico increased by more than 20% during 200007. Mexico spends three times as much on tertiary students compared to primary and secondary students. The expanding technical workforce has meant that multinationals are now able to set up complex operations and sophisticated R&D centers across the country.
Strong IT services destination

Mexico is a favored destination for BPO services in Latin America. The Mexican governments PROSOFT initiative, which was launched in 2004, has invested millions of dollars in developing the sector; in 2008 alone, around 500 companies benefited from the program. More than 129 Mexican universities are involved in PROSOFT, with the aim of achieving annual software output of $5bn by 2013. India-based Infosys, one of the largest IT and BPO services companies, established its first center in Latin America in Monterrey, Mexico in 2008. Mexico has an advantage compared to competitors such as India, in that it borders the US, and many aspects of its culture and language have already been absorbed, particularly in Southern US states. Moreover, since there is a convergence of time zones with the US, it offers the possibility of resolving problems in realtime. Furthermore, MexicoIT, an initiative executed by the National Chamber of Electronics, Telecommunications, and Information Technologies, tied up with many US companies during 2009 to provide offshore IT solutions. According to MexicoIT, the Mexican IT sector has more than 2,500 companies employing around 600,000 professionals, with an average of 65,000 new employees joining the sector each year.
Current challenges Lack of innovation

The level of innovation in Mexico is low, as can be seen from the small number of patents granted by the U nited States Patent and Trademark Office to enterprises in the country. Indeed, the number of patents granted to the country averaged just 86 between 2005 and 2009. In 2010, the number of patents granted increased to 115, which was still significantly below the totals recorded by Brazil and India, which were granted 219 and 1,137 patents respectively. The top three countries are above and beyond Mexico in this area, which indicates that the country has a long way to go in terms of innovation.
Low R&D spending

Public investment in science and technology is also poor. Between 2000 and 2010, average public expenditure on R&D was around 0.4% of GDP, which is not even half of the 1% stipulated by Mexicos 2002 science and technology law. The countrys R&D expenditure as a percentage of GDP declined from 0.54% in 2007 to 0.40% in 2010. Under the 2011 budget, the government plans to spend $3.9bn (or 0.34% of GDP) on science and technology. The country needs to increase its investment in higher education, and to create an environment to enable greater exchanges between academia and industry in order to create high-technology jobs. Currently, there is just one doctorate awarded for every 10,000 individuals.

PESTLE Analysis
Future prospects Revival of the tax exemption scheme

There have been increasing calls from the scientific community to revive the program of tax exemptions that was launched by the government in 2002, through the National Council of Science and Technology, in order to stimulate R&D. However, the council cancelled the $1.3bn program in 2009 due to alleged abuse of the program by big companies looking to avoid taxes. In April 2011, the council announced that it would revive the tax exemption scheme under a new program.
Private initiatives in R&D

According to the Mexican Academy of Sciences, the country buys 94% of its technology from outside sources, with the royalty payments for the acquired technology going up by five times in the last 10 years. The poor integration of research and industry has led to overdependence on imported technology. To improve this situation, the Vincula/G11 group, a consortium of the Science and Technological Consultative Forum and 10 other organizations, has launched a national program to train specialists in the transfer of technology from research centers and universities to the industry. Around 600 specialists have been trained under the program since October 2010. Meanwhile, the Mexican Employers' Confederation plans to set up an innovation network and a communications platform. Under the first phase of its program, it plans to bring together 3,500 companies that have national and international research centers.
Future risks Weak science and technology policy set up

According to the 2009 OECD Review of Innovation Policy in Mexico, the countrys scientific and technology system faces many policy challenges. Structural weaknesses continue to affect the performance of the system. The countrys National Innovation System suffers due to inefficient governance and unbalanced policy mix. Other weaknesses in the system include low levels of public-private partnership, an insufficient technological infrastructure, and a weak IPR culture. These weaknesses mean that the country is ill-prepared for growing competition from emerging economies; they may also affect Mexico's partnerships with emerging economies that are experiencing robust economic growth, and rapid scientific and technological development.

PESTLE Analysis
Legal analysis
Overview
Mexicos legal structure includes a business registration system that allows for the setting up of businesses within a very short time period. Recent policies have been focused on augmenting foreign investments by offering larger incentives to investors. The country has lowered its corporate tax rate to encourage the creation of more companies. However, judicial delays and a large number of pending cases continue to tarnish Mexicos legal structure, and concerns about IPR implementation are widespread across the entertainment, pharmaceutical, software, and publishing industries. The country is looking into methods of reducing unfair competitive practices in certain monopolistic sectors, such as telecommunications.
Table 7:
Analysis of Mexicos legal landscape
Current strengths Swift business registration process Tax policies oriented around foreign investment
Current challenges Concerns about IPR implementation Large number of pending cases
Future prospects Lower corporate tax rate
Future risks Uneven competitive practices
Source: Datamonitor
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Current strengths Swift business registration process

Mexico revamped its legal structure after years of using a slow registration process for private entities. The overhauled registration requirements are simpler than the previous ones, and allow private investors to set up operations within a very short space of time. The present government has laid down a business registration structure that is free from unwanted delays. According to the World Banks 2011 Doing Business report, Mexico was ranked 35th out of 183 nations. Starting a business takes an average of nine days, compared to the OECD average of 13.8 days, while obtaining a business license requires 105 days, fewer than the OECD average of 166 days. Moreover, the country's bankruptcy proceedings are relatively simple, and the freedom to start, run, and shut down a business is protected by Mexico's regulatory environment.
Tax policies oriented around foreign investment

The importance of foreign direct investment (FDI) in terms of economic development is strongly felt within Mexico, and the country's tax policies are framed so as to attract prospective foreign investors. The state has legitimized a significant number of tax incentives for investors in the form of tax exemptions; however, it should be noted that the government does

PESTLE Analysis
not permit tax holidays. With the exception of certain sensitive sectors, the majority of segments have been opened up for foreign investors and, in order to encourage the development of the southern states, the government has offered higher incentives to companies interested in investing in rural areas. The most sought-after tax incentive the accelerated depreciation allowance for investments in production facilities is widely available, and permits deductions of up to 92% for the same year of investments.
Current challenges Concerns about IPR implementation

Although Mexican law protects IPR, enforcement is ineffective, and pirated goods are available throughout the country. Piracy in Mexico mainly affects the entertainment, pharmaceutical, software, and publishing industries. According to a 2011 International Intellectual Property Alliance report, hard copy piracy in Mexico remained at about the same level as in 2009, while Internet piracy has continued to grow. The report claimed that the country's PC software piracy rate was 60% in 2010, with the estimated commercial value of unlicensed software totaling $594m. The office of the US Trade Representative has been critical of the countrys IPR regulatory system, stating that Mexicos enforcement efforts and IPR laws do not conform to global standards, and has included the country in its 2011 Watch List. According to Mexico's attorney general, piracy of CDs and DVDs generates around $2m in cash every day. These high levels of piracy are a major challenge to the country.
Large number of pending cases

Despite having a multi-tiered judicial system, a large number of cases are still pending in various courts, and it takes a long time for a plea to be heard at the Supreme Court of Justice. The judicial system is slow to resolve cases and vulnerable to corruption. Judicial delays have become increasingly common, leading to longer trial periods. Moreover, unnecessary delays in the delivery of a final verdict results in prisoners languishing in jails under harsh conditions. The volume of custodial deaths among the country's prisoners under suspicious conditions has been internationally criticized.
Future prospects Lower corporate tax rate

A corporate body is considered to be a resident of Mexico if its place of effective management is within the country. Any resident company is taxed on the basis of its worldwide income; if the company is not domiciled in Mexico, it is taxed on its Mexican-sourced income. Corporate income tax is imposed at the rate of 30%, which is expected to be lowered to 29% in 2012, and by 1% every year thereafter until 2014. A 1.5% flat-rate business tax is used instead of corporate income tax for some companies. A lower corporate tax rate could become an incentive for companies to expand into Mexico, as well as for local companies to grow their operations. Friendly tax policies create incentives for investors to increase their investment in the country.

PESTLE Analysis
Future risks Uneven competitive practices

The Federal Law of Economic Competition, Mexicos antitrust law, was introduced in 1993. It prohibits monopolies, monopolistic practices, and price fixing, and also places restrictions on production and distribution, among other functions. The Federal Competition Commission was introduced at the same time to act as an autonomous agency responsible for enforcement of the law, and to offer approval for proposed mergers. Despite these statutes, the country faces a monopolistic situation in several sectors. Major industries including telecoms, beer, and cement are ruled by monopolies that keep prices artificially high. For example, Telmex, a company notorious for its expensive services, dominates Mexicos telecom market. Mexicos state-owned oil giant Pemex is another example, although the government has introduced steps to reform the oil sector. President Calderon has admitted that overpowerful companies are holding back Mexico's development, and has announced his party's intention to fight private monopolies. It is clear that in order to enhance the competitiveness of the country, the lifting of barriers is required in some sectors, along with proper implementation of competitive practices.

PESTLE Analysis
Environmental analysis
Overview
Mexicos is one of the top five countries globally in terms of biodiversity; however, air pollution is a major area of concern, with Mexico City considered to be one of the most polluted cities in the world. Research studies in Mexico City point to the growing threat of heart ailments due to high suspended particulate matter. Moreover, rampant deforestation has attracted criticism from environmental activist groups. However, the country has the opportunity to benefit from trading carbon credits under the clean development mechanism (CDM) of the Kyoto Protocol. In an attempt to alleviate environmental degradation, the government has embarked on an Environmental Service Payment Program and a Sustainable Electricity Program to reduce CO2 emissions and expedite afforestation programs in the country. Mexico's primary goal is to balance its economic ambitions with a sustainable environmental program.
Table 8:
Analysis of Mexicos environmental landscape
Current strengths Rich in biodiversity
Current challenges Air pollution Rampant deforestation
Future prospects Environmental Service Payment Program Sustainable Electricity Program
Future risks Adverse impact of economic growth
Source: Datamonitor
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Current strengths Rich in biodiversity

The biodiversity of Mexico's forests is noteworthy; they contain 50% of the world's pine species and 135 species of oak. Mexico is one of the few nations in the world where indigenous and local communities own most of the woodland, around 80% in this case. Tropical forests have traditionally been a source of livelihood for the rural population, as well as sustaining a wide range of mammalian and aquatic species. Prominent rivers, which provide nearly 60% of the countrys total water resources, flow through these forests. The country is one of the world's five high biodiversity nations, home to no less than 26,000 species of vascular plants, of which 48% are endemic, and home to nearly 2,800 known species of amphibians, birds, mammals, and reptiles, 34% of which are endemic.

PESTLE Analysis
Current challenges Air pollution

Rising air and water pollution continues to be a major challenge to the Mexican government, and extremely high levels of air pollution are a particular problem in Mexico City. In August 2007, the American Journal of Respiratory and Critical Care Medicine reported that air pollution in Mexico City was more harmful to children than cigarette smoke. A survey of 3,170 eight-year-olds indicated that air pollution harms lung development, and may also cause chronic lung diseases. In April 2010 a post-mortem study of 21 young individuals who lived and died in Mexico City found that their hearts showed the adverse effects of air pollution. Mexico City has high levels of suspended particulate matter that gains entrance into the body and causes damage or disease. The University of Montana study showed that air pollution damages the heart and leads to an increased risk of heart disease and heart attacks.
Rampant deforestation
Mexico has witnessed substantial deforestation, an issue of particular alarm considering the high levels of biodiversity in the country and the importance of natural resources to the underprivileged. During 19902000, Mexico lost an average of 347,600 hectares of forest cover per year, amounting to an average annual deforestation rate of 0.50%. Mexico was responsible for around 4% of the world's deforestation during 200005. In total, during 19902005 Mexico lost around 7% of its forest cover, which fell from 68.9 million hectares in 1993 to 64.8 million hectares in 2010. According to the Center for Clean Air Policy, the rate of deforestation between 1990 and 2010 was on average 0.39% per year.
Future prospects Environmental Service Payment Program

The government has reinforced the Environmental Service Payment Program that was created as a financial incentive for the owners of forest land. As part of the strategy to promote environment service payment mechanisms through Pro Tree, the government has combined the Environmental Service Payment Program with support for water services, carbon capture, and biodiversity to establish and improve agro-forestry systems. The government aims to incorporate 2.61 million hectares of environmental payment schemes by 2012. During 200710, approximately 9 million minimum wages were generated, with funds being assigned to 4,379 conservation projects in ejidos, communities, and private properties. The authorities are working to incorporate an additional 490,000 hectares in 2011.
Sustainable Electricity Program

The government has launched the Sustainable Electricity Program, which involves the exchange of old incandescent light bulbs for power-saving light bulbs, free of charge. Under the program, all electricity consumers that do not use more than 250 kilowatts every two months will be eligible to exchange four old incandescent light bulbs for four power-saving light bulbs. The government is setting up 1,200 exchange centers across the country for the program, and expects to exchange around 23 million light bulbs during the first phase. By the end of the program in 2012, the government expects to have exchanged 47.2 million bulbs nationwide. The program is expected to lead a reduction of 2.8 million metric tonnes of carbon dioxide CO2 emissions every year.

PESTLE Analysis
Future risks Adverse impact of economic growth

Robust industrialization in Mexico has been the cause of extensive greenhouse gas emissions. Furthermore, rapid urbanization has resulted in the extensive usage of fossil fuels, which has amplified emission levels across the country's urban regions. Mexico City has been labeled one of worlds most polluted cities, and other prominent urban centers such as Guadalajara and Monterrey are similarly polluted, due to a large number of industrial manufacturing units. It is expected that carbon dioxide emissions will continue to rise in the near future as a result of growing industrialization and transportation. CO2 emissions are expected to reach 464 million metric tonnes in 2015, up from 414 million metric tonnes in 2010. In a bid to achieve robust industrialization and urbanization, the government has often shunned implementation of environmental conservation policies. However, as an emerging economy Mexico needs to balance its ambitions with sustainable environmental actions.

