In the early 1950s, the manufacturing sector eclipsed agriculture as the largest contributor to Mexico's overall GDP. Largely because of extensive import substitution, manufacturing output expanded rapidly from the 1950s through the 1970s to satisfy rising domestic demand. The value added by manufacturing rose from 20 percent of GDP in 1960 to 24 percent in 1970, and again to 25 percent by 1980. Manufacturing output grew at an annual average of 9 percent during the 1960s, and by a slightly lower annual rate of 7 percent in the 1970s.
This forty-year trend of manufacturing growth abruptly stopped and then reversed itself during the early 1980s. Sharp reductions in both exports and internal demand caused manufacturing output to fall by 10 percent between 1981 and 1983. After recovering briefly in 1985, manufacturing output fell again by 6 percent the following year. Production of consumer durables suffered especially, with the domestic electrical goods and consumer electronics goods sectors losing between 20 percent and 25 percent of their markets during the mid-1980s. Government industrial policies began to favor manufactured goods destined for the export market, in particular machinery and electrical equipment, automobiles and auto parts, basic chemicals, and food products (especially canned vegetables and fruit).
In the late 1980s, the manufacturing sector began to recover. In 1988 manufacturing output grew by a modest 4 percent. After expanding a robust 7 percent in 1989, manufacturing output steadily slowed; it grew by only 2 percent in 1992, as a result of weak export growth and falling domestic demand. After contracting by 2 percent in 1993, manufacturing output expanded by 4 percent in 1994. The most dynamic manufacturing subsectors in 1994 were metal products, machinery, and equipment (9 percent growth), followed by basic metals industries (9 percent growth). In 1994 the manufacturing sector accounted for 20 percent of the country's total GDP and employed about 20 percent of all Mexican workers.
Mexico's export base for manufactured goods is narrow, with three subsectors (vehicles, chemicals, and machinery and equipment) accounting for more than two-thirds of non-maquiladora foreign earnings. The value of Mexico's imports of manufactured goods rose sharply following trade liberalization, from US$11 billion in 1987 to US$48 billion in 1992 (US$62 billion including maquiladora imports). Increased foreign competition has seriously threatened many Mexican manufacturing enterprises, almost all of which are small and medium-sized companies employing fewer than 250 workers. In 1991 Mexico had 137,200 manufacturing enterprises, some 90 percent of which employed no more than twenty workers.
The principal industrial centers of Mexico include the Mexico City metropolitan area (which includes the Federal District), Monterrey, and Guadalajara. In the early 1990s, the capital area alone accounted for about half of the country's manufacturing activity, nearly half of all manufacturing employment, and almost one-third of all manufacturing enterprises. About one-third of formal-sector workers in the capital area were engaged in manufacturing. Manufacturers have been drawn to greater Mexico City because of its large and highly skilled work force, large consumer market, low distribution costs and proximity to government decision makers and the nation's communications system. In the early 1990s, the chemical, textile, and food processing industries accounted for half of all manufacturing activity in the Federal District, and metal fabrication accounted for another one-quarter. Heavy industry (including paper mills, electrical machinery plants, and basic chemical and cement enterprises) tended to locate in the suburbs of Mexico City, where planning and environmental restrictions were less rigorous.
By the late 1980s, more than two-thirds of all foreign investment in Mexico was concentrated in maquiladora zones near the United States border. In 1965 the government began to encourage the establishment of maquiladora plants in border areas to take advantage of a United States customs regulation that limited the duty on imported goods assembled abroad from United States components to the value added in the manufacturing process. The maquiladora zones offered foreign investors both proximity to the United States market and low labor costs. Most maquiladora plants were established in or near the twelve main cities along Mexico's northern border. Some of these enterprises had counterpart plants just across the United States border, while others drew components from the United States interior or from other countries for assembly in Mexico and then reexport.
The maquiladora sector grew nearly 30 percent annually between 1988 and 1993. By the latter year, more than 2,000 maquiladora businesses were in operation, employing 505,000 workers. These plants generated US$4.8 billion in value added during 1992. Their main activities included the assembly of automobiles, electrical goods, electronics, furniture, chemicals, and textiles. To increase their purchase of domestic materials, the Mexican government decided in December 1989 to exempt local sales to maquiladoras from the value-added tax and to let these enterprises sell up to half of their output on the domestic market. Nevertheless, almost all in-bond products have been exported to the United States.
