Nuevo Leon building on an export-oriented, industry-driven economy

Posting a GDP growth rate of 3.9% in the first half of 2017, Nuevo León outpaced the national economy, which grew at a rate of 2.5% over the same period. Despite a challenging year of slow growth in 2016, the manufacturing sector remained the main driver of the state’s economy in 2017, with the Chamber of Industry of Nuevo León (Cámara de la Industria de Transformación de Nuevo León, CAINTRA) estimating growth of 4.5%. Guillermo Dillon Montaña, director-general of CAINTRA, told local media in February 2017 that the manufacturing sector represents 25% of state GDP.

In 2018 political developments in both the US and Mexico have created some uncertainty about the future of US-Mexico trade relations. Though the US continues to be Nuevo León’s largest trading partner, the state has pushed to diversify its economy and ensure long-term growth by expanding beyond export-oriented industrial production. The state government actively supports mining and agricultural production, the construction of energy and transport infrastructure, and the enhancement of competitiveness and productivity through investment in research and development (R&D).

Geography & Climate

Located in the north-east of the country, Nuevo León is one of six Mexican states bordering the US. To its north is Texas, to its east is Tamaulipas, Zacatecas and San Luis Potosí are positioned south-west, and Coahuila lies to its west. Nuevo León covers 64,156 sq km of territory, which equals roughly 3.3% of Mexico’s total land mass.

Historically, the state’s geography and climate have made it challenging for activities such as largescale mining and cash crop farming. The climate is generally arid or semi-arid, especially in the northern and southern parts of the state. The average temperature is about 23°C, peaking at 32°C during the summer months and averaging about 14°C during the winter. Average annual rainfall is 66 mm, with September likely to receive the most precipitation. The parts of the state that are best suited for agriculture are the northern Gulf Coastal Plain and the orange-producing Región Citrícola, or citrus region, which stretches from the south of Monterrey across to the municipalities of Allende, Montemorelos, Hualahuises, General Terán and Linares.

History

Throughout the pre-Hispanic era, the north-eastern part of Mexico, where Nuevo León is now located, was populated by a scattered mix of indigenous tribes. Unlike areas in southern Mexico, the northeast did not have any major urbanised indigenous population centres in the mid-1500s, when Spanish explorers first arrived. Nuevo León’s capital, Monterrey, was founded by Alberto del Canto in 1577 as a settlement called Santa Lucía. El Nuevo Reino de León, or the New Kingdom of León, was an official Spanish colony formed in 1582 and governed by Luis de Carvajal y de la Cueva. It wasn’t until 1825 that Nuevo León officially became a state in the newly independent republic of Mexico.

In its post-independence and early colonial history, Nuevo León was slow to develop economically as it lacks rich deposits of precious metals and its climate is relatively ill-suited for large-scale agricultural production, in comparison to the southern and central parts of Mexico. During the 19th century, the state, like the rest of Mexico, was disrupted by a period of political upheaval and violence during the country’s battle for independence and subsequent wars with foreign powers; Nuevo León was invaded by US forces in 1846 and French troops in 1865.

Industry & Trade

During the latter half of the 1800s, however, Nuevo León began to build up a strong economy based on local industry and trade, due in part to its strategic location between population centres in the US and southern Mexico. In the 1860s during the US Civil War, Nuevo León moved into textile production, buying cotton from suppliers in the US south. In the 1870s and 1880s Mexico’s political dynamics stabilised during the rule of Porfirio Díaz, a semi-autocratic president who served for multiple terms in office. During this period Nuevo León continued to develop its industrial base and its population grew rapidly as a consequence.

By the 1890s, a group of local industrial magnates in Nuevo León consolidated the state’s first industrial cluster, forming a group of successful local businesses that produced beer, bottles, cardboard and steel. Together, the state’s brewers, glassmakers, foundry workers and carton makers created new local brands and companies, and exported their products to distant areas of Mexico via a new network of roads and railways. In the 20th century many of the families who founded the state’s early industrial economy entered into new manufacturing segments, like construction materials and auto parts.

Today, these families run some of Nuevo León’s most successful companies – such as holding company Alfa, building materials firm Cemex, and beverage manufacturer and distributor Arca – and as they expanded, Nuevo León’s industrial base grew. The state currently has multiple industrial segments, 150 industrial parks, two international airports, and an expanding network of railways and roads.

Politics

Nuevo León is one of 32 autonomous entities (31 states and the federal district of Mexico City) that comprise Mexico’s federal system. As is the case in other Mexican states, residents in Nuevo León elect a new governor for a single-term period every six years. The state legislature, a unicameral body and local authorities are elected every three years; however, a package of constitutional reforms approved by Congress in December 2013 allows state legislators and local authorities to run for re-election. Municipal leaders now have a right to hold a second term in office, while state legislators are allowed up to four terms. The Congress of the State of Nuevo León is composed of 42 members.

Jaime Heliodoro Rodríguez Calderón, also known as “El Bronco”, became governor of Nuevo León in June 2015 after winning with a majority of 48.8%, making him the first independent candidate to win a governorship in Mexico. He ran under the campaign name Alianza por tu Seguridad (Alliance for Your Security) and was supported by a coalition movement that included many prominent members of the state’s private sector. Rodríguez Calderón is a former member of the centrist Institutional Revolutionary Party, which, together with the right-of-centre National Action Party, constitute the two strongest political movements. On December 31, 2017 Rodríguez Calderón stepped down as governor to run as an independent in the July 2018 presidential elections; however, the office was ultimately won by Andrés Manuel López Obrador, of the National Regeneration Movement. Manuel Florentino González Flores took over as interim governor on January 1, 2018.