Political Landscape
POLITICAL LANDSCAPE Summary

Political stability has largely been maintained in Mexico since the early 1990s. President Ernesto Zedillos regime during the mid-1990s introduced long-awaited reforms to the Mexican electoral systems, which were initiated to create a level playing field for opposition parties. Furthermore, during the early 2000s the Vicente Fox government supported the reforms and pledged to implement additional legislation to overhaul the existing political and economic landscape. President Fox promised to combat the burgeoning rate of crime and corruption in the country, and to address immigration issues with the US by introducing the Immigrant Worker Program. The incumbent government of Felipe Calderon encourages free trade and regional co-operation, and has proposed to augment foreign investments in crucial economic sectors in order to enhance Mexicos global competitiveness. The last general elections, held in 2006, were won by the National Action Party (Partido Accion Nacional [PAN]), which secured the majority of seats in both the upper and lower houses (52 and 207 respectively). The present government aims for close economic and geopolitical relations with neighboring countries, encourages foreign investment in a host of economic sectors, and favors trade liberalization. However, in the mid-congressional elections in July 2009, the Institutional Revolutionary Party (Partido Revolucionario Institucional [PRI]) won 48% of the seats in the Chamber of Deputies. With escalating drug-related violence across the country, PRI has gained more political ground, and sees an opportunity for further gains in the 2012 presidential elections.
Evolution
Pre-independence
The Olmecs established the first civilization in Mexico, and were the rulers from 1,200400 BC. The later Maya (300900 AD) and the Aztec (12001521 AD) rulers based their kingdoms on the traditions of the Olmecs. The Aztecs occupied most of Mexico by the beginning of the 16th century. Their belief that their god Quetzalcoatl would one day come and reclaim his land was exploited by Spanish explorer Hernan Cortes, allowing him to capture the whole of the Aztec empire in just two years. In 1808, the ruler King Fernando VII was deposed by Napoleon, who declared that his brother Joseph Bonaparte would be king. However, the news of the Spanish rulers overthrow led to widespread uproar. Dissatisfaction with the colonial administration and the discrimination towards Criollos (Mexicans descended from Europeans) at all levels of government were some of the main reasons for the widespread rebellion that followed. This revolt was lead by the Criollo parish priest Miguel Hidalgo y Costilla; however, it was crushed after the execution of Hidalgo by firing squad in 1811. Following the death of Hidalgo, Jose Maria Morelos Pavon took over the revolutionary movement and laid siege to Mexico City. Nevertheless, the colonial forces triumphed and Morelos met the same fate as Hidalgo. The 184748 wars proved to be very costly to Mexico, as it lost vast tracts of land to the US. In 1863, Maximilian, the Archduke of Austria, came to power with the help of Napoleon III and the conservatives of Mexico. However, Maximilian was defeated by Benito Juarez, who was in turn defeated by his former ally, Porfirio Diaz. Diaz ruled until 1911, when he

Political Landscape
was overthrown by a group of generals and political leaders. This incident led to a civil war lasting 20 years, in which over 1 million people lost their lives.
The 20th century

A single political party, the PRI, dominated the political scene of Mexico for more than 70 years. Plutarco Elias Calles was the founder of the PRI, and became president in 1924. The PRI remained in power despite huge challenges, such as the killing of hundreds of protesters in 1968, and the rise of the Zapatista movement in 1994. President Zedillo oversaw comparatively free elections in 2000, and the PRI's rule ended with the election of Vicente Fox of the PAN .
200010
After his election, President Fox resolved to intensify economic and political reform, declare war on organized crime, and introduce the Immigrant Worker Program in conjunction with the US. However, by the end of President Foxs term many of his structural reform programs remained unfulfilled. The 2006 general election was fought between Felipe de Jesus Calderon Hinojosa, a PAN candidate and former Fox administration energy minister; and Andres Manuel Lopez Obrador, a Party of the Democratic Revolution (Partido de la Revolucion Democratica [PRD]) candidate and former mayor of Mexico City. A strong ideological dichotomy was evident in the nationwide campaigns of these two candidates. Calderon pledged the continuation of reform programs by encouraging greater foreign investment and enhancing Mexicos competitiveness in the global market, and vowed to promote free trade and democratic reforms. Obrador, on the other hand, pledged to address deep-rooted poverty and social inequality, and to stall neoliberal reforms. He vowed to create substantial job opportunities through massive funding of public works, and to renegotiate the North American Free Trade Agreement (NAFTA) to protect the interests of Mexican farmers by preventing the import of US corn. In addition, Obrador resolved to dismantle the hostile commercial oligopolies that had emerged from the large-scale privatization of state-owned assets during the 1990s. Official figures released by the independent Federal Electoral Institute confirmed Calderons narrow victor y in the elections; however, Obradors allegations of election rigging and skepticism about the authenticity of the results led to widespread demonstrations by his supporters. By mid-2006, Mexico had accomplished reasonable progress in terms of stabilizing the economy and alleviating poverty. Nevertheless, disparities remain stark in terms of the distribution of wealth, there are high levels of crime and corruption, and the less developed states in the south continue to trail behind the prosperous northern regions, fueling illegal immigration to the US. President Calderons campaign against drug cartels, involving around 45,000 Mexican troops, has led to more than 30,000 deaths since 2006, which in turn has led to a rise in organized crime across the country. Hundreds of thousands joined marches throughout Mexico to protest against a continuing wave of killings and kidnappings. The Mexican army, along with US troops, managed to neutralize the drug traffickers in the Ciudad Juarez region (along the USMexico border). The constant squabbling between the ruling PAN and the opposition PRD parties led to the PRI gaining substantially in the mid-term congressional elections in July 2009, when the PRI won 48% of the seats in the Chamber of Deputies.

Political Landscape
Figure 2:
Mexico political events timeline
Source: Datamonitor
DAT AM ONIT OR
Structure and policies

Key political figures
President Felipe de Jesus Calderon Hinojosa Leader of the opposition Humberto Moreira Valdes.

Political Landscape
Figure 3:
Mexico key political figures
Felipe Calderon has been the President of Mexico since December 2006. A
postgraduate in law, economics and public administration, he is the son of the f ounder of the National Action Party (PAN). He served the party in various capacities until 1995, when he became the partys candidate f rom Michoacn State. He was PAN president during 199699. He was f ederal deputy in the 55th and 58th parliaments. Healthcare, inf rastructure, and the f ight against climate
change have been given top priority under his presidency. Humberto Moreira Valdes is the leader of the opposition. He assumed office as
president of the Institutional Revolutionary Party (PRI) in March 2011. He began his career as a prof essor in 1985 and worked at the Secretariat of Public Education in 1988. From 1999 to 2002 he was Secretary of Public Education of the State of Coahuila. Between 2003 and 2005 he was Mayor of Saltillo. In 2005, he was elected Governor of Coahuila f or 200511. In January 2011 he was elected
president of the PRI until 2015.
Source: Datamonitor
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Structure of government
Mexico is a federal republic consisting of 31 states and a federal district. Mexicos political system has traditionally concentrated power in the executive branch, so that the president who is the head of both the state and the government exercises substantial executive authority. In addition, he functions as the chief of the armed forces. Presidents are directly elected by a simple majority of registered voters in the 31 states and the federal district. Presidents serve a term of six years and cannot be re-elected. Unlike many other countries, the Mexican constitution does not account for a separate position of vice president. In the case of an abrupt vacancy during the first two years of the presidential term, congress designates an interim president, who in turn must call a special presidential election to complete the term of the deceased or deposed president. If the vacancy occurs during the latter four years, congress designates a provisional president, who then completes the remaining period of the presidential term. The president bears the sole authority to dismiss and appoint all cabinet secretaries except the attorney general, whom he cannot fire without the consent of the senate. Legislative powers are entrusted with the bicameral congress. The 128-seat senate is the upper house and the 500-seat Chamber of Deputies is the lower house. All congress members are barred from re-election, but are permitted to serve nonconsecutive terms. The constitution bestows upon congress the authority to pass laws, impose taxes, declare a state of emergency or war, endorse the national budget, approve or reject treaties with foreign entities, and sanction diplomatic appointments. The senate addresses issues concerning foreign policy, endorses international agreements, and confirms presidential appointments, while the Chamber of Deputies supervises all issues pertaining to the governments budget and expenditure. In addition, each legislative chamber has a number of committees that study and make necessary recommendations on bills. In case of a dispute within the chambers over a piece of legislation, a joint committee is appointed to draft a revised version.

Political Landscape
Upper house and lower house

Out of the 128 senators in the upper house, 64 are elected on a first-past-the post basis, 32 are elected on the first minority principle, and the remaining 32 are elected by proportional representation. In the lower house or the Chamber of Deputies, 300 deputies are elected on a first-past-the-post basis to represent single member districts, and the remaining 200 deputies are elected through a modified form of proportional representation, representing five electoral regions. The senators are elected to serve six-year terms and deputies to serve three-year terms.
State and provincial structures

Each of Mexicos 31 states has its own constitution modeled according to the national charter, and has the right to legislate and impose taxes other than interstate custom duties. Similar to the federal organization at the national lev el, the state and local governments also have executive, legislative, and judicial branches. The state executive branch is headed by a governor, who is popularly elected for a six-year term and cannot be re-elected. The state legislatures are unicameral, each having a single chamber of deputies that meets for two ordinary sessions a year, which may be extended when needed. They serve for three years, and cannot stay in power for two consecutive terms. Legislative bills are introduced by the deputies, the state governor, the state superior court of justice, or by a municipality within a given state. Judges of the superior courts of justice are appointed by governors with the approval of the state legislatures. The superior court magistrates, in turn, appoint all lower state court judges.
Key political parties

The PRI was the countrys ruling party from 1929 until the early 1990s. Traditionally, the PRI has ideologically been a center-left party, representing the working class of Mexico and blending nationalism with a redistributionist public policy. However, during the mid-1980s the technocratic members of the party gained prominence over the populist members, and encouraged the adoption of market-oriented reforms. Until the early 1980s, the PRI had a dominant position in the Mexican political system, with the opposition parties posing little threat to its authority. The trend changed considerably during the mid-1980s, however, when parties on the left and right began to pose a greater threat to PRI candidates. On the right, the PAN defeated the PRI by attaining the presidency in 2000, ending seven decades of PRI control over the legislative branch. However, in the July 2009 mid-congressional elections to the Chamber of Deputies, the PRI won a majority of 48% of seats (237 out of a total of 500). As of 2010, the party had 240 seats in the lower house and 33 seats in the upper house. The PAN ended the PRIs rule of over seven decades in the 2000 elections. Its powers are concentrated within the wealthier states of North and Central Mexico. The PAN derived its early support from the Roman Catholic Church, the business community, and other sectors estranged by the left-wing populist policies charted by previous PRI governments. The party won 143 seats in the July 2009 Chamber of Deputies elections. As of 2010, the party had 141 seats in the lower house and 50 seats in the upper house. The PRD favors social welfare policies, and disapproves of most reform policies initiated during the mid-1980s. Although the party follows the socialist policies of previous communist and left-wing governments, it is controlled by former PRI leaders. The party won 72 seats in the July 2009 Chamber of Deputies elections. As of 2010, the party had 68 seats in the lower house and 25 seats in the upper house.

Political Landscape
There are also several other small political parties in Mexico, such as the Labor Party, the Ecologist Green Party of Mexico (Partido Verde Ecologist de Mexico [PVEM]), the New Alliance Party, Convergence, the Social Democratic Party, and the Rural Alternative Party.
Composition of the parliament

Currently, the PRI is the largest party, with 44% of the seats in parliament, combining the partys standing in both the Senate and the Chamber of Deputies. It is followed by the PAN with 30% of seats, the PRD with 15%, the PVEM with 4%, Convergence with 2%, and others with 5%.
Figure 4:
Composition of the Mexican Parliament, 2010
Ecologist Green Convergence 2% Party of Mexico (PVEM) 4%
Others 5% National Action Party (PAN) 30%
Institutional Revolutionary Party (PRI) 44%
Party of the Democratic Revolution (PRD) 15%
Source: Datamonitor
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Key policies
Mexicos policies are mostly liberal. It is open to foreign investment and encourages the entry of foreign direct investment (FDI) into most economic sectors, and has consistently been one of the largest recipients of FDI among the emerging economies. Nevertheless, burgeoning crime rates, along with a failure to address investor safety issues and pass muchneeded fiscal, labor, and energy sector reforms are impeding the country's economy. In April 2010 President Calderon declared that the government is set to undertake reforms during 201011 that would help boost its competitiveness and growth. Any reforms should be focused on boosting infrastructure in every sphere of the economy.