In 1994 food processing, beverages, and tobacco products constituted the leading manufacturing sector in terms of value, accounting for about 26 percent of total manufacturing output and employing 17 percent of manufacturing workers. Food, beverage, and tobacco output expanded by an annual average of 3 percent between 1990 and 1994, largely as a result of export growth. In 1994 it expanded by less than 1 percent. In the early 1980s, well over 50 percent of Mexico's productive units were involved in food processing, and Mexico's beer industry was the world's eighth largest.
Metal products, machinery, and transportation equipment accounted for 24 percent of manufacturing GNP in 1994. The automobile subsector was among the most dynamic manufacturing sectors in the early 1990s and led among manufacturing exporters. Mexico's automobile manufacturers were led by Volkswagen, General Motors (GM), Ford, Nissan, and Chrysler. Ford expanded production by 33 percent during 1991, Chrysler by 17 percent, and GM by 10 percent. Volkswagen controlled 25 to 30 percent of the domestic automobile market, and Nissan another 15 to 20 percent. Mexican automobile exports earned US$6.1 billion in 1992, not counting maquiladora production, which earned an additional US$1.3 billion. Export revenue from passenger vehicle sales rose by 21 percent in 1993 and by 22 percent in 1994, while domestic sales fell by some 14 percent in 1993 and rose by less than 1 percent in 1994.
In 1983 the government encouraged the automobile industry to shift from import substitution to export production. It lowered national content requirements for exporters and required assemblers to balance imports of auto parts with an equivalent value of automobile exports. In 1990 the government eliminated restrictions on the number of production lines that automobile producers could maintain and allowed producers to import finished automobiles (although they were required to earn US$2.50 in automobile exports for every US$1 spent on imports).
In the early 1980s, automobile exports increased as domestic demand fell. Export growth leveled off in the early 1990s as the domestic market recovered. Growth of total vehicle output slowed from 21 percent in 1991 to 9 percent in 1992. In 1994 vehicle production totaled more than 1 million units, of which 850,000 were cars. Production fell by 16 percent between January and November 1995. During those months, exports rose by 37 percent to 700,000 units, while domestic sales fell by 70 percent, to 140,000 units.
Textiles, clothing, and footwear together accounted for 9 percent of manufacturing output in 1994 and employed about 7 percent of all manufacturing workers. Textile and clothing production stagnated throughout the 1980s because of low domestic demand, high labor costs, antiquated and inefficient technology, more competitive export markets (especially in Asia), and heavy import competition resulting from trade liberalization. In the early 1990s, the textile industry operated at just 60 percent of capacity. Import competition caused footwear and leather output to decline 4 percent annually between 1982 and 1989. In 1990 domestic footwear enterprises produced almost 200,000 pairs of shoes per week. In 1992 footwear and leather goods accounted for 4 percent of manufacturing GDP.
Non-maquiladora export earnings for textile, clothing, and footwear sales rose from US$499 million in 1990 to US$890 million in 1992. Imports also rose sharply to almost US$2 billion in 1992. The sector showed signs of strong recovery in late 1993, following its forced modernization.
The chemicals sector (including oil products, rubber, and plastics) accounted for 18 percent of manufacturing GDP in 1994. Its output increased by 5 percent during 1994. In 1990 this sector employed 130,000 workers. Although the chemical industry was the most important foreign-exchange earner in the manufacturing sector, its output fell far short of domestic demand. Exports of non-maquiladora chemicals and petrochemicals earned US$2.5 billion in 1992, but the country imported US$5.8 billion worth of chemicals and petrochemicals. The imbalance resulted partly from domestic price controls, inadequate patent protection, and high research and development costs. Chemicals and petrochemicals accounted for 72 percent of total non-maquiladora export revenues in 1992. The chemical industry slumped in early 1993, as sales fell by 10 percent, operating profits by 61 percent, and net profits by 59 percent.