Monterrey Metro Area

The state’s political make-up can be broken down further into 51 municipalities. The Monterrey Metropolitan Area (Metropolitana de la Ciudad de Monterrey, AMM), is made up of several smaller municipalities, like the industrial area of Apodaca, the city centre of Monterrey and the wealthy residential district of San Pedro Garza García. In 2017 the number of municipalities in the AMM increased from seven to 15, to include areas such as Pesquería, which is already attracting investment. With a population of over 4.5m, the AMM is the third-largest metropolitan area in Mexico. Although an informal council helps to coordinate policy-making among AMM mayors, the state government leads the overall strategy for industrial development in Monterrey and its surroundings.

Population & Workforce

The population of the state as a whole increased from approximately 300,000 in 1900 to surpass 1m by 1960. Under the North American Free Trade Agreement, the number of inhabitants grew steadily, at an average rate of 2.2% between 1990 and 2000, 1.9% between 2000 and 2010, and 2.1% between 2010 and 2015.

The latest available data from the National Institute of Statistics and Geography (Instituto Nacional de Estadística, Geografía e Informática, INEGI) put the population count at 5.2m in 2015, equivalent to 4.2% of the country’s total inhabitants. Most of Nuevo León’s population is concentrated in the AMM. The largest individual municipalities are Monterrey, with 1.1m residents, followed by Guadalupe (682,880) and Apodaca (597,207).

The median age jumped from 24 in 2000 to 28 in 2015. Over 67% of residents are of working age (15-64 years), up from 65.2% in 2000. According to a report published in May 2018 by the Secretariat of Labour and Social Welfare, there are 2.44m economically active people, of which 2.35m are employed. Unemployment stands at 3.6%, slightly above the national average of 3.1%. The informal labour market accounts for 35.3% of the workforce, well below the national average of 56.7%.

Nuevo León has the greatest formal sector employment in Mexico. Industrial manufacturing is one of the most important sources of work, and as of May 2018 there were nearly 580,000 people, or 24.6% of the state workforce, employed in the sector. More than 180,000 were employed in construction and over 420,000 in retail, while just 1.5% worked in agriculture and 2.6% were employed by government agencies.

Education

Underpinning the workforce is a robust public education system. According to the Ministry of Public Education, in 2016/17 Nuevo León had 2731 public primary schools, with 565,832 students. There were 280,587 students across 1101 secondary schools. Just under a fifth of public secondary school attendees, or 92,836 students, are enrolled across 209 technical high schools. The state also has 241 private high schools, with 31,667 students.

Estimates for 2017/18 show broad access to basic education and an increase in high school attendance rates. Although 97.7% of all students aged three to 14 attend or have graduated from primary school, only 76.1% of Nuevo León’s residents aged 15 to 17 attend higher secondary school, which was nevertheless an increase from 71.2% for the 2016/17 school year. The state government has mandated that all students complete higher secondary education, which should continue to boost high school completion rates and strengthen a long-term trend of improvements to overall levels of schooling in the state. According to data from INEGI, the average number of years students aged 15 and older spend in school increased from 7.5 in 2000 to 9.2 in 2015, and the literacy rate of all Nuevo León citizens stood at 94.5% in 2015.

According to the OECD’s Programme for International Student Assessment test, Nuevo León’s students have some of the highest test scores of any state, ranking behind only their peers in Mexico City. At the university level Nuevo León is well regarded within Mexico for the quality of its institutions. The state’s best universities are concentrated in Monterrey, a city that is consolidating its reputation as an education hub. These institutions are a clear asset for the economic development of the state, contributing to efforts to advance R&D and innovation, as well as boosting Nuevo León’s investment attractiveness.

Infrastructure

One area through which Nuevo León aims to attract investment is infrastructure. As a border state, it is well connected to major motorways, rail lines, and international transport routes. The main border crossing is the Laredo-Colombia Solidarity International Bridge, which connects the town of Laredo, Texas to Colombia in Anáhuac, Nuevo León. The bridge is owned and jointly operated by the city government in Laredo and Mexico’s Ministry of Communications and Transport. Nuevo León has 3127 km of motorways. Its modern toll roads are operated by the federal government, including Highway 85, which connects the industrial district of Apodaca with the US border city of Laredo, and Highway 40, which connects the AMM with the city of Reynosa in the neighbouring state of Tamaulipas. Nuevo León also has a network of state-run motorways that run through municipalities surrounding the AMM and around the state’s other main cities, such as Linares, Anáhuac and Montemorelos. Additionally, there is a robust, 1092-km rail network. Monterrey’s first railway opened in 1882. Today, its railways are operated by US transport holding company Kansas City Southern and private local consortium Ferromex.

Outlook

Although in the short term the future of US-Mexico trade relations is likely to continue to be clouded by uncertainty, overall, Nuevo León is well positioned to grow and adapt over the medium and long term. Looking forward, continued efforts to improve productivity and competitiveness through innovation and R&D will be critical to ensuring longterm economic growth at the state level. To this end, Nuevo León’s reputable universities and its high level of formal sector employment are additional assets that should help the state prepare for the future.