Economists trimmed their outlook for the Mexican economy earlier this year, citing soft global economic conditions and low oil prices that are hurting an already sluggish industrial sector. Forecasts call for growth of between 2% and 3% this year and next, however, reflecting the steady growth the region has seen recently—and ensuring that it remains a focus for North American companies in the electronics supply channel.
“The market is expanding and our business has been growing,” says Esteban Polanco, strategic sales director, Mexico, for Florida-based global distributor America II Electronics, which has been focused on growing its business in Latin America, especially Mexico, over the last few years.
A recent report from researcher Focus Economics predicts 2.4% growth in Mexico this year, accelerating to 2.7% growth next year.
“The consensus view among analysts is that economic growth will be supported by private consumption this year,” the company wrote in a July report. “However, Mexico’s difficult adjustment to low oil prices and the fact that monetary and fiscal tightening come at a time of softening economic activity are casting a shadow on the outlook.”
But distributors such as America II are still banking on growth in the region, and elsewhere in Latin America, especially over the next two to three years for a variety of factors. Based in Guadalajara, Polanco says he sees growing activity in automotive and lighting markets in particular—especially in the central and northeastern parts of the country, where investment is strong. He points to a new Kia Motors plant in Monterrey, which opened earlier this year, along with growing design activity among small and mid-sized lighting manufacturers. Lighting is a key market for America II as it seeks to expand its relatively new focus in the Mexican marketplace.
“We have seen quite a bit of growth and our focus has been, over the last year, developing more products we can sell to the lighting market,” says Polanco, adding that Mexico has been “ahead of the curve” in making the switch to energy-efficient lighting, and LEDs in particular. “This has been and will be a big area for us.”
Cities and towns across Mexico continue to invest in energy-efficient lighting projects, and large and small lighting manufacturers have responded with a presence in the region that is driving design activity, Polanco says.
“You have really big OEMs that are building lighting, but you also have smaller and medium-sized [companies] that are down here focused on doing their own products. So from a design perspective, business is growing,” he explains, pointing to a greater amount of electronic content in energy-efficient lighting as a key reason behind the growth.
Design activity is also growing in other areas, including the Internet of Things and automotive-related markets as demand for “smart” products accelerates. Polanco points to smart metering in gas and utility markets and tracking devices that can be used on everything from cars to vending machines as hot areas.
“There is a lot of push for design in different areas and by different sizes of customers,” he says, adding that the lower cost of an engineer in Mexico compared to the United States is also contributing to the trend.
Technology, Solar Markets Hold Promise
Polanco says he expects America II’s business to grow beyond Mexico, especially as demand picks up for better technology infrastructure in places such as Brazil and Argentina, where changing political climates may open the doors for foreign investment.
“It is good timing, especially for us, to focus on those countries,” he says. “There will be investment, [because] they have been backed up with technology [needs], especially.”
Solar energy is another growing industry across the region. Researcher IHS Markit reported in July an increase in public tenders for photovoltaic (PV) projects throughout the region, spurring optimism for market growth. Latin America is expected to reach 2.7 gigawatts of installed PV module capacity this year, led by Chile, which will account for 44% of new installations, the researcher said. Honduras is the second-largest market in the region, but is set to be overtaken by Mexico, where new projects are emerging. As one example, northern Mexico is home to the first large-scale solar power project in the country, Aura Solar I, which began operations in 2013.
“Recent record-low bid prices—as low as $48 per megawatt-hour in Mexico—are attracting the interest of governments,” according to Josefin Berg, senior analyst, solar demand, IHS Markit. “Meanwhile, these bid levels raise the pressure on suppliers, as the procurers will be squeezing the total system costs to make the projects viable.”
IHS goes on to say that while tenders spur optimism regarding market growth, actual project deployment often takes longer than planned, as developers struggle with administrative barriers or seek to postpone construction to benefit from declining component prices.
“Planned tenders also risk delays, as most recently shown in Brazil where the power auction scheduled for July 2016 has not yet been set,” according to IHS.
Nonetheless, such potential opportunity across Latin America is fueling an already-interested supply channel that is looking for new growth avenues in what continues to be a cautious global climate.
“The market is steadily growing, and there is investment in many different areas,” Polanco adds, pointing to aerospace and medical industries in addition to automotive, technology and energy-related fields. “So, there is a quite a bit going on, which makes [the region] very appealing.”