Petrochemicals accounted for less than 2 percent of overall GDP in 1992. The state oil monopoly, Mexican Petroleum (Petróleos Mexicanos--Pemex), dominated the country's more than 200 petrochemical companies, which together operated more than 700 plants. The petrochemical subsector enjoyed robust annual growth of 7 percent between 1982 and 1988, but output slowed thereafter. Pemex produced 18.5 million tons of petrochemicals in 1993, down from 19 million tons in 1992. In 1992 the Salinas government reduced the number of basic petrochemicals reserved for Pemex to just eight and lifted restrictions on foreign investment in "secondary" petrochemicals to improve the oil company's cost-effectiveness, raise the industry's productivity, and attract new private investment.
Although Mexico's pharmaceutical industry consisted of some 450 companies, the largest ten enterprises accounted for 30 percent of all sales in 1993. In the early 1990s, some fifty-six firms controlled three-quarters of pharmaceutical production. Nonmetallic minerals (excluding oil) accounted for 7 percent of manufacturing gross national product (GNP--see Glossary) in 1994. The subsector concentrated on production of cement, glass, pottery, china, and earthenware. Total cement output in 1993 was 27 million tons. Cement exports fell from 4.5 million tons in 1988 to 1.4 million tons in 1992 because of higher domestic demand and United States antidumping sanctions. A new cement plant came into operation in Coahuila in early 1993, and the expansion of two other plants in Hidalgo was completed.
Mexico's largest cement producer is the privately owned Mexican Cement (Cementos Mexicanos--Cemex). By 1994 Cemex had become the world's fourth largest cement company, with annual earnings of US$3 billion. In an effort to establish itself as a major multinational corporation, Cemex expanded its operations during the early 1990s into the United States and twenty-five countries in Europe, Asia, and Latin America.
The basic metals subsector (dominated by iron and steel) accounted for 6 percent of manufacturing GNP in 1994. Mexico's iron and steel industry is one of the oldest in Latin America, comprising ten large steel producers and many smaller firms. The industry is centered in Monterrey, where the country's first steel mills opened in 1903. Steel plants in Monterrey (privatized in 1986) and nearby Monclova accounted for about half of Mexico's total steel output in the early 1990s. Most of the rest came from the government's Lázaro Cárdenas-Las Truchas Steel Plant (Sicartsa) and Altos Hornos de México (Ahmsa) steel mills, which were sold to private investors in 1991.
Export revenue from steel and steel products fell from US$1.03 billion in 1991 to US$868 million in 1992. Spurred by rising demand from the automobile industry, crude steel output rose 6 percent to 9 million tons in 1993. During the first half of 1993, output rose 10 percent over the same period in 1992, to 4 million tons. Production of semifinished steel rose 86 percent, reaching 573,000 tons, and rolled steel production expanded 5 percent to more than 2.6 million tons. Pipe production fell 13 percent to 174,400 tons. In 1993 Mexico was Latin America's second largest steel producer after Brazil, accounting for some 20 percent of Latin America's total steel production of 43 million tons.
Paper, printing, and publishing contributed about 5 percent of manufacturing output in 1994. Mexico produced almost 3 million tons of paper and 772,000 tons of cellulose in 1990. The country had some 760 publishing enterprises in 1990, 48 percent of which published books, 44 percent periodicals, and 8 percent both. These companies produced a total of 142 million books and 693 million periodicals. Trade liberalization hurt the domestic publishing industry in 1992, as imports rose to US$1.6 billion from US$1.3 billion in 1991. Exports of Mexican publications declined in value from US$232 million in 1991 to US$217 million in 1992.
Finally, wood products contributed 3 percent of manufacturing GDP in 1994. Although output of wood products fell in the late 1980s because of high investment costs and other adverse conditions in the primary forestry industry, it began to recover in 1993. Output of wood products increased by 2 percent during 1994.
The construction sector accounted for slightly more than 5 percent of GDP in 1994. In 1991 Mexico had about 18,000 registered construction companies that employed almost 1 million workers. In that year, heavy construction accounted for 44 percent of all construction, residential building 35 percent, and industrial construction 14 percent. Government efforts to promote private-sector investment in physical infrastructure projects (especially road building and new rental housing) helped to increase construction growth. Construction growth slowed from 7 percent in 1990 to 2 percent in 1991. It accelerated to 8 percent in 1992, but slowed again to 3 percent in 1993, partially as a result of continuing high interest rates, which discouraged private investment. In 1993 transport projects accounted for 29 percent of the value of production in the formal construction sector, the installation of water supplies accounted for 11 percent, and electricity and communications projects accounted for 9 percent.
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