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As the government attempts to open strategic sectors of the economy to competition and attract more foreign direct investment (FDI), much is also being done to improve science and research as a means to spur innovation. Increased spending, coupled with changes in regulation, is expected to fuel the growth of start-ups and make the business environment more dynamic. The current government has stated its goal to raise annual expenditure on science and technology from its current 0.4% of GDP to at least 1% of GDP by 2018. Upon assuming office in late 2012 President Enrique Peña Nieto also announced the creation of a high-level committee to advise him on scientific matters and assist in designing reforms for the sector. With political discourse increasingly echoing the position that Mexico’s future economic growth will depend on businesses’ capacity for change, research and innovation should gain more prominence in the near future. This chapter includes an interview with Raúl Gallegos, President and CEO, General Electric México.

The farthest north-west state in the country with a total population of over 3.3m, Baja California’s access to tangible resources – natural gas, water and electricity – and a qualified workforce distinguish the state from other investment regions. The state’s GDP saw a decrease of more than 8% in 2009 due to the economic crisis in the US. Despite this setback, economic recovery has been under way since 2010 with a 2.2% recovery, 4.4% growth for 2011 and 4.2% for 2012. In 2012 the state’s main economic activities by GDP were manufacturing and commerce, with shares of 19.4% and 16%, respectively. Total foreign direct investment was reported at $771.1m for 2013, growing 30% over 2012 figures. By continuing to support education and industry integration, the state could be set to see a shift from manufacturing to the development of an innovation- and research-driven market in the medium-term. This chapter includes an interview with Francisco Arturo Vega de Lamadrid, Governor, Baja California.

Despite accounting for just 1.7% of Mexico’s population and 2% of the economy, Querétaro is, in many ways, a picture of the country Mexico wants to become. Home to more than a dozen universities that work closely with local industry to produce a qualified workforce, Querétaro also stands out in terms of security and links to population and transport centres. The state government aggressively courts foreign direct investment (FDI), securing $500m-$700m annually in recent years. Querétaro’s economy is estimated to have grown 4.5% in 2013. Manufacturing accounted for 27% of the state’s economy in 2012 and more than half of FDI between 2010 and the third quarter of 2013. Of the manufacturing total, the automotive sector represented 33%, as well as 9% of state GDP. Querétaro is a state to watch as an economy in its own right and as an example of the path Mexico may follow. This chapter includes an interview with José Calzada Rovirosa, Governor of Querétaro.

At 17% of GDP, manufacturing is a pillar of the Mexican economy. More than at any point in the past 15 years, Mexican industry is today able to compete with China as a low-cost manufacturing alternative and with other high-income markets as a viable location for outsourcing sophisticated manufacturing. This is perhaps the most promising time for Mexican manufacturing since NAFTA was implemented 20 years ago. The story of the moment is Mexico’s surpassing China in labour cost competitiveness, a phenomenon that is hard to precisely quantify but whose consequences should be easy to see in the coming years. Moreover, reform in the energy sector has the potential to reduce costs in the long term, thus addressing one of the manufacturing industry’s greatest challenges. This chapter includes interviews with Ernesto M Hernández, President and Managing Director, General Motors de México; Louise Goeser, CEO, Siemens Mesoamérica; and Xavier García de Quevedo Topete, President, Minera México.

2013 was not a memorable year for the insurance sector in Mexico, given the country’s overall slower economic growth. Enhancing Mexico’s low rate of insurance penetration has proved a challenge. With a premiums-to-GDP ratio of about 2% – compared to 5% in Brazil – the insurance penetration rate is one of the lowest in the Latin American region. In 2012 only 22% of the adult population was covered by some kind of insurance. In 2013 insurance companies in Mexico held $72.06bn in assets, corresponding to 5.7% of national GDP. While life insurance remains the main segment of the market, the automobile and health segments hold particularly promising potential, the latter favoured by the fact that many people in Mexico do not have access to health care. Implementation of key legal reforms and their effects on firms and the sector as a whole will be central to growth prospects going forward.

Low macroeconomic volatility, stable exchange rates and efficient management of the economy and public finances are some of the factors behind the growth of Mexico’s capital markets and the record number of initial public offerings announced in 2013. With the second-largest stock exchange in Latin America, Mexico’s recent performance showed growth in volume as well as in value. In 2013, the volume of shares negotiated on the Bolsa Mexicana de Valores (BMV) was 96.4bn, reaching a value of $282.05bn, and up 8.3% on 2012. Optimism about structural reforms and an improvement in the credit rating from international agencies are attracting foreign capital and making financing cheaper for the government and companies alike. The Latin American Integrated Market, a joint stock exchange that integrates stock markets from Peru, Chile and Colombia, could become another channel for the internationalisation of the BMV as early as 2014. This chapter includes an interview with Luis Téllez Kuenzler, Chairman & CEO, Bolsa Mexicana de Valores.