Political Landscape
Economic
After the implementation of the NAFTA in 1994, Mexicos trade with the US and Canada has almost tripled. The country has 12 free trade agreements in place with over 40 countries and other parties, including Guatemala, Honduras, El Salvador, the European Free Trade Area, and Japan. More than 90% of Mexicos trade comes under free trade agreements, and such deals have substantially liberalized the countrys trade regime. Moreover, during its first year in office the Felipe Calderon administration was able to muster support from the opposition to successfully pass pension and fiscal reforms in 2007. Agustin Carstens, the finance minister, announced a stimulus package worth MXN17.4bn ($1.3bn) in May 2009 to cushion the impact of swine flu, which had hit the country. Furthermore, the state bank offered an additional MXN10bn ($741m) in credits, bringing the total value of the package to MXN27.4bn ($2bn). In April 2010, the government announced an additional package of $630m to boost economic recovery, and also proposed a bill to reform public-private investment to boost Mexico's economic competence. Following the effects of the economic crisis, the Mexican economy rebounded with growth of 5.5% in 2010, driven by external demand. The higher pricing of domestic goods and services and the increase in tax rates as part of the 2010 budget law increased inflation to 4.2% in 2010. The Mexican currency appreciated in the second half of the year, reaching its highest exchange rate since October 2008. The governments economic reforms and investment of MXN630m ($49.8m) in infrastructure in 2010 are expected to further economic growth. The government has set a medium-term annual economic growth target of 4.2% for 201216, and is building its international reserves to act as a buffer against future financial turmoil. The government plans to continue fiscal consolidation in the public sector in order to reach a fiscal deficit of 2.5% of GDP in 2011.
Social
Social indicators in Mexico continue to be poor. Wealth distribution is highly uneven, with around 18% of the countrys population suffering from extreme poverty. People living in the northern areas have a higher standard of living than those in the predominantly rural south. Since the late 1990s, Mexicos social policies have been inclined towards alleviating poverty, especially within the neglected southern regions of the country. The government has been largely successful in lowering the poverty rate below the Latin American average; despite this, close to half of Mexicos total population is still at a basic subsistence level. The majority of workers in Southern Mexico are employed in the informal sector, and do not have access to the same level of healthcare or retirement benefits as their counterparts in the formal sector. Almost half of the countrys total workforce is registered with the Mexico Social Security Institute, which has initiated policies to spread high quality health services in underdeveloped regions and universal elementary education to all individuals aged 15 and under. In March 2010 the World Bank granted a loan of $1.25bn for establishing the Social Protection System in Health Project. The loan will help provide technical assistance aimed at strengthening the capacity of the commission and state health systems, in order to effectively administer the entitlements of the country's Popular Health Insurance program. The government is also working on improving its healthcare and welfare services for the aged. In 2010, the number of people aged above 65 years was 7.2 million, comprising more than 6% of the population, while the number of people aged above 80 years was 1.5 million, comprising around 1.3% of the population. In November 2010, the government sought the help of the World Bank to tackle poverty in the country by increasing financing for the Oportunidades Program, which will help over 5 million low income families, or a total of 25 million

Political Landscape
individuals. The country has also received $366.7m for its Program of Quality Schools (Programa Escuelas de Calidad) to undertake school improvement plans, program monitoring, supervision, and evaluation. The government plans to spend more than $750m to support its upper secondary education reform program, and will also look to strengthen competition in crucial markets, particularly telecommunications and public procurement.
Foreign
Mexico's foreign policy centers on defending and championing the principles of non-intervention and self-determination. It supports these principles in the belief that by doing so, it strengthens its sovereignty. The Mexican government defends the rights and interests of Mexicans living abroad. The main objectives of Mexican foreign policy are: to protect and fortify Mexicos sovereignty and independence to broadly deepen Mexicos political, economic, cultural, and co-operative relationships with all regions to take advantage of globalization in order to provide a boost to the countrys development. The country has been a signatory of the NAFTA since 1994, and maintains strong relations with Canada and the US; however, Mexico's points of conflict with the latter include illegal migration, border security, and trade issues. The US provides support (including military support) to help curb drug-related issues on the USMexico border. In December 2010, Mexicos fourth term as a non-permanent member of the United Nations Security Council ended. Mexico was elected in October 2008 by the United Nations General Assembly as one of two non-permanent council members from Latin America for 200910. In December 2010, during the United Nations Framework Convention on Climate Changes Conference of the Parties (COP)-16 meeting in Cancun, Mexico was praised for its deft handling of climate change negotiations. Mexican Minister of Foreign Affairs, Patricia Espinosa, who presided over the meeting, handled the objections of Bolivia and some other Latin American countries, ruling at the crucial moment that the suppor t of 193 other countries meant that "consensus" had been reached on the Cancun Agreements. In 2010, the country strengthened its ties with the Asian, African, and Middle East regions. The country placed greater emphasis on its relations with Japan, China, South Korea, India, Australia, and New Zealand, as well as the Association of Southeast Asian Nations. The country signed bilateral agreements and declarations with Japan, South Korea, China, Australia, Indonesia, New Zealand, South Africa, Algeria, Uganda, Bahrain, Egypt, Kuwait, and Lebanon. It also strengthened its ties with India, Vietnam, Singapore, Malaysia, Ethiopia, Kenya, Rwanda, Saudi Arabia, the United Arab Emirates, and Qatar. In 2011 and 2012, Mexico plans to strengthen its relations in Asia Pacific, Africa, and the Middle East through the Asia Pacific Economic Co-operation, the African Union, the Economic Community of West African States, and the League of Arab States. In February 2011, Mexico pulled out of planned cultural events in France due to the diplomatic row between the two countries involving the arrest and conviction of Frenchwoman Florence Cassez, who was sentenced for 60 years for kidnapping. Mexico alleged that the French presidents plan to use the Year of Mexico Festival to discuss Cassez was a serious breach of the Mexico-France Joint Statement signed in September 2010. Earlier in 2009, Mexico turned down

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President Nicolas Sarkozys request, made under the Strasbourg Convention, to allow Cassez to serve her jail term in France. The incident has soured relations between the two countries.
Performance
Governance indicators
The World Bank report on levels of governance uses factors such as voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law, and control of corruption as indicators for 213 countries and territories over 19982009. The study was conducted by Daniel Kaufmann of Brookings Institution, Massimo Mastruzzi of the World Bank Institute, and Aart Kraay of the World Bank Development Economics Research Group. For any country, a percentile rank of zero corresponds to the lowest possible score, and a percentile rank of 100 corresponds to the highest possible score. Mexico was ranked in the 53.6 percentile on the voice and accountability indicator in 2009. This indicator measures the extent to which a country's citizens are able to participate in selecting their government, and looks at how well citizens' rights to freedom of expression and freedom of association are protected, along with freedom of the media. Mexico was ranked in the 22.2 percentile in 2009 on political stability and absence of violence. The political stability and absence of violence indicator measures perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including domestic violence and terrorism. The high incidence of drug-related violence is one of the reasons for the country's low score in this indicator. Mexico was ranked in the 60.5 percentile in terms of the government effectiveness indicator in 2009. This indicator measures the quality of public and civil services, the degree of governmental independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies. Sustained efforts by consecutive governments to implement necessary economic and social reform policies resulted in Mexico faring well on this indicator. Mexico was ranked in the 61.0 percentile on regulatory quality in 2009. Regulatory quality measures the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development. The country's ranking in this indicator reflects the expedited implementation of policies and regulations for the private sector. Mexico was ranked in the 34.0 percentile on the rule of law indicator in 2009. This indicator measures the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, the police, and the courts, as well as the likelihood of crime and violence. Mexico was ranked in the 49.0 percentile on control of corruption in 2009. Control of corruption measures the extent to which public power is exercised for private gain, including both petty and grand forms of corruption. Corruption is perceived to be quite significant in the country. Mexico was ranked 98th out of 178 countries in Transparency Internationals 2010 Corruption Perceptions Index. Corruption has been pervasive for many years, but President Calderon is committed to continuing the fight against it at all levels of government: federal, state, and municipal.

Political Landscape
Outlook
President Calderon has been fairly successful in terms of gaining support in congress from the PRI, which has helped the government pass major reforms that were blocked when Calderons predecessor, Vincente Fox, was in charge. The Calderon administration successfully secured the passage of pension reforms and major fiscal reforms within one year of coming to office. Moreover, the energy reform bill was passed in late 2008. The mid-term elections in July 2009 proved successful for the PRI, which emerged with 48.2% of the vote, compared to the PAN's 29.4%. In early 2010, the government announced that it would prioritize economic recovery as one of its key goals for the year. Subsequently, the government announced a package of $630m as a part of stimulus intended to boost economic conditions in the country. The government is also focused on infrastructural development. President Calderon has achieved key judicial, fiscal, pension, and electoral reforms, and plans to introduce reforms in the energy sector. His crackdown on drug cartels and drug-related violence has positively affected his ratings, although he faces security threats from drug cartels. This has led to public opinion pointing to the return of the PRI to power in the 2012 presidential elections. Although allegations of corruption and abuse of power are rife against the party, the Mexican people would like to see an end to the seemingly never-ending violence, and the PRI is known to make deals with the most powerful drug cartels to avoid such bloodshed. The governments economic reforms and investment of MXN630m ($49.8m) in infrastructure in 2010 are expected to further economic growth. The government has set a medium-term annual economic growth target of 4.2% for 201216, is building its international reserves to act as a buffer against future financial turmoil, and plans to continue fiscal consolidation in the public sector to reach a fiscal deficit of 2.5% of GDP in 2011. The government plans to spend more than $750m to support its upper secondary education reform program, and will also look to strengthen competition in crucial markets, particularly telecommunications and public procurement. In 2011 and 2012, Mexico plans to strengthen its relations in Asia Pacific, Africa, and the Middle East through the Asia Pacific Economic Co-operation, the African Union, the Economic Community of West African States, and the League of Arab States.

Economic Landscape
ECONOMIC LANDSCAPE Summary

The Mexican economy contracted by 6% due to recession in 2009. However, the economy bounced back with growth of 5.5% in 2010, driven by strong external demand. The Mexican economy is closely integrated with that of the US. As part of its efforts to improve external trade with non-US countries, Mexico signed bilateral agreements and initiated discussions with several countries including Brazil, Japan, South Korea, China, India, Australia, Indonesia, South Africa, and the United Arab Emirates. The country has considerably liberalized its trade and investment policies, and foreign investments are encouraged in almost all economic sectors. Tariff and non-tariff barriers have largely been eliminated, and import duties have been slashed considerably. Furthermore, the government is making every possible attempt to stabilize the peso in the international market, and to minimize its dependence on the informal sector.
Evolution
19602000
Between the early 1960s and late 1970s, successive governments in Mexico placed particular emphasis on industrialization and import substitution, and followed prudent fiscal and monetary policies to promote growth while at the same time restraining inflation. During the 1970s, government subsidies and unsustainable expenditure in the public sector led to high inflation and wild fluctuations in economic performance, a situation that worsened due to the countrys overreliance on oil export revenues and massive international debt. The mid-to-late 1980s were characterized by periods of economic difficulties and stagnant growth. Monetary policies were severely restricted, and public spending was sharply curtailed during this period. Gross domestic product (GDP) grew at an average rate of just 0.1% per year between 1983 and 1988. In the late 1980s and the early 1990s, far-reaching market-oriented structural reforms were undertaken, such as the privatization of several state-owned entities, liberalization of foreign investment laws, deregulation of the financial services sector, and cross-border mitigation of tariff and non-tariff trade barriers. These reforms culminated with the signing of North American Free Trade Agreement (NAFTA) in 1994, which was followed by an influx of $148bn in foreign direct investment (FDI) over the next decade. From 1988 to 1994, GDP growth averaged 2.6%, largely sustained by exports and the massive increase in foreign investments in the country. Nonetheless, the abrupt fall of the peso in the international market in December 1994 compelled the government to grant greater autonomy to the central bank. Economic growth rebounded in the late 1990s, but recovery was threatened by the spillover effects of the 2001 US recession.
200110
The Mexican economy entered recession in 2001 following the September 11 terrorist attacks. Tourism is now the fourth largest source of foreign exchange in Mexico. The resorts of the Yucatan peninsula on the Caribbean coast have shown immense growth, and the Pacific coast has also increased in popularity as a major tourist destination. Mexico registered an average growth rate of around 3% during 200308. The country's GDP growth dropped from 3.4% in 2007 to 1.5% in 2008 due to declining external demand. Subsequently, the economy contracted by 6% in 2009. However, the Mexican economy

Economic Landscape
rebounded with growth of 5.5% in 2010, largely driven by external demand. According to Datamonitor forecasts, the economy will grow by 4.7% in 2011.
Figure 5:
Historical GDP growth in Mexico, 19912010
8.0 6.0 4.0
Growth rate (%)
2.0 0.0 1991 -2.0 -4.0 -6.0 -8.0 Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Datamonitor
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Financial system Overview
Banking and finance is the most advanced component of the services sector, attracting around 25% of the country's total foreign investment. Mexico has a central bank and six types of public institutions: public development banks, public credit institutions, private commercial banks, private investment banks, savings and loan associations, and mortgage banks. Other components of the financial sector include securities market institutions, insurance companies, credit unions, factoring companies, mutual funds, and bonded warehouses. Mexico City is the countrys financial hub, although both Guadalajara and Monterrey are important financial and commercial centers.

Economic Landscape
Financial authorities/regulators
Banco de Mexico, the country's central bank, is an autonomous institution in terms of its operations and management. Its main function is to manage the currency of the domestic economy. In performing this function, the bank prioritizes protection of the currencys purchasing power and stability. Its other key functions include promoting and developing the financial system and ensuring the optimal functioning of the payment system. The bank is governed by a board of six members, comprising a chairperson or governor and five other directors. The governor serves a six-year term, while sub-directors serve eight-year terms. The president appoints all members of the central bank, and their removal is subject to its law. Immediately after assuming executive control in 1982, President Miguel de la Madrid authorized the establishment of private brokerage houses to accomplish financial transactions in the domestic capital market. This resulted in the formation of the first significant stock market in Mexico, the Bolsa Mexicana de Valores (BMV). By the early 1990s, the BMV had become one of the worlds fastest growing stock markets. During 1991, its index of traded stocks rose impressively, at 128% in new peso terms and 118% in US dollar terms. The buoyancy in the stock market was the outcome of an increase in confidence in prospective economic investors, anticipation of lower interest rates, and approval of the NAFTA. The BMV is a public company, and trades debt instruments, stocks, and debentures, among other instruments. It is Latin America's second largest exchange, after Brazils Bovespa; however, the BMV remains reasonably small when compared to its North American counterparts such as the New York Stock Exchange. The market capitalization of the BMV in December 2010 was $749bn.
Banking sector
The history of the banking sector in Mexico includes a period comprising nationalization in 1982, privatization in 1992, and the near-complete failure of privatization in 1995. Problems with regards to Mexicos legal framework persisted despite privatization and risky lending practices leading to a crisis in 1995, forcing the Mexican government to implement a huge restructuring program to prevent the collapse of the banking sector. Since 1997, the government has implement ed strong reforms, such as upgrading the accounting standards of banks, eliminating all entry barriers to foreign banks, making changes to business and bankruptcy laws, improving credit rating technologies, and promoting the securitization of mortgage loans. By the end of 2006, the majority of Mexican banks were owned by foreign institutions, with subsidiaries of foreign banks comprising more than 80% of total assets in the banking system. Despite some constructive developments in Mexicos banking sector, the country is susceptible to difficulties, mainly due to its legal framework. For instance, property rights are still not defined clearly in many cases, and continue to be poorly enforced. The top five banks in Mexico are BBVA Bancomer, Banco Nacional de Mxico (Banamex), HSBC Mxico, Banco Azteca, and Banco Mercantil del Norte. Most of the Mexican banks are highly profitable and well-capitalized, since lending is primarily financed through deposits, while investments in securities make up a very small share of total assets. Low credit penetration and a low loan-to-deposit ratio provide huge opportunities for credit expansion among these banks. The banking system is mostly dominated by US, UK, and Spanish banks. The subsidiaries of these banks, although wellestablished, are likely to face the strain of the ongoing financial crisis, which might hamper their further expansion.

