What Mexico will give to the world after COVID-19: a better understanding of trade dynamics

By Jose Jaime Diaz Gonzalez de la Campa. Member of IMEF’s Board and Independent Consultant. Republished from IAFEI June 2020 Quarterly bulletin.

Mexico has been hit like everyone else by the pandemic. This is not the topic of this article. I will only focus on mentioning that situations not foreseen and not controlled by anyone make us strengthen ourselves as a country.

Shortly before the pandemic began, international markets were in high gear due to the potential trade conflict between the United States and China. On the other hand, the conflict over the oil supply has generated a double impact on the export prices of a barrel. The lack of demand for energy derived from the fact that world economies have stopped, and the excess supply derived from increases in production in Russia and Saudi Arabia.

For its part, Mexico has reduced its oil extraction to 40% and now it is necessary to import gasoline and other finished products for different industries, so on the balance sheet we are already net importers of petroleum products.

In the short term, this has been negative for our country, since the state-owned company PEMEX has lost competitiveness in the cost of oil extraction, but in a broader sense, that creates an opportunity to transform our energy generating industry into new, cleaner technologies. Currently, there is a political issue within our country on this issue.

Mexico’s location South of the world’s largest market makes it a unique and privileged place to grow his business relationship with the United States. Mexico is now the number 2 trading partner with a surplus of 100 billion US dollars at the end of 2019. China has a surplus within the United States of 345 billion USD in the same period of time.

Mexico’s trade potential with the United States still has great room for growth, considering the potential conflict between the United States and China.

On the other hand, the signing of the trade agreement USMCA between the United States, Canada and Mexico will cause the exchange of inputs to be concentrated in this region, generating potential for additional openness.

For Mexico it is a great opportunity, however, currently 80% of exports are directed to the USA. If under the same concepts, exports of intermediate use goods are reviewed to other countries with which Mexico has trade agreements, the export potential may be increased. What products can be exported? Agricultural products and other raw materials, minerals, precious and industrial metals, intermediate goods, such as IT services.

We have learned with the pandemic that Mexico with its professionals is capable of exporting knowledge in different areas, and finding in technology the means to transmit it.

There are different models for managing services remotely, such as financial services, consulting, control of computer systems and the creation of new content. E-Commerce is an example where it has not been adopted in the local market at the same level as the international one. In other countries, there is already a widespread concept of online shopping and cashless transactions. The use of electronic money in our country and in many others is still a dream of the future .

However in Mexico technology is being developed so that the supply chain of different basic products is technified, traceability is obtained and, best of all, transactions are cashless. Various initiatives have already caught the attention of authorities in Mexico and Latin America. This model can be exported to a large a number of countries where the supply chains are still poor from a technical standpoint and become more expensive through intermediaries who, in some cases, do not add value.  

The traceability of products is already a requirement in several markets such as in Europe and in the United States. In Mexico it is still not a requirement, and rather it is offered as a competitive advantage. When the complete chain is within the same platform, not only producers and distributors are integrated up to the final consumer, but also providers of transport services, fertilizers, warehouses and many other services that add value in the chains.

Being also an open platform, it is not restrictive, but inclusive. Technology providers that add value can connect and also obtain information that is useful for their own services.

This is just one example of what is currently developing in Mexico. The private sector an NGO’s are the ones who have taken the lead. The government is so far open to listen and support these initiatives.

It is worth mentioning that these developments will obtain a lot of information known as big data that will serve multiple secondary purposes. For now, the central purpose is to improve the food supply chains in the country.

This is one example of what Mexico will give to the world in the short term , so stay tuned.

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