Mexico is perceived as one of the most corrupt countries in the world and is enduring a horrendous human rights crisis on its border, yet it is still massively outperforming Canada in terms of export growth to the United States. The current trend highlights the enormous challenge ahead for a Canadian economy that, with commodity prices sharply lower, is increasingly dependent on exports for future growth.
The statistics are awful. Since the depths of the financial crisis, U.S. imports from Mexico have increased 127 per cent while Canadian exports south are up a paltry 37 per cent.
Export Growth to U.S., 2000-Present : Canada vs Mexico
SOURCE: Scott Barlow/Bloomberg
Mexico's remarkable success has come despite major hurdles. Transparency International, a Germany-based non-governmental organization that lobbies against corruption in over 100 countries worldwide, ranked Mexico 103 out of 175 countries using their proprietary Corruption Perceptions Index.
And U.S. imports from Mexico have grown despite an eight-year government war with drug cartels that has resulted in at least 60,000 deaths and possibly as many as 120,000.
Corruption and the tragic drug war have not stopped global corporations from investing in the country, often at Canada's expense. Foreign Direct Investment in Mexico surged 124 per cent between 2009 and 2013 (2014 data is not yet available), highlighted by Nissan Motor Co.'s almost $3-billion (U.S.) investment in new manufacturing capacity there.
Among the countries ranked by Transparency International, Canada ranks as the 10th least corrupt. It is not fighting a border war, and can boast of superior infrastructure development for better corporate operation. Yet we apparently can't catch a break when it comes to competing with Mexico for foreign investment.
Wages are a clear issue. Lower standards of living in Mexico have seen hourly wages average just over $2.50 (U.S.) in recent years, which is much higher than Canada's average of about $20 (U.S.) per hour.
U.S. manufacturing migration to southern states is the other, less appreciated hurdle. In the 1970s heyday of domestic manufacturing and exports, New York had the largest state gross domestic product, Illinois was third largest and Ohio was fifth. Now, California and Texas have larger economies than New York, Illinois has a smaller economy than California, Texas and Florida. Ohio's economy is now eighth largest.
Logistical and transportation considerations mean global manufacturers are more likely to invest in Mexico than Canada, all else being equal, to be closer to those fast growing economies in the the southern U.S. .
More optimistically, Canada's lagging export growth was the result of one major hindrance that no longer exists: the strong Canadian dollar. The loonie has fallen 18 per cent since July 2014, which should provide a tailwind for export growth. The peso has only dropped 14 per cent against the greenback.
Canada's far more educated and skilled workforce is also a distinct advantage relative to Mexico, particularly in sectors like technology, biotechnology and engineering.
Follow Scott Barlow on Twitter @SBarlow_ROB.