Economic Landscape
Insurance
Mexico is the largest insurance market in Latin America, after Brazil. The country's insurance industry has grown at a rate faster than gross national product for the last seven years, largely due to the growth of the life insurance segment. Apart from life insurance, the car, health, and retirement segments have been the fastest growing sectors. Major insurance companies operating in Mexico include ACE, AIG, Allianz, Chubb, and Colonial. With a compound annual growth rate (CAGR) of around 14%, the Mexican insurance market had total gross premiums of $17.3bn in 2009.
Key policies
There is a conscious effort underway to increase Mexicos integration with the world economy, particularly with the emerging economies of Asia, Eastern Europe, and the country's neighbors. Some of the significant measures taken in this regard are as follows: Improving trade The present government is open to trade and economic relations. As an active member of the World Trade Organization (WTO), Mexico has terminated all trade tariffs, significantly mitigated export taxes and direct export subsidies, and expanded fiscal incentives for exports. Aside from this, the government has introduced many incentive programs to encourage import and export sales. Mexico considered a regional free trade agreement for goods and services with Nicaragua and Costa Rica in 2010. As part of its efforts to improve external trade, with especially non-US countries, Mexico signed bilateral agreements and initiated discussions with Brazil, Japan, South Korea, China, India, Vietnam, Singapore, Malaysia, Australia, Indonesia, New Zealand, South Africa, Algeria, Ethiopia, Kenya, Rwanda, Saudi Arabia, UAE, Qatar, Uganda, Bahrain, Egypt, Kuwait and Lebanon. Increased investments The government is committed to increasing investment and job opportunities in the country, and in recent times has endeavored to make the investment process easier. Mexico has consistently been one of the largest recipients of foreign investments among the emerging markets in Latin America and East Europe. Liberalization in the small-scale sector The government has made substantial attempts to encourage the expansion of small scale industry in the poor regions of the country. Infrastructure investments In 2007, President Calderon launched the National Infrastructure Plan with a $270bn budget for 200712. Infrastructure investment was 3% of GDP during 200106. In 2009, the Mexican legislature approved infrastructure investment equal to 4.9% of GDP. It is expected that during 201115, investment in infrastructure will total $70bn, growing at an annual rate of 8%. The present government proposes the development of public infrastructure through large-scale private sector participation; however, it opposes the occurrence of any damage to the environment in a bid to expand facilities. Some of the program's most ambitious targets include modernizing or constructing almost 20,000km of highways and rural roads; improving the government's highway and road maintenance efforts; increasing the percentage of roads considered to be on a par with international standards from 72% to 90%; expanding railway lines by almost 1,500km; developing suburban railway projects, especially near Mexico City; and expanding the Pacific and Caribbean ports. Internet use in Mexico is growing rapidly with 31 million users in 2009. In 2010, it went up to 35 million and is expected to reach 43 million by 2012.

Economic Landscape
Foreign trade zones (FTZs) In addition to the programs operating as quasi-FTZs, the government has allowed more traditional FTZs to be set up. The new FTZ scheme allows for the manufacturing, repair, distribution, and sale of merchandise. The government has exempted companies operating within these zones from any export requirements, in order to increase their tax benefits. Most major ports in Mexico have bonded areas or custom areas within them. There are currently two approved FTZs, both of which are located in San Louis Potosi.
Performance
GDP and growth rate Overview
Mexicos economy is closely integrated with that of the US, which makes it highly vulnerable. Moreover, the countrys exports to the US contribute 29% of its GDP, which makes its economy even more dependent on the US economy. Mexico registered a CAGR of around 3% during 200308. The GDP growth of the country came down from 3.4% in 2007 to 1.5% in 2008, due to declining external demand; subsequently, the economy contracted by 6% in 2009. However, the Mexican economy rebounded with growth of 5.5% in 2010, driven by government stimulus packages and measures introduced late in 2009, and also by external demand. According to Datamonitor forecasts, the economy will grow by 4.7% in 2011.

Economic Landscape
Figure 6:
GDP and GDP growth rate in Mexico, 200414
1000 900 800
8.0 6.0 4.0
700
Growth rate (%)
$ billion
600 500 400 300
2.0 0.0 -2.0 -4.0
200 100 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Year
GDP Real GDP growth rate
-6.0 -8.0
Source: Datamonitor
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GDP composition by sector

In 2010, services accounted for 64.2% of the country's GDP, with industry accounting for 32.2% and agriculture accounting for the remaining 3.6%.

Economic Landscape
Figure 7:
Sectoral composition of GDP in Mexico, 2010
Agriculture, 3.6%
Industry, 32.2%
Services, 64.2%
Source: Datamonitor
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Agriculture
Agriculture in Mexico accounted for 3.6% of GDP, and employed around 13% of the active population in 2010. The countrys main agricultural exports were tomatoes, peppers, avocados, and fresh vegetables; total agricultural exports amounted to $8.6bn in 2010. Agricultural output improved considerably compared to the previous year, with growth increasing from a low of 2.2% in 2009 to 13.2% in 2010.

Economic Landscape
Figure 8:
Agricultural output of Mexico, 200510
450 400 350 300
14.0 12.0 10.0 8.0 6.0 4.0 2.0

0.0
Growth rate (%)
MXN bn
250 200 150

100
50 0 2005 2006 2007 Year

Agriculture output Growth rate
-2.0 -4.0 2008 2009 2010
Source: Datamonitor
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Industry
Mexicos FTZs are the main drivers of the countrys industry, and are dedicated to exporting to the US. However, they are suffering through an economic crisis of sorts, due to competition from Asian countries that can offer low labor costs. The economic recession in the US has also had a negative impact. As a result, manufacturing sector activity has slowed down dramatically in recent years. Industry in Mexico accounted for 32.2% of GDP and employed around 24% of the active population in 2010. Mexico is one of the world's leading producers of many minerals, including silver, fluorite, zinc, and mercury, and is the fifth largest oil producer in the world. The country's industrial output recovered from a contraction of 10.5% in 2009 to growth of over 7% in 2010.

Economic Landscape
Figure 9:
Industrial output of Mexico, 200510
4500 4000 3500
20.0
15.0
10.0 3000
Growth rate (%)
MXN bn
2500 2000 1500
5.0
0.0
-5.0
1000
500 0 2005 2006 2007 Year

Industry output Growth rate
-10.0
-15.0 2008 2009 2010
Source: Datamonitor
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Services
Services make up the largest segment of the Mexican economy, constituting 64.2% of GDP as of 2010. The sector employed around 63% of the countrys workforce in 2010. In recent years, major transnational retailers have expanded their base in the country. Travel and tourism is a major subsector of services, and constitutes 15% of GDP. The growth of services output rose from 1.6% in 2009 to 12.7% in 2010.

Economic Landscape
Figure 10:
Services output of Mexico, 200510
8000 7000 6000 5000
14.0
12.0
10.0
Growth rate (%)
MXN bn
8.0 4000 6.0 3000 2000 1000 0 2005 2006 2007 Year
Services output Growth rate
4.0
2.0
0.0 2008 2009 2010
Source: Datamonitor
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Fiscal situation Overview

The government posted a budget deficit of $27.5bn in 2009, equivalent to 3.4% of GDP. The government's 2010 budget was around MXN3.2tn ($262bn), while the budget deficit was MXN373.5bn ($29.5bn), or around 2.8% of GDP, largely due to investment in state oil monopoly Petroleos Mexicanos; without that investment, the deficit was estimated at 0.7% of GDP.
Current account
Mexico's current account deficit decreased from $16.2bn in 2008 to $5.7bn in 2009, constituting around 0.7% of GDP. The current account deficit further declined to $5.6bn in 2010, or around 0.6% of GDP. The recovery in economic activity sustained by growth in exports, domestic consumption, and foreign direct investment led to this decline.

Economic Landscape
Figure 11:
Mexico's current account balance, 200510
0 2005 -2 -4 -6 2006 2007 2008 2009 2010
1.8 1.6 1.4 1.2

Percentage
$ billion
-8
-10
1.0
0.8
-12 -14 -16 -18 Year

Current account balance Current account balance as % of GDP
0.6 0.4 0.2 0.0
Source: Datamonitor
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Exports and imports

Since the late 1990s, the overall merchandise trade balance has been slightly negative, largely due to the growing trade deficit with the European Union and Asia (primarily China). Mexico is an active member of the WTO and has eliminated export permits. It has also substantially reduced export taxes and direct export subsidies. During 2010, Mexicos total imports were valued at around $338.4bn, against exports of $290.6bn. Mexicos trade deficit with the rest of the world is largely offset by its trade surplus with the US, which has been increasing steadily since the early 1990s, and was initially triggered by the boom in demand for manufacturing exports and then by the rise in international oil prices. Despite increasing competition from China and India, many foreign manufacturing units prefer Mexico to other emerging economies for its assembling plants and other business operations. According to Bank of Mexico estimates, in 2010 the US accounted for 80% of Mexicos exports. Other major export destinations were Canada (3.6%), China (1.4%), Brazil, Colombia and Spain (1.3% each), and Germany (1.2%). With 48% of total imports, the US was Mexicos principal source

Economic Landscape
market in 2010; also important were China (15.1%), Japan (5.1%), South Korea (4.2%), Germany (3.7%), Canada (2.8%), and Brazil, Spain, France, Italy, Malaysia, and Taiwan, which together accounted for 8.4%.
Figure 12:
Mexicos external trade, 200610
800.0 700.0 600.0 500.0 588.5 548.6 365.9 330.4 283.9 300.0 200.0 100.0 0.0 2006 2007 2008 Year
Exports Imports Total trade
696.3 643.3 629.0
$ billion
400.0
304.6
334.5 308.8
284.6 264.0
338.4 290.6
2009
2010
Source: Datamonitor
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External debt
Mexicos total external debt decreased from around $205bn in 2008 to around $196bn in 2009, but as a percentage of GDP it went up from around 21% in 2008 to around 24% in 2009. Furthermore, in 2010 it rose again, climbing to around $247bn, and as a percentage of GDP it stood at 26%.
International investment position Foreign direct and portfolio investments

The Mexican government has made the majority of its industrial sectors open to foreign investment, and has consistently been one of the largest recipients of FDI among the world's major emerging economies. However, the governments failure

Economic Landscape
to address serious crime and corruption issues, or to implement much-needed fiscal, energy, and labor reforms, is reducing the countrys attractiveness as a foreign investment destination. According to recent reports by the World Economic Forum and Transparency International, burgeoning corruption is a major factor driving the countrys perceived decline. Foreign investments in Mexico have largely been concentrated in the northern regions bordering the US where most of the country's heavy industries are located and the federal district of Mexico City. The automotive, financial, and electronics sectors have received the largest inflows of FDI, with the US traditionally the largest source. FDI decreased from $24.3bn in 2008 to $14bn in 2009; however, the situation improved in 2010, with FDI increasing to $18.7bn.
Figure 13:
FDI trends in Mexico, 200510
60
55.8
50
42.1
40
37.1 30.1 22.3 28.7 13.4 24.3 20.1 20.2 15.3 14 7.8 0.1 4.8 18.7
29.1
$ billion
30
29.3
20
10
0 2005 2006 2007 Year

FDI Portf olio investment Total f oreign investments
2008
2009
2010
Note: FDI inflows only, including equity inflows.
Source: Datamonitor
DAT AM ONIT OR
Foreign exchange position

According to the central bank, the country has accumulated more than adequate foreign exchange reserves. The large financial inflows the country receives from prospective foreign investors easily compensate for current account deficits. At the end of December 2009 and 2010, the countrys international reserves stood at around $91bn and $114bn respectively. As of June 2011, international reserves stood at around $130bn.

Economic Landscape
Credit rating
In December 2010 Standard and Poor's affirmed a local currency rating of A/Stable/A-1 and a foreign currency rating of BBB/Stable/A-3 for Mexico. The government's broad-based commitment to stable macroeconomic policies, the country's absence of economic imbalances, its moderate fiscal and external debt burdens, its limited fiscal flexibility, and its modest growth prospects were all cited as reasons for the affirmation of the ratings.
Monetary situation Overview

Banco de Mexico is the countrys central bank and its apex financial institution. It is autonomous in terms of management and operations, and its primary function is to manage the currency of the domestic economy, seeking to ensure the longterm stability and purchasing power of the peso. Moreover, it promotes the healthy development of the financial system by ensuring the smooth operation of the payment system.
Key monetary indicators Inflation

Inflation has mostly followed a downward trend since the late 1980s, when it exceeded 150%. This accomplishment was largely attributable to the commitment of successive governments and the autonomy of the central bank with regards to the formulation and implementation of prudent fiscal and monetary policies. Consumer price index (CPI) inflation rates as recorded by the central bank have been largely steady since 2005. The figure was around 4% in 2005, 3.6% in 2006, and 4% in 2007. Inflation went up to 5.1% and 5.3% in 2008 and 2009 respectively, before dropping to around 4.2% in 2010, mostly due to increased domestic demand.

Economic Landscape
Figure 14:
CPI and CPI-based inflation in Mexico, 200414
200.0 180.0 160.0
6.0
5.0
Consumer price index
140.0 120.0 100.0 80.0 60.0

40.0
4.0
Inflation (%)
3.0
2.0
1.0
20.0 0.0 2004 2005 2006 2007 2008 2009 2010 2011 Year
Consumer price index Inf lation
0.0 2012 2013 2014
Source: Datamonitor
DAT AM ONIT OR
Money supply and interest rate

The Mexican central bank slashed its interbank lending rate from 5.25% to 4.75% in June 2009, and cut it to 4.5% in July 2009, its seventh rate cut of the year, all made in an attempt to revive the country's economic fortunes. As of July 2011 its rate stood at 4.5%. Mexicos money supply has been calculated based on the monetary aggregates M1, M2, M3, and M4. M1 is the currency in circulation, M2 is M1 plus the domestic financial assets of residents, M3 is M2 plus the domestic financial assets of non-residents, and M4 is M3 plus the deposits in branches and the agencies of domestic banks abroad. In May 2011, M1 was MXN1.73tn ($148.4bn), M2 was MXN7.35tn ($630.6bn), M3 was MXN8.29tn ($711.3bn), and M4 was MXN8.40tn ($720.7bn).
Insurance
The Mexican insurance market had total gross written premiums (GWP) of $17.3bn in 2009, representing a CAGR of 13.7% for 200509. In comparison, the US and Canadian markets recorded CAGRs of 0.7% and 4.5% respectively over the same period, reaching values of $1,139.7bn and $98.8bn in 2009.

