Magazine article Risk Management

NAFTA's Effect on the Mexican Economy

Magazine article Risk Management

NAFTA's Effect on the Mexican Economy

Article excerpt

The passage of the North American Free Trade Agreement (NAFTA) is likely to have a significant impact on the U.S., Canadian and Mexican economies. NAFTA combines the economies of the the three nations into a trade block with a total Gross National Product of over $6 trillion - creating the largest trading block in the world, said Brian W. Jones, senior vice president at Johnson & Higgins Ltd. in Toronto. Speaking at the session "NAFTA - Impact on Risk Management Programs," Mr. Jones added that in regard to insurance and risk management, the unified coverage available through NAFTA will give risk managers "the ability to deal with the same underwriters and brokers on a worldwide basis."

NAFTA's truly revolutionary impact, however, will be in Mexico. For Mexico, the passage of NAFTA and the concomitant boosts in investment will play a big role in the further development of an already rapidly expanding economy, declared Miguel E. Silva, president of Prime Internacional, in Col. De Valle, Mexico. So far, the increase in business activity in Mexico "is significantly changing Mexico, and for the better," he said. "Companies are getting leaner, and productivity is up."

Mexico has many of the signs of a high growth economy, thereby offering numerous advantages to investors, said Harald Feldhaus, chairman of Brockman & Schuh. "Mexico has one of the most open economies in the world," he said. Highlights of its economy include "single-digit inflation, a balanced public budget, real economic growth (presently at a rate of 12 percent), a deregulated economy, and a favorable investment climate." Mexico also offers a strategic geographic location, market-oriented governmental policies, innovative, committed managers, and good natural resources. The trend toward industrial privatization in Mexico has been striking, observed Mr. Feldhaus. In 1982, there were 1,200 public companies, compared to only 400 in 1993.

However, Mexico "will have to develop its infrastructure to support growth under NAFTA," said Mr. Jones. For example, he cited that Mexico needs to increase office space to accommodate corporate needs. Not all investment has helped build the economy, however. For example, Mr. Silva noted that last year, in anticipation of NAFTA's passage, many investors "invested in the stock market, but few in infrastructure." NAFTA's passage will increase investment in a number of areas, including telecommunications, transportation, auto, truck and auto part manufacturers, construction equipment, and financial services, said Mr. Jones. The financial market opportunities in Mexico are particularly significant, he declared. …

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