Wednesday, August 3, 2011

The Mexican Economy

Financially speaking, Mexico is still very much a two tier system of the rich and poor. Don't believe it when you hear about emerging markets in Mexico, Central and South America. You can't have emerging markets when the people are overtaxed, poorly paid and only the rich can afford manufactured goods made in plants both domestically and abroad.

Here are some basic facts about the Mexican Economy:
  • Minimum Wage is roughly $.80 cents USD per hour.
  • There are no overtime laws regulating how much you can work an employee.
  • Sales Tax for all over the counter retail purchases is 16% (IVA).
  • Income Tax is set at a flat rate of 30% of all net profits that a business earns. There are no itemized deductions per what I have been told.
  • Most goods and services offered at major retailers cost anywhere from 20% to 300% more than they do in the states. A bicycle with 26 inch wheels that sells at Wal Mart in the U.S for $100 USD costs at least $200 to $300 USD in Mexico. Hardware items, clothing, baby items, domestics, electronics, auto name it and it almost always costs more to buy in Mexico versus the U.S. Shocking isn't it?
  • It is estimated that roughly 80% of all goods manufactured in Mexico are shipped to the U.S. to be sold. So what happens if the U.S. currency continues to lose value and more jobs outsourced my U.S. based multinational corporations?
Some of this lack of income is offset in Mexican homes by family members who immigrate to the U.S. and work. I read a report recently which stated that in 2007 alone, Mexican citizens received wire transfers totalling $25 Billion USD from Mexican family members living in the United States and abroad. That is alot of  money that is being expatriated back into the Mexican financial system. This financial supplementation coming from up north won't last forever.

You can't grow an economy when you don't pay it's citizenry to do it's work. If you don't pay people then they simply don't have money to spend. And if people don't have money to spend they look for other ways to survive like committing crimes or immigrating illegally to countries with more job opportunities.

To compensate for the lack of money to drive discretionary spending, large retailers like Costco, Sam's/Wal Mart and Home Depot make credit very easy to attain here. Otherwise they wouldn't be able to sell much of what they do. Sound Familiar? That's what has been happening the the U.S. for the past 20+ years. Somewhere it is written that "the worker is worth his wage." When wages are poor then you severely limit the emergence of a middle class. That has been my observation at least.


Mexico has no plans to allow a middle class to emerge. If they did they would lose control over the people

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