Economic Landscape
The non-life insurance segment was the market's most lucrative in 2009, with total GWP of $9.7bn, equivalent to 55.7% of the market's overall value. The life insurance segment contributed GWP of $7.7bn, equating to 44.3% of the market's aggregate value. The performance of the market is forecast to decelerate, with an anticipated CAGR of 9% for 201014, which will drive the market to a value of $26.6bn by the end of 2014. Comparatively, the US and Canadian markets will record CAGRs of 5.4% and 4.7% respectively over the same period, reaching values of $1,481.2bn and $124.2bn in 2014.
Employment
There is a large amount of surplus labor in the informal sector, mainly comprising unskilled and semi-skilled workers. Strikes have occurred intermittently over the last few years, but serious labor-management skirmishes are settled via government intervention. Since the legitimization of the National Union of Workers in 1997, independent worker unions have played an important role in settling employee-employer disputes. In 2010, the services sector employed 63% of the total workforce. The industrial and the agricultural sectors followed with 24% and 13% respectively. However, the agriculture sector is the major source of employment in the rural states of Southern Mexico. In 2010, the Mexican economy had almost 46.4 million employed individuals, more than the 45.8 million recorded in 2009. However, the rate of unemployment has steadily increased, from 3.5% in 2006 to 5.5% in 2009, although it posted a marginal dip in 2010, declining to 5.4%.

Economic Landscape
Figure 15:
Number of unemployed individuals and the unemployment rate in Mexico, 200414
6.0
Number of unemployed (million)
2.5
5.0
Rate of unemployment (%)
4.0
1.5
3.0
2.0
0.5
1.0
0 2004 2005 2006 2007 2008 2009 Year

Total unemployment Rate of unemployment (%)
0.0 2010 2011 2012 2013 2014
Source: Datamonitor
DAT AM ONIT OR

Economic Landscape
Figure 16:
Number of employed people in Mexico, 200414
60
4.0
Number of employed (million)
50
3.0
Employment growth rate (%)
40 2.0 30 1.0 20 0.0
10
0 2004 2005 2006 2007 2008 2009 Year

Total employment Employment growth rate
-1.0 2010 2011 2012 2013 2014
Source: Datamonitor
DAT AM ONIT OR
Outlook
Mexico's economy is bouncing back from the global economic crisis, recording growth of 5.5% in 2010, largely driven by government stimulus packages and measures introduced towards the end of 2009, as well as external demand. According to Datamonitor forecasts, the economy will grow by 4.7% in 2011. Export-oriented manufacturing is leading the recovery, mainly due to an upturn in the US markets, which is the destination for more than 80% of Mexicos manufactured exports. Due to the absence of structural reforms, Mexicos medium-term outlook will continue to be reliant on external factors. However, President Calderon has announced that the government will continue with reforms to boost the countrys competitiveness and growth. The governments economic reforms and investment of MXN630m ($49.8m) in infrastructure in 2010 are expected to further economic growth. The government has set a medium-term annual economic growth target of 4.2% for 201216, and is also building its international reserves to act as a buffer against future financial turmoil. It plans to continue fiscal consolidation in the public sector in order to reach a fiscal deficit of 2.5% of GDP in 2011; however, its proposals to further liberalize the economy by opening up the energy sector to FDI, for example have failed to garner legislative support. This should be addressed at the earliest possible opportunity.

Social Landscape
SOCIAL LANDSCAPE Summary

Mexico has experienced a minor deceleration in population growth due to the falling fertility rate and increasing illegal migration to the US. Although the government has made serious attempts to alleviate poverty, nearly half of Mexicos population still resides within the UN-defined poverty bracket, and 15% are subject to extreme poverty, where basic needs are not fulfilled. Furthermore, the inhabitants of the rural southern regions do not have access to basic facilities such as health, sanitation, and education. Another feature of Mexican society is the existence of a large informal work sector; employees in this sector do not have access to social security measures and medical benefits. Health services are provided by both public and private entities. Around half of Mexicos population is uninsured, and more than half of the countrys annual health spending is out-of-pocket. There is a tenfold difference between the poorest parts of the country and the richest parts in terms of infant mortality, due to the unbalanced availability of healthcare. The workers in some sectors of the economy enjoy access to both public and private systems of coverage, while many others are uninsured and depend upon inefficient public clinics. Although private educational institutions are well-established in Mexico, public institutions and universities still play a dominant role. Universidad Nacional Autonoma de Mexico (UNAM) has campuses in prominent urban centers around the country, and caters to the needs of the majority of Mexican students. Many advanced research centers have strong links with UNAM. Nevertheless, education at an elementary level is still under threat due to the high rate of dropouts.
Evolution
In 1989, the then President Salinas de Gortari undertook principal initiatives in the area of social policy known as Mexicos National Solidarity Program (Programa Nacional de Solidaridad [PROSANOL]). He concentrated on developing areas including health, education, nutrition, housing, and employment in order to benefit Mexicans who lived in extreme poverty. The Zedillo administration (19942000) undertook methodical reform of social welfare provision, including the substitution of PROSANOL for a new federal poverty alleviation program, Progressa, and the decentralization of most of the welfare funds previously assigned to PROSANOL and other federal programs. After assuming office in 2000, President Fox continued with the policies of his predecessor. In 2002, he replaced Progressa with Oportunidades, expanding the reach of the original program considerably, and continuing the decentralization process. President Calderon has maintained social welfare programs, and has promised further social initiatives, such as universal health coverage. The government is also working on improving its healthcare and welfare services for the aged. In 2010, the number of people aged above 65 years was 7.2 million, comprising more than 6% of the population, while the number of people aged above 80 years was 1.5 million, comprising around 1.3% of the population. In November 2010, the country sought the help of the World Bank to tackle poverty in the country, by increasing financing for the Oportunidades Program, which will help over 5 million low-income families, or 25 million people. The country has received $366.7m for its Program of Quality Schools (Programa Escuelas de Calidad) to undertake school improvement plans, monitoring, supervision, and evaluation. The government plans to spend more than $750m to support its upper secondary education reform program, which will strengthen competition in crucial markets, particularly telecommunications and public procurement.

Social Landscape
Demographic composition Composition by age and gender
As of 2010, nearly 28.7% of the Mexican population was aged below 14 years, while just 6.4% are 65 years or older, meaning that approximately 64.9% of the population are aged between 15 and 64 years old. This means that Mexico has a large working population, with a low median age of around 26 years.
Table 9:
Mid-year population by age and gender in Mexico (millions), 2010
Age 04 59 1014 1519 2024 2529 3034 3539 4044 4549 5054 5559 6064 6569 7074 7579 80+
Female 5.2 5.2 5.3 5.3 5.1 4.7 4.5 4.3 3.8 3.3 2.8 2.1 1.7 1.3 1.0 0.7 0.9
Male 5.5 5.5 5.5 5.5 5.1 4.5 4.2 4.1 3.4 2.9 2.4 1.8 1.4 1.2 0.9 0.6 0.6
Source: Datamonitor
DAT AM ONIT OR
Females comprise 51.0% of the total population, and males account for 49.0%.
Urban-rural composition and migration

As of 2010, 22% of the Mexican population lived in rural areas, while the remaining 78% lived in urban settlements. Mexico experienced heavy urbanization during the latter half of the 20th century. In 1950, around 42.6% of the population lived in communities with 2,500 or more inhabitants; by 2005, the figure was 76.2%. The national population is heavily concentrated within Central Mexico along a roughly northwest-to-southeast axis from Guadalajara to Veracruz. This area encapsulates the densely populated districts of Jalisco, Guanajuato, Michuacan, Hidalgo, Mexico City, Distrito Federal,

Social Landscape
Morelos, Puebla, and Veracruz-Llave, which together house more than half of the national population. The major urban population is found in the north, in the cities of Ciudad Juarez, Tijuana, and Monterrey, each of which have over 1 million residents. The largely Amerindian population of the south, confined to the states of Chiapas and Oaxaca, inhabit small and medium-sized towns and villages.
Religious composition
Roman Catholicism is the main religion, with 76.5% of the population identifying themselves as Roman Catholic in the 2000 census. Protestants (including Evangelicals) are the second largest religious group, accounting for almost 6.3% of the total population.

Social Landscape
Figure 17:
Religious composition in Mexico
Unspecified 13.8% Others 0.3% Protestants 6.3%
None 3.1%
Roman Catholics 76.5%
Source: Datamonitor
DAT AM ONIT OR
Education Overview
Over the past decade, Mexico has made several advances in literacy and public education. In 2001, the adult literacy rate stood at 91.4%: 92.4% for men and 89.6% for women. Mexican law requires universal primary and secondary education, with a mandatory nine years of school education. However, this legal requirement is largely ignored. During 19972009, spending on educational institutions in Mexico increased from 4% to 7% of gross domestic product (GDP); Mexico is one of the three countries with the largest increases in educational expenditure as a percentage of GDP over this 12-year period. In 2009, the share of public budget on education was 22%, which was the highest among Organisation for Economic Co-operation and Development (OECD) countries. Most of the spending at the primary and secondary level is used to fund staff compensation, with a miniscule amount going towards infrastructure development and maintenance, or teacher training. Despite a recent increase in funding, aid per primary student in Mexico remains low. Spending per student in Mexico was a mere $2,405 during 19952009, compared to the OECD average of $7,527. In 2009, public spending on education was around 78% of total expenditure, while private spending accounted for the remaining 22%.

Social Landscape
The rate of primary school enrolment in Mexico is high; however, many students, particularly those from poor families, skip high school to join the semi-skilled workforce. The performance of Mexican secondary school students in math, r eading, and sciences is the lowest of all OECD countries, well below the regional average.
System of education
Virtually all children attend elementary school, and three out of every four attend middle and junior high school, which is up from six out of every 10 children in the 2000 census. Nevertheless, a high dropout rate from high school traps most Mexicans in a vicious circle of poverty and low-skilled work. This has further fueled the wave of illegal immigration to the US, principally driven by individuals in search of greener pastures. According to a Paris-based program for international student assessment, more than half of Mexicos 15-year-old children lack proper math and science skills. Four out of every 10 children drop out, and thousands of rural children are left with a primitive mode of education, relying on volunteer teachers with meager professional training. The countrys mean years of schooling figure was 8.7 in 2010, against the expected years of schooling of 13.4. In 2010, 40% of the population aged 25 years and above had at least secondary education. As of 2008, the trends in educational attainment of the 2564 year-old population were: 66% of the population had below upper secondary education, 18% had upper secondary and post-secondary non-tertiary attainment, and 16% had tertiary education. With around 290,000 undergraduate students and about 25,000 graduate students, Mexicos UNAM is the largest university in Latin America. UNAM is among the top 200 global universities, according to Britains Times Higher Education World University Rankings. The universitys scientific wing consists of 19 institutes and 10 research centers that have published around 2,800 scientific papers in international peer-reviewed journals. In recent years, UNAMs role has become less central, as competitors have increased in the field of social sciences, and low-quality institutions providing private diplomas have proliferated in the provincial areas of the country. At present, children hailing from elite metropolitan backgrounds prefer to join reputed private universities in order to study economics and political science. However, UNAM remains the only institute in the country that provides high-quality basic and fundamental research in the sciences. According to the 2010 OECD Science, Technology, and Industry Outlook, science and engineering graduates accounted for around 25% of all new degrees. However, the number of researchers per 1,000 employees was less than one, and tertiarylevel graduates accounted for a below-average 18% of total employment. Comparatively, tertiary-level graduates as a percentage of total employment were around 45% in the US and more than 50% in Canada.
Healthcare Healthcare services

The General Health Law governs the country's healthcare system. The Secretariat of Health has a range of functions, including developing Mexican Official Standards related to healthcare, providing direct healthcare to patients, generating health-related statistics, supervising sanitation facilities, evaluating the quality of services, and operating the National System of Epidemiologic Monitoring.

Social Landscape
The Mexico Secretariat of Health introduced the National Health Program. The program envisages that by 2025 all Mexicans will have free access to health insurance, regardless of their ability to pay, and that this will in turn guarantee the country's citizens access to healthcare under an integrated model. The secretariat aims to offer better health provisions and narrow the health gap between different sub-groups of the population by prioritizing the section of society which is most susceptible to chronic diseases. Public healthcare in the country is structured as follows: About 50 million salaried Mexicans pay into an insurance scheme, along with their employers and the government, through the Mexican Social Security Institute (Instituto Mexicano del Seguro Social [IMSS]). The employee pays a progressive amount according to his or her wage. The institute runs its own primary care units and state hospitals for insured workers, although the quality varies considerably. There are complaints that some establishments are not properly managed and lack adequate equipment. Around 17 million state employees have a separate, parallel scheme that they pay into through the Institute of Security and Social Services for State Workers. They also have their own clinics and hospitals. The army and navy have their own separate insurance programs, funded partly through social services, as do employees at Mexico's state-owned petroleum company Pemex. Meanwhile, the private system is structured as follows: Around 3 million wealthy and middle class Mexicans (and foreigners working in Mexico) pay private insurers to gain access to high-quality, state-of-the-art medical services. Many Mexicans insured through the public insurance system also pay out-of-pocket for private care, in order to receive better service. Mexico's private sector is booming. New clinics and specialized hospitals are growing rapidly in Mexico City, Guadalajara, and especially Monterrey. In fact, Monterrey is becoming a major center for medical tourism, particularly for Americans trying to escape their own expensive healthcare system; such individuals are flocking to the city's growing number of new hospitals for everything from obesity surgery and angioplasty to hip replacements.
Social welfare Social welfare policies

Social welfare programs are primarily administered by the IMSS, and financed by contributions from employees, employers, and the government. Some prominent institutions, such as Mexican Petroleum, the military, and the Federal Electricity Commission, have their own autonomous social security programs. About half of Mexicos total workforce is covered by social security measures, although the government does not offer any unemployment benefits. Many Mexicans have opted for private pensions since 1997, ostensibly due to the inefficiencies of the IMSS. The previous government, led by the Industrial Revolutionary Party, transferred the pension payment system from a state funded pay-as-you-go basis to a system where a private-sector fund administers employee pension contributions.

