In the first several months of 2019, manufacturing on the northern border of Mexico experienced the most dynamic regional growth of all areas of the country. This is in contrast to the Bajio region. The Bajio is the portion of the country that includes the states of Aguas Calientes, Jalisco, Guanajuato, San Luis Potosi, and Queretaro. Unlike the border region, these entities experienced negative growth in the manufacturing sector. Some Mexican economic development specialists attribute this disparity to the policies that have been implemented thus far by the country’s president, Andres Manuel Lopez Obrador.
According to Mexico’s National Institute of Statistics and Geography (INEGI), in the first quarter of the current year, the value of manufacturing on the northern border of Mexico increased by a real annual rate of 5.7%. This was the highest percentage of production growth in any part of the nation. The result was the product of the economic performance of individual northern border states.
Baja California ranked first in manufacturing growth in the country during the first three months of 2019 with an increase of 17.7%, while Coahuila followed in third place with 7.2%. Other states experiencing significant growth in the value of manufacturing on the northern border of Mexico included Nuevo Leon with 5.1%, Chihuahua with 3.6% and Sonora with 3.2%. The only border state in the nation to experience negative growth in the sector was Tamaulipas with a decrease of 5.8%.
According to Jose Luis de la Cruz Gallegos, director of the Institute for Industrial Development and Economic Growth (IDIC), manufacturing on the northern border of Mexico is experiencing this increase in activity primarily due to the tax incentives that have recently been implemented by the country’s federal government, as well as those that have been put into place governing bodies on the state level.
This year, by way of federal decree, a free zone was created across Mexico’s northern border. In this strip of the national territory, the country’s value-added tax (IVA) was reduced from 16% to 8%. Additionally, income tax was reduced to 20% effective on the first of January. Finally, on Mexico’s northern border with the United States, the minimum daily wage for workers was increased to 176.72 pesos per day. According to the director of the IDC, the promotion of manufacturing on the northern border of Mexico is an economic priority for the Lopez Obrador administration.
In the case of gains made in manufacturing in Baja California, the president of that entity’s State College of Economists, Domingo Ramos Medina, asserts that the recent positive performance of Baja California’s manufacturing economy is the result of the groundwork that has been laid over the last several years. In addition to the successful economic development promotion efforts that the state has undertaken in conjunction with its partner city, San Diego, Ramos Medina stressed that the tax incentives that the government has implemented have had a significant positive effect on all of the municipalities of the state.
Regarding the decline in manufacturing on the northern border of Mexico in Tamaulipas, the state has not been successful in developing the sector for two reasons: the strikes in Matamoros which impeded investment, and the wave of violence that has affected the state. Because of the latter circumstance, companies have been hesitant to invest their capital in the region
The Other Side of the Coin
Unlike manufacturing on the northern border of Mexico, the first four months of 2019 have evidenced a decrease in the value of manufacturing production of 4.8% per annum in the Bajio. This was caused by a decline of 9% in San Luis Potosi and a reduction of 5.5% in Guanajuato. Additionally, the value of manufacturing production in Aguas Calientes contracted by 5.4%. The only exception to this regional decline was in the state of Queretaro. That entity showed a rate of growth of 2.3%. The director of the IDIC, Cruz Gallegos, maintains that this result is due to the fact that the country lacks a comprehensive national economic development plan, and that certain entities have been favored by the administration of president Andres Manuel Lopez Obrador.
In response to this set of circumstances, the governors of Queretaro, Aguas Calientes, San Luis Potosi, Guanajuato, and Jalisco have joined forces to establish the Centro-Bajio-Occidente Alliance. This new organization will work in order to boost economic development and investment in the region.