Social Landscape
Performance
Healthcare Overview
Aggregate health statistics have shown an impressive improvement since the 1970s. However, Mexico lies well behind other OECD countries in terms of its health status and healthcare facilities. Total healthcare expenditure as a percentage of GDP stood at 6.7% in 2009 and 6.4% in 2008, while total health spending almost reached 7.0% of GDP in 2010. The standard of the healthcare system is low in Mexico by OECD standards. In virtually all dimensions for which data are available, Mexico is well below average. While the number of doctors per capita has increased substantially over the past decade or so, up from one practicing doctor per 1,000 individuals in 1990 to around 1.5 in 2009, this figure was still well below the OECD average of 3.1 in 2009. There were 2.2 nurses per 1,000 people in Mexico in 2008, four times less than the OECD average of 9.6. The number of acute care hospital beds in Mexico was 1.6 per 1,000 people in 2008, about a quarter of the OECD average of 3.8 beds per 1,000 people. Mexico also ranks well below the OECD average in terms of health spending per capita, with spending of $823 in 2007 (adjusted for purchasing power parity), compared with an OECD average of $2,964. Other than in the US and Mexico, the public sector is the main source of health funding in all OECD countries. Mexico and the US have the lowest public share of all OECD countries, with 45% of health spending paid from public sources. By comparison, the OECD average was 73%. The infant mortality rate was high, at around 15.2 per 1,000 live births in 2008. Around 91% of the total population had free access to potable drinking water and 77% to sanitation. Waterborne diseases pose a major threat to human existence, especially in the rural regions of the country. The scarcity of medical and paramedical staff in the poorer regions continues to be a problem.

Social Landscape
Figure 18:
Expenditure on healthcare in Mexico, 200312
90 80 70 60
8.0 7.0 6.0

Percentage (%)
5.0 4.0
$ billion
50 40 30 20 10 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Year
Healthcare expenditure Healthcare expenditure as % of GDP
3.0 2.0 1.0 0.0
Source: Datamonitor
DAT AM ONIT OR
Income distribution Standard of living

The residents of the northern regions benefit from industrial clusters, healthcare facilities, and educational centers of international standards, whereas the neglected southern regions lack proper healthcare and educational facilities. Investors shun southern parts due to poor public infrastructure and a perennial lack of skilled workers. Wage rates have remained low in these regions, which has led to severe disparities in the distribution of wealth and income. The wage rate in the industrially affluent northern regions is nearly three times higher than in the south of the country. On the Gini coefficient, which ranges from zero (perfect equality) to 100 (perfect inequality), Mexico scored 51.6 for 200010, compared to the USs 40.8 and Canadas 32.6. Residents of Southern Mexico consistently trail behind the rest of the country in quality of life indicators. They tend to lack quality healthcare and education services. People are largely dependent on voluntary education and health services, which are of poor quality, and the presence of a huge informal economy means that the majority of workers do not have access to security benefits.

Social Landscape
Education
The literacy rate for the total population was 93.3% in 2010, and the literacy rate for individuals aged 15 to 24 was 98.2%. The enrolment rate for primary schools as recorded by the United Nations Development Programme stood at 112.9% (including repeat enrolments). Secondary school enrolment was 87.4%, and tertiary enrolment was 26.3%. Government investment in education increased from $46bn in 2006 to $57bn in 2009. As a percentage of GDP, it rose from 5.2% in 2006 to 7.0% in 2009.
Figure 19:
Government expenditure on education in Mexico, 200213
80.00 70.00 60.00

50.00
8.00 7.00 6.00

5.00
Percentage
$ billion
40.00 30.00
20.00
4.00 3.00
2.00
10.00 0.00 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
Government Expenditure on Education
Source: Datamonitor
1.00 0.00
Education expenditure as a% of GDP

DAT AM ONIT OR

Social Landscape
Outlook
Mexicos poorest and mostly uninsured citizens began moving towards universal access to full health coverage through a program called Popular Health Insurance. This government initiative is aimed at reducing the inequality of health services and stopping poor families from being financially ruined by illness. Families pay a premium to join based on their income, and have to make preventive healthcare visits at clinics. Around 20% of the poorest families pay nothing. This is one of the most ambitious programs launched by the government towards universal access to full health coverage. In March 2010 the World Bank granted Mexico a loan of $1.25bn for establishing the Social Protection System in Health Project. The main focus of the project would be to expand health insurance coverage and strengthen the capacity of government agencies and state health systems to effectively administer the entitlements of the Popular Health Insurance program. The new system will also provide technical assistance to strengthen the capacity of the state's health systems, enhance performance management, improve knowledge, strengthen health risk management, and improve effective project co-ordination and management. The government is working on improving its healthcare and welfare services for the aged. In 2010, the number of people aged above 65 years was 7.2 million, comprising more than 6% of the population, while the number of people aged above 80 years was 1.5 million, comprising around 1.3% of the population. In November 2010, it sought the help of the World Bank to tackle poverty in the country, by increasing financing for the Oportunidades Program, which will help over 5 million low-income families, or 25 million people. The country has received $366.7m for its Programa Escuelas de Calidad to undertake school improvement plans, monitoring, supervision, and evaluation. The government also plans to spend more than $750m to support its upper secondary education reform program, which plans to strengthen competition in crucial markets, particularly telecommunications and public procurement.

Technological Landscape
TECHNOLOGICAL LANDSCAPE Summary

Mexico has traditionally been unable to attract firms to build major research and development (R&D) facilities in the country. However, in recent times owing to measures taken by the government in terms of offering tax incentives and exemptions to prospective investors in this field the information and communication technology sector has benefited to some extent. The Mexican IT market recorded sound growth in 2009, largely triggered by high sales of PCs and deeprooted penetration of broadband facilities. Current government IT policies are positioned towards augmenting IT investments, which will significantly change the Mexican IT framework in the near future. In concurrence with the IT sector, the country's telecommunications sector has undergone a radical transition; the most notable development has been the privatization of national telecommunications service provider Telmex. According to the Mexican Academy of Sciences, the country buys 94% of its technology from outside sources, a figure which is reflected in the lack of innovation and low R&D spending in the country. In April 2011, the government announced that it will revive its tax exemption scheme to encourage R&D expenditure in the private sector.
Evolution
Historically, economic activity in Mexico was primarily based on exploiting the country's vast natural resources, with oil production accounting for an important share of gross domestic product (GDP). In addition, the economy was heavily regulated, and as a result Mexican companies had little incentive to innovate and invest in R&D. Similarly, science and technology (S&T) was largely missing from the government agenda. Mexicos S&T development began around 1930 with the establishment of the National Institute of Health, devoted to improving the nations health. In 1960, the country took the first step towards enlarging its S&T effort through the creation of the National Institute for Scientific Research, which provided scholarships to fund undergraduate and graduate education. S&T in Mexico began to develop apace during the 1970s with the expansion of the country's higher education provision and the creation of a significant number of large public universities. By the end of the 1980s, Mexican economic policy had changed. Import substitution was discarded, and the country moved towards a deregulated and open economy. These changes had an impact on science as well as trade. As the millennium dawned, Mexican S&T innovation displayed some progress, but as expected there were enormous gaps. This became more evident when the new administration put together its S&T plan.

Intellectual property
The intellectual property of a business is arguably the most important asset that it owns. In Mexico intellectual property is protected under the provisions mandated by the North American Free Trade Agreement (NAFTA). These provisions cover many assets, including: data (including computer programming)

sound recordings trademarks patents or inventions industrial designs trade secrets geographical indications (use of words or pictures indicating where a product originates) satellite signals and devices to intercept signals.
Minimum standards
The minimum standards of intellectual property protection that Mexico provides are set and framed completely according to the norms emphasized by the NAFTA. The minimum standards include provisions set out by important international agreements, including: The Geneva Convention for the Protection of Producers of Phonograms against Unauthorized Duplication of their Phonograms, 1971. The Bern Convention for Protection of Literary and Artistic Works, 1971. The Paris Convention for Protection of Industrial Property, 1967. The International Convention for Protection of New Varieties of Plants, 1978. Furthermore, the NAFTA has authorized Mexico, along with the US and Canada, to introduce more provisions if required.
Patents
Patents for inventions that are new, non-obvious, and have industrial compliances may be registered for 20 years using the patented product. According to the NAFTA provisions, the following practices are excluded from patentability: Plants and animals (other than micro-organisms). Diagnostic, therapeutic, and surgical methods for the treatment of humans or animals. Essential biological processes for the production of plants and animals. As per the NAFTA provisions, patents may be licensed on privately negotiated terms. The 1991 Mexican law for the promotion and protection of intellectual property allows for the patenting of a broad range of inventions, including chemicals, plant varieties, and biotechnological processes. Under industry property law, patents last for a period of 20 years.

Table 10:
Patents granted by the US Patent and Trademark Office
Mexico 2003 2004 2005 2006 2007 2008 2009 2010 93 102 95 88 90 77 80 115
India 356 376 403 506 578 672 720 1,137
Brazil 180 161 98 148 118 133 148 219
Germany 12,140 11,367 9,575 10,889 10,012 10,085 10,352 13,633
Japan 37,248 37,032 31,834 39,411 35,941 36,679 38,066 46,978
US 98,590 94,128 82,586 102,267 93,690 92,001 95,038 121,179
Source: Datamonitor
DAT AM ONIT OR
Trademarks
In terms of trademark issuance, Mexico complies with the Paris Convention. Trademarks may be registered for a 10-year term; however, there are provisions for renewal for an unlimited number of 10-year terms as long as the trademark is still in usage.
R&D
Traditionally, Mexico has not been a lucrative destination for R&D activities. However, the country possesses good infrastructure for the development of advanced research centers as well as excellent scientists and engineers, who are often prevented from fulfilling their potential due to a lack of research funding. Moreover, Mexicos geographical location is conducive towards face-to-face networking with the US. In 2002, Mexico streamlined its fiscal system in order to offer tax incentives to companies interested in setting up R&D facilities. However, approximately 80% of R&D funding still comes from the government. Moreover, most of the country's research projects focus on basic or applied sciences, which do not generate patents.
Biotechnology
Mexico has contributed substantially to the development of modern biotechnology since 1970. The Mexican scientist Francisco Bolivar was part of a team of scientists from the University of California who developed the worlds first genetically engineered protein. Over the same period of time another budding Mexican scientist, Luis Herrera Estrella, participated with Marc Von Montagus research team in the development of the worlds first gene transfer technique for plants. They founded and directed the biotechnology institute of UNAM in Cuernavaca and the Center for Research and Advanced Studies at the National Polytechnic Institute in Irapuato. Since the inception of these institutes, government and research-oriented universities have strengthened efforts to develop human resources for scientific research centers and institutes inclined towards biotechnological research. There was a corresponding shift in the governments focus, from the

establishment of industries and companies producing biotechnological products to the propagation of institutes that reinforce biotechnological research. At present, there are 98 Mexican institutions engaged in fully fledged research in various aspects of biotechnology, and there are nearly 750 professors and investigators who are officially registered with the National System of Investigators. In total, 61% of the country's institutions have researchers working in the field of agriculture, 30% cover health-related areas, 19% work in environmental areas and control of contamination, and 9% research marine biology. Among the prominent institutions dedicated to biotechnological research, 15% are consolidated research centers, 28% are medium-level development centers, and the remaining 57% are low-level development centers. Low-level development centers are institutes where there are only one or two research groups indulging in an equal number of research projects. There is a promising future in certain areas of biotechnological research, such as the governments initiative to create the National Institute for Genomic Medicine and the introduction of new college curriculums in genomic medicine sciences. Shared interest and endeavors with the US will purportedly lead to the inception of a biotechnology institute and the Nitrogen Fixation Research Center at the UNAM Cuernavaca campus. However, in recent years no new research institutes have been created, with the exception of a few centers created during the last decade. This has led to an ominous situation where there are fewer job opportunities for young graduates in this field.
Performance
Mexicos technology space boasts significant opportunities for growth. With growth in foreign investments in almost all economic sectors, and nationwide construction of new economic zones, the scope for development in the IT sector has increased more than ever before. In recent years, indicators such as the number of Internet users, PCs per capita, and mobile density have shown significant progress.
Telecommunications, broadband and internet Telecommunications

The country has witnessed rapid growth in the number of mobile phone users. The number of mobile phone users increased from 47.1 million in 2005 to 87.7 million mobile users at the end of 2010. The number of fixed-line subscribers increased marginally from 19.5 million in 2005 to 19.8 million in 2010. The Mexican mobile phones market has experienced rapid double-digit growth overall in recent years, despite a sharp decline in 2009. The Mexican mobile phones market had total revenues of $1bn in 2009, representing a compound annual growth rate (CAGR) of 18.3% for 200509. The number of mobile handsets sold increased at a CAGR of 9.4% between 2005 and 2009, to reach a total of 41 million units in 2009. The market's volume is expected to rise to 56.2 million units by the end of 2014, rising to a value of $2.1bn by the end of 2014.

Figure 20:
Growth of mobile and fixed line telephony in Mexico, 200212
30.0 25.0 20.0
Growth rate (%)
15.0 10.0 5.0 0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -5.0
Mobile Phone Growth
Year
Fixed Line Growth
Source: Datamonitor
DAT AM ONIT OR
Broadband and Internet

By the end of December 2010, the number of Internet users was estimated to be 35 million. The number of Internet users as a percentage of the total population increased from 18% in 2005 to 22% in 2010. The swift growth of the Internet in Mexico is linked to robust expansion in the usage of computing equipment. Growth has principally been triggered by private enterprises that have made extensive use of the Internet. The Mexican Internet access market has shown strong double-digit growth in recent years, generating total revenues of $4.8bn in 2009 and recording a CAGR of 17.4% for 200509. The market is expected to be worth $7.9bn by 2014.

Figure 21:
Growth of Internet users in Mexico, 200213
60.00
250.0
50.00
Number of subscribers (million)
200.0
40.00
150.0 30.00 100.0 20.00 50.0
Growth rate (%)
10.00
0.00 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
Internet users (in million)
Source: Datamonitor
0.0
Growth rate
DAT AM ONIT OR
E-commerce
The growth of e-commerce in Mexico has generated widespread enthusiasm about the prospect of the eventual emergence of a digital economy. Considering the highly restricted extent of the country's digital economy, there is significant potential for the growth of e-commerce activities, as the majority of companies are attracted to the Internet and the opportunities it creates. Leading executives representing major industrial conglomerates have expressed optimistic views regarding the possibilities e-commerce offers to Mexican businesses. As part of its regulatory reforms, the government has shifted certain business registration procedures online.
Information technology
The Mexican IT, business process outsourcing (BPO), and knowledge process outsourcing markets are the second largest in Latin America, preceded only by Chile. In fact, two Mexican companies top the list of key Latin American IT firms. The Ministry of Economy estimates that the number of IT companies in Mexico is 2,134.

Demand for software has been growing in all segments, especially among small- and medium-sized enterprises, which once again will benefit from government funding and initiatives in the future. Significant funding has also been announced for education and for regional IT expansion. The PC market in particular has shown remarkable growth. Current growth has been driven by the growing popularity of broadband, high demand for PCs, and the burgeoning availability of credit.
Research and development R&D expenditure

Since 2002, Mexico has sizably restructured its fiscal system, and now offers lucrative incentives to investors and companies interested in setting up R&D facilities in the country. However, 80% of total investments in R&D are made by the government. Like many nations, Mexico has attempted to enhance its investment in R&D and scientific manpower; however, although its investment in S&T has grown significantly in absolute terms during the past few decades, the country still lags far behind others. Mexico's R&D investment in 2009 was just above 0.43% of GDP, a ratio that has remained more-or-less constant during the past decade. Mexico needs to improve its science and technology (S&T) investments and capabilities, as its dependence on imported technology could become untenable. According to the Mexican Academy of Sciences, the country buys 94% of its technology from outside, with the royalty payments for acquired technology going up by five times in the last 10 years. The poor integration of research and industry has led to overdependence on imported technology. The country needs to increase its investment in higher education and create an environment to enable greater exchanges between academia and industry to create high-technology jobs. Currently there is just one doctorate awarded for every 10,000 individuals. The Vincula/G11 group, a consortium of the Science and Technological Consultative Forum and 10 other organizations, has launched a national program to train specialists in the transfer of technology from research centers and universities to the industry. Around 600 specialists have been trained under the program since October 2010. There have been increasing calls from the scientific community to revive the program of tax exemptions that was launched by the government in 2002, through the National Council of Science and Technology, in order to stimulate R&D. However, the council cancelled the $1.3bn program in 2009 due to alleged abuse of the program by big companies looking to avoid taxes. In April 2011, the council announced that it would revive the scheme under a new program. Meanwhile, the Mexican Employers' Confederation plans to set up an innovation network and a communications platform. Under the first phase of its program it plans to bring together 3,500 companies that have national and international research centers. Public investment in S&T is also poor. Between 2000 and 2010, average public expenditure on R&D has been around 0.4% of GDP, which is not even half of the 1% stipulated by Mexicos 2002 S&T law. The countrys R&D expenditure as a percentage of GDP declined from 0.54% in 2007 to 0.40% in 2010. Under the 2011 budget, the government plans to spend $3.9bn (or 0.34% of GDP) on S&T. The scientific community is of the opinion that the country should carve out a separate ministry for higher education, science, and technology in order to increase technology investments.

Figure 22:
Total expenditure on R&D in Mexico, 200110
6.0
0.6
5.0
0.5
R&D expenditure ($bn)
4.0
0.4
Percentage (%)
3.0
0.3
2.0
0.2
1.0
0.1
0.0 2001 2002 2003 2004 2005 Year

R&D investment R&D expenditure as % of GDP
0 2006 2007 2008 2009 2010
Source: Datamonitor
DAT AM ONIT OR
Outlook
With the passage of time, the IT and communications industry has picked up rapidly in Mexico. In recent years, both the public and private sectors have initiated measures fostering e-commerce and Internet usage. This has further increased Mexicos potential and readiness for the development of a digital economy. Furthermore, federal ministries and state governments have launched major promotional activities, many of which are being organized into an exhaustive pivotal project called E-Mexico. E-Mexico aims to manage all public transactions and services online. In addition, the country is gradually transforming into a favored destination for BPO, and may soon compete with the likes of India in this field. Developments in the IT and software industry are expected to speed up the development process in related Internet and other technological areas. However, the countrys expenditure on R&D is woefully poor. There have been increasing calls from the scientific community to revive the program of tax exemptions, first launched by the government in 2002 through the National Council of Science and Technology, in order to stimulate R&D. In April 2011, the council announced that it would revive the tax exemption scheme under a new program.

Meanwhile, the Mexican Employers' Confederation plans to set up an innovation network and a communications platform. Under the first phase of its program it will bring together 3,500 companies that have national and international research centers.

Legal Landscape
LEGAL LANDSCAPE Summary

Mexico has a complex legal structure with exhaustive and intricate legal procedures. However, since 2000 the government has been making somewhat desperate efforts to simplify legal complexities. The judicial structure of Mexico is comprehensive, and requires the assistance of a large number of legal professionals. Nevertheless, the judicial process is prone to delays, and greater integrity among courts is needed at all levels. The recent laws amended by the judicial system have legalized tax incentives for foreign investors, although the laws compel any large mergers and acquisitions to be reported to a Mexican court of law. The Mexican legal structure has legalized unionization and collective bargaining among workers. President Calderon launched judicial reforms in 2008 to improve transparency and efficiency in the system. The changes are expected to be introduced through to 2016.
Evolution
The Mexican judicial system is based on Spanish civil law, with common law traditions retaining some influence. Contrary to the US version of a common law system, under which the judiciary enjoys a wide range of jurisprudence, Spanish civil law involves strict compliance with legal codes and minimal jurisprudence. Unlike the US system, where the courts may rule on basic constitutional matters, the Mexican constitution prohibits the courts from applying its rulings beyond individu al cases. The Mexican judiciary seldom attempts to obstruct the will of the president on major issues.

Judicial system Structure of the system
The judicial branch is divided into state and federal level systems. The Mexican judicial system is distinguished into courts of ordinary jurisdiction (for civil, commercial, and criminal cases) and administrative courts or courts of special jurisdiction. Federal district courts exercise broad jurisdiction over federal crimes, writ of injunction suits, and civil controversies. The rulings of federal district courts are examined by the collegiate, the unitary circuit courts, and the Supreme Court. The federal judicial system has 172 collegiate circuit courts covering nearly 29 circuits, 62 unitary circuit courts, and 285 district courts. At the apex level, the Supreme Court consists of 11 justices, including the chief justice. The court conducts biennial sessions in which it is divided into two chambers: civil and criminal affairs and administrative and labor affairs. The Supreme Court of Justice is the countrys highest court. It consists of a chief justice and 10 associate justices. Depending on the type of cases facing the court, the Supreme Court of Justice may meet in joint sessions or in separate chambers. The appointment of the Supreme Court justices is further confirmed by the senate and the permanent committee. They are appointed by a two-thirds vote of the senate from a list of candidates submitted by the president. In instances where a twothirds majority cannot agree on an appointee, the president has the right to fill the vacancy without the senates approval. The justices serve a single 15-year term without the option for reappointment. The chief justice is elected from among the

Legal Landscape
sitting justices by a collegiate, and presides over a court for an official term of four years. The chief justice cannot serve consecutive terms, but may be re-elected by the colleagues. District and circuit courts are appointed by the federal judicial council, which is a quasi-independent judicial branch agency chaired by the chief justice of the Supreme Court. The seven-member judicial council is responsible for carrying out judicial career laws, as well as supervising both judicial functioning and judges at all levels below the Supreme Court. In addition to the chairmanship, three seats are occupied by judges appointed by the Supreme Court, two seats are occupied by notable judicial scholars appointed by the senate, and one seat is occupied by the presidential appointee. Except for the chief justice, all council members serve a single five-year term. At the federal level, after the Mexican Supreme Court the highest authorities are the Circuit Courts (Colegiados de Circuito) and the District Courts (Juzgados de Distrito). At the state level, the highest court is the Superior Court of Justice (Tribunal Superior de Justicia), followed by the Courts of First Instance (Tribunales de Primera Instancia), which handle civil, criminal, and commercial causes. These are followed by the family courts and bankruptcy courts. The administrative courts are also classified as federal and state. At the federal level, the courts include the Federal Boards of Conciliation and Arbitration (Juntas Federales de Conciliacion y Arbitraje), the Court of Agrarian Justice (Tribunal de Justicia Agraria), the Court of Military Justice (Tribunal de Justicia Militar), the Court of Jurisdiction over the Electoral Process (Tribunal de Jurisdiccion de Proceso Electoral), and other special courts. Local administrative courts include the Administrative Court of Contentions (Tribunal Contencioso Administrativo), the Justice of the Peace Courts (Tribunales Calificadores), and other minor courts.

Legal Landscape
Figure 23:
Mexico judicial structure
Supreme Court of Mexico

(Suprema Corte de Justicia de la Nacion) Special Courts Federal Boards of Conciliation and Arbitration (Juntas Federales de Conciliacion y Arbitraje)
Federal Courts Circuit Courts (Colegiados de Circuito)
State Courts Superior Court of Justice (Tribunal Superior de Justicia)
Court of Agrarian Justice (Tribunal de Justicia Agraria) Court of Military Justice (Tribunal de Justicia Militar) Court of Jurisdiction over the Electoral Process (Tribunal de Jurisdiccion de Proceso Electoral)
District Courts (Juzgados de Distrito)
Courts of First Instance (Tribunales de Primera Instancia)
Family courts Bankruptcy courts
Administrative Court of Contentions (Tribunal Contencioso Administrativo) Justice of the Peace Courts (Tribunales Calificadores)
Source: Datamonitor
DAT AM ONIT OR
Legislative relations between the union and states

Each of Mexicos 31 states and the federal district that includes Mexico City has its own constitution modeled on the lines of the federal charter. The states have the right to levy taxes other than interstate custom duties. Following the federal organization at the national level, states and local governments are comprised of executive, legislative, and judicial entities. The state executive is headed by a governor, who is directly elected by gubernatorial elections for a six-year term. The state legislatures are unicameral, with a single Chamber of Deputies that meets in two ordinary sessions per year, with a provision for extended periods and extraordinary sessions in exceptional cases. Legislative bills may be introduced by the deputies and the state governor, a state superior court of justice, or a municipality within a given state.
Business regulations Incentives for foreign enterprises

Foreign investment is permitted in all sectors except those strictly reserved for the Mexican government. Foreign investors may hold a stake of up to 100% in any Mexican corporation or partnership, with the exception of particular entities with strategic importance to the country. Investments conducted in classified or regulated sectors, such as telecommunications and transport, require proper endorsements from the Federal Foreign Investment Commission.

Legal Landscape
The Mexican government has curtailed the use of tax incentives for investments. The most sought-after tax incentive the accelerated depreciation allowance for investments in production facilities is widely available, and permits deductions of up to 92% for the same year of investments. However, the percentage of deductions may vary according to the type of industry and enterprises, and the accelerated depreciation allowance applies only to new assets. In addition, many state governments are attracting foreign investments through state tax incentives. Mexico offers no tax holidays for local or foreign investors. The countrys consent to the General Agreement on Tariff and Trade and to the World Trade Organization terminated almost all import duties. The government has lowered duties dramatically, with the most recent trends demonstrating further reductions, especially with regards to trade with the US and Canada, which receive the most favorable treatment. Foreign investment policies have been simplified by the amendment of relevant regulations and the reduction of legal and administrative bureaucracy. Furthermore, the government has eliminated most import licensing requirements and overhauled intellectual property laws.
Tax regulations
Most taxes in Mexico are federal, giving the state government only limited opportunities to offer tax incentives. Since 2000, states have started competing with one another to generate greater investment. Furthermore, most states have initiated development programs in an attempt to attract investment; these include reduced prices for real estate, employee training programs, and a reduction of 2% on state payroll taxes. Since January 2011, individuals and companies are obligated to have an advanced electronic signature certificate in effect, and to maintain electronic accounting records, issuing digital bills as proof of online transactions, with non-compliance penalized.
Corporate income tax

Corporate income tax is imposed at the rate of 30%, which is expected to be lowered to 29% in 2012, and 1% every year thereafter until 2014. A corporate body is a resident of Mexico if its place of effective management is located within the country. Any resident company is taxed on the basis of its worldwide income; if the company is not domiciled in Mexico, it is taxed on its Mexican-sourced income. A 1.5% flat-rate business tax is used instead of corporate income tax for some companies.
Maquiladoras
Maquiladoras are foreign factories that assemble duty-free goods in Mexico for export, and receive preferential treatment under Mexican tax law. Foreign partners of maquiladoras are exempt from permanent establishment status in Mexico.
Personal income taxes

Income tax rates are charged at progressive rates ranging from 0% to 30%. The employer withholds provisional tax payments. Taxpayers must file personal income tax returns for the preceding year by the end of April.
Capital taxes
Unlike other emerging economies, there are no separate provisions for capital tax payments in Mexico. Capital gains are generally taxed as income.

Legal Landscape
Value-added tax
Value-added taxes (VAT) are levied at the rate of 16% on every stage of product manufacturing. An 11% rate is applicable at the borders. VAT is exempt on food, medicine, and some other items.
Labor law
Mexicos labor law, enacted in 1931 and revised in 1970, is based on article 123 of the Mexican constitution. The law entitles Mexican workers to the right to associate, to bargain collectively, and to strike. The law sets a standard six-day working week with a paid day off. For overtime, the workers must be paid double the normal rate, rising to triple after the first nine extra hours. Furthermore, employees in Mexico are entitled to most public holidays off, paid vacations, vacation bonuses, and anniversary bonuses equivalent to at least two weeks' pay. Employers are made to contribute 2% of each employees salary into a retirement account. Most employers are also required to distribute 10% of their pre-tax profits for profit-sharing. For the past few years, strikes have been limited and usually settled quickly, although more complex strikes have required government intervention. Independent labor unions have played a significant role in mediating strikes, particularly after the formation of the new labor federation. Strikes are only legal when employers refuse to comply with a legal or contractual obligation. A strike may also be called to support another strike, provided the majority of the workers agree. Unions must follow specific procedures in instituting job actions.
Performance
Effectiveness of the legal system
The ever-burgeoning number of pending cases in various courts poses a continued threat to the judicial system. According to the Heritage Foundation's and the Wall Street Journal's 2011 Index of Economic Freedom, the country is currently ranked the 48th freest economy in the world, with a score of 67.8. The country recorded relatively high scores in business, trade and fiscal freedom, and government spending. The country received a score of 87.3 for business freedom; according to the index, starting a business takes an average of 13 days, compared to the world average of 35 days, while obtaining a business license requires less than the global average of 18 procedures and 209 days. The country scored 81.2 on trade freedom, reflecting the 43 free trade agreements the country has signed, the highest in the world. The country scored 65 in investment freedom, as foreign and domestic capital are not always treated equally. Foreign investors are barred from important sectors such as petroleum and electricity, and restricted in others such as telecommunications. The country was ranked 35th out of 183 countries in the World Bank's 2011 Doing Business report. In the ranking for starting a business, the country moved up 23 places to 67th compared to 2010. According to the index, starting a business takes six procedures and nine days, as opposed to the Organisation for Economic Co-operative and Development average of 5.6 procedures and 13.8 days. The scarcity of judicial staff has been cause for concern, and despite the existence of a multi-tiered court system, human rights abuse cases in Mexico often go unaddressed. It takes a long time for someone accused of a crime to receive a final verdict from the courts, and the treatment of prisoners on trial has been persistently appalling. The trial system consists of a series of fact-gathering hearings, during which the court receives documentary evidence or testimony; after this, a judge

Legal Landscape
reviews the case file and issues a final written ruling. Records of proceedings are not made available to the general public; only the parties involved have general access to the official files, and only then by a special motion. Mexican law provides the right to the accused to attend the hearings and challenge any evidence or testimony presented. In concurrence, the law also provides the right to an attorney, although in actual practice public defenders are characterized by low professional standards, and as a result most poor defendants are inadequately represented. This lack of transparency and efficiency results in almost 75% of crimes going unreported. Amid increasing calls for judicial reforms, the Mexican government introduced a series of constitutional and legislative changes in 2008, including the introduction of new oral and adversarial procedures, emphasis on the presumption of innocence and adequate legal defense for the accused, modifications to police agencies and criminal investigations, and tough measures against organized crime. The reforms are expected to be carried out through to 2016.
Outlook
Legal procedures in Mexico are exhaustive and often time-consuming. The large number of pending cases in various courts of the country and the alleged widespread judicial corruption are frequently and universally criticized. However, the lengthy business registration process that in previous years caused significant inconvenience for foreign investors has been relaxed considerably. Furthermore, the government is making prudent efforts to prevent mistreatment of prisoners and to reduce trial periods. In terms of competition rules, President Calderon has admitted that overpowerful companies are holding the country back, and has announced his government's intention to fight business monopolies. To enhance the competitiveness of the country, the lifting of barriers in certain sectors is required, along with the proper implementation of competitive laws. Due to increased drug trafficking and the resultant violence, there has been increased pressure on the judicial system to adjudicate the drug gangs and related suspects. In early 2010, it was reported that the conviction rate in drug trafficking cases is only 3%. However, in an effort to improve the legal system US government officials trained around 5,500 Mexican legal employees during 2009 and early 2010. Furthermore, another 5,000 Mexican officers have graduated from US police training courses. The government is making considerable efforts to increase security surveillance and the powers available to the legal authorities in terms of handling criminal situations. An estimated 30,000 to 40,000 people have been killed in drug-related violence since the government began its crackdown on the drug cartels in 2006; in 2010 alone, more than 15,000 people were killed. The government plans to continue its crackdown on the drug cartels, and it is expected that with new legal deputations the country may see a reduction in the violence. The judicial reforms underway across the country are expected to help the country tackle organized crime.

Environmental Landscape
ENVIRONMENTAL LANDSCAPE Summary

In Mexico, the Secretariat for Environment and Natural Resources is responsible for charting environment al policies and implementing preservation, protection, and restoration plans. The basic framework of the secretariat stipulates integrity, transferability, transparency, and institutional improvement. Although not restricted by the Kyoto Protocol in terms of greenhouse gas emissions, air pollution continues to pose a serious challenge to the country, and the implementation of environmental conservation policies is less than consistent. The government helped the United Nations Framework Convention on Climate Change (UNFCCC) meeting reach the Cancun Agreements in December 2010. It is anticipated that emissions in the country will continue to grow substantially up to 2015, or until the industrialization process is completed. Nonetheless, the government needs to expedite policies that will control pollution in major cities.
Evolution
The Mexican environmental landscape witnessed the approval of the air and water conservation law in 1940, and the early 1970s saw the passing of a law to prevent and control environmental contamination. In 1980, there were reforms to the national political constitution, including laws to strengthen environmental legislation. The National Development Plan of 19891994 included modifications to institutional structures, allowing for the creation of additional institutions that have their own technical and operative autonomy to reform the way that environmental problems are treated. The Ministry of the Environment, Natural Resources, and Fisheries was created in 1994.

Environmental regulations Overview
The Secretariat for Environment and Natural Resources is the environment ministry of the Mexican government, and is responsible for implementing protection, preservation, and framing policies for the country's environment and natural resources. The North American Free Trade Agreement (NAFTA) addresses the issue of environmental protection in the three participating countries (Canada, the US, and Mexico). However, it leaves the establishment of environmental regulations and standards up to the three participating countries, with two exceptions: each must conform to active treaties between the three, and environmental standards must not be decreased as a means of encouraging investment in business.
Environmental treaties and policies

Although Mexico and the US suffer from prolonged border disputes, the two countries have a history of co-operation in the sphere of environmental conservation and natural resource issues, particularly in the border areas where environmental conditions are stark due to robust population growth, urbanization, and industrialization. Noteworthy environmental agreements between the two countries include:

The La Paz Agreement to protect and improve the border environment established Border 2012, a 10-year binational results-oriented environmental program for the US-Mexico border region. Border 2012 is the latest multiyear bi-national planning effort to be implemented under the La Paz Agreement, and succeeds Border XXI, a pilot five-year program that ended in 2003. The 1993 North American Agreement on Environmental Cooperation, which instituted a North American Commission on Environmental Cooperation under the NAFTA by the US, Mexico, and Canada, in order to improve the enforcement of environmental laws and address common environmental concerns. The Border Environmental Cooperation Commission which was instituted by an agreement between the US and Mexico in November 1993 and is also related to the NAFTA works with local communities to develop and certify environmental infrastructure projects such as wastewater treatment plants and solid-waste disposal facilities.
Participation in global efforts, agreements, and pacts Mexico and the UNFCCC
The UNFCCC, instituted in March 1994, was a crucial step towards reducing greenhouse gas emissions, placing a major focus on carbon dioxide. Under the UNFCCC, the Kyoto Protocol does not commit Mexico (or any other developing nation) to limit greenhouse gas emissions, but the issue has become a global concern among all countries. In order to involve the developing nations in the Kyoto Protocol, the clean development mechanism (CDM) was incorporated. Mexico, being a signatory to the Kyoto Protocol, can benefit from the promotion and implementation of the CDM, as trading in carbon credits may prove to be a great business opportunity for the country.
Copenhagen conference on climate change

The UNFCCC sets an overall framework for intergovernmental efforts to tackle the challenge posed by climate change. It recognizes that the climate system is a shared resource, the stability of which can be affected by industrial and other emissions of carbon dioxide and other greenhouse gases. The convention has universal membership, with 192 countries having ratified the convention. No deal could be clinched at the 2009 United Nations Climate Change Conference, held in Copenhagen; however, talks on a binding international climate change pact continue. In December 2010, during the UNFCCCs Conference of the Parties (COP)-16 meeting in Cancun, Mexico was praised for its deft handling of climate change negotiations. Mexican Minister of Foreign Affairs, Patricia Espinosa, who presided over the meeting, handled the objections of Bolivia and some other Latin American countries, ruling at the crucial moment that the support of 193 other countries meant that "consensus" had been reached on the Cancun Agreements.
Performance
Environmental impact
Industrial energy consumption is associated with greenhouse gas emissions. This has been the case with Mexico, where greenhouse gas emissions from coke-based power plants and Mexico City's and Guadalajara's dense manufacturing

sectors have been responsible for chronic respiratory problems among residents, especially children and the aged. Recent surveys conducted by the W orld Wildlife Fund have suggested that Mexico City is one of the worlds most polluted cities. Likewise, industrial effluent emissions to neighboring water reservoirs and streams have led to the spread of waterborne diseases among residents. Although the government has made efforts to combat this along with other countries and international organizations, water and atmosphere contamination remain a major challenge.
Figure 24:
Carbon dioxide emissions in Mexico, 200310
460
8 6 4
440
Million metric tons
420
Growth (%)
2
400
0 380 -2 360
-4
340 2003 2004 2005 2006 2007 Year

Volume
-6 2008 2009 2010
Growth rate
Source: Datamonitor
DAT AM ONIT OR
After dipping in 2004, carbon dioxide emissions increased up to 454 million metric tonnes in 2007. Since 2007, CO2 emissions have declined to reach 414 million metric tonnes in 2010. It is expected that carbon dioxide emissions will continue to rise in the near future, as a result of growing industrialization and transportation. CO2 emissions are expected to reach 464 million metric tonnes by 2015. In June 2011, the government reinforced the Environmental Service Payment Program that was created as a financial incentive for the owners of forest land. As part of the strategy to promote environment service payment mechanisms through Pro Tree, the government has combined the program with support for water services, carbon capture, and biodiversity to establish and improve agro-forestry systems. The government aims to incorporate 2.61 million hectares of

Appendix
environmental payment schemes by 2012. Since January 2007, Pro Tree has helped incorporate 2.23 million hectares into the environmental service payment scheme through an investment of MXN4.54bn ($381m). This is three times the surface incorporated during the previous administration and four times the investment assigned to it during 2003 06. In annual terms, investment rose from an average of MXN280m ($26m) during the previous administration to just over MXN1bn ($84m) during President Calderons administration. During 200710, approximately 9 million minimum wages were generated, with funds being assigned to 4,379 conservation projects in ejidos, communities, and private properties. The authorities are working to incorporate an additional 490,000 hectares in 2011. In July 2011, the government launched the Sustainable Electricity Program, which involves the exchange of old incandescent light bulbs for power-saving light bulbs, free of charge. Under the program, all electricity consumers that do not use more than 250 kilowatts every two months will be eligible to exchange four old incandescent light bulbs for fou r power-saving light bulbs. The government is setting up 1,200 exchange centers across the country, and expects to exchange around 23 million light bulbs during the first phase of the program. By the time the program ends in 2012, the government expects to have exchanged 47.2 million bulbs nationwide. The program is expected to lead to a reduction of 2.8 million metric tonnes of CO2 emissions every year.
Outlook
A distinctive environmental heritage has long been an asset to Mexico. The government has failed to alleviate air and water pollution; despite an increasing number of active economic development programs, implementation of environmental conservation programs and the like has remained inconsistent. Air pollution continues to be a major challenge, as pollution levels in the countrys major cities are currently cause for concern. The country's depleting and contaminated water resources is another major impediment to environmental preservation, and has led to a dependence on the US for water supplies in the northern regions of the country. Mexico has initiated several steps to combat its environmental degradation, but the primary focus must be the strict implementation of policies in order to protect the countrys biodiversity. The government has embarked on the Environmental Service Payment Program and the Sustainable Electricity Program to increase its green footprint. The government has combined the Environmental Service Payment Program with support for water services, carbon capture, and biodiversity in order to incorporate 2.61 million hectares into the environmental payment schemes by 2012. Under the Sustainable Electricity Program, the government expects to exchange around 47.2 million incandescent light bulbs for power-saving light bulbs by 2012.

Appendix
APPENDIX
Datamonitors Country Analysis Practice consists of a team of economists, analysts and researchers, all with expertise in their given fields. For any questions or comments about this report you can contact the author directly at countryanalysis@datamonitor.com
Datamonitor consulting
We hope that the data and analysis in this brief will help you make informed and imaginative business decisions. If you have further requirements, Datamonitors consulting team may be able to help you. For more information about Datamonitors consulting capabilities, please contact us directly at consulting@datamonitor.com.
Disclaimer
All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Datamonitor. The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that Datamonitor delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As suc h Datamonitor can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect.


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COUNTRY ANALYSIS REPORT

Country Analysis Report: Mexico

Published 08/2011 Page 1

Country Analysis Report: Mexico

Published 08/2011 Page 2

PESTLE highlights Political landscape

Country Analysis Report: Mexico

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Country Analysis Report: Mexico

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Mexico key fundamentals

Country Analysis Report: Mexico

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Country Analysis Report: Mexico

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Country Analysis Report: Mexico

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Country Analysis Report: Mexico

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Carbon dioxide emissions in Mexico, 200310

Country Analysis Report: Mexico

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Country Analysis Report: Mexico

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Key Facts and Geographical Location

KEY FACTS AND GEOGRAPHICAL LOCATION Key facts

GDP adjusted per capita (PPP)

Ethnic composition (2000 data)

Mestizo (Amerindian-Spanish) 60%, Amerindian 30%, white 9%, other 1%

Major religions (2000 census)

Spanish, various Mayan, Nahuatl, and other regional indigenous languages

Source: Central Intelligence Agency (CIA), The World Factbook

Country Analysis Report: Mexico

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Key Facts and Geographical Location

Source: CIA, The World Factbook

Country Analysis Report: Mexico

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PESTLE ANALYSIS Summary

Country Analysis Report: Mexico

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Country Analysis Report: Mexico

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Analysis of Mexicos political landscape

Current strengths Strong democratic setup Efforts to increase competitiveness

Current challenges Immigration issues with the US Human rights abuses

Future risks Diplomatic row with France Regional disparity

Current strengths Strong democratic setup

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Efforts to increase competitiveness

Current challenges Immigration issues with the US

Human rights abuse

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Future prospects The US to help Mexico fight drug violence

Dynamic foreign policy

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Future risks Diplomatic row with France

Country Analysis Report: Mexico

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