Mexico is seeking to increase the militarization of civilian activities ranging from the national park to domestic crime-fighting operations, with a plan under Prime Minister Lopez Obrador to put the country’s National Guard under military control.
“The military ran more than 2,500 branches of a state-owned development bank, built a new airport in Mexico City and ran various customs centers,” said Madeline Wilde, associate defense analyst at GlobalData.
Mexico’s defense budget is now expected to grow from $6.9 billion to $8.8 billion by 2027, according to GlobalData. “All of these activities require funding, which leads to continued growth in the defense budget,” Wilde continued.
Expansion of military control
In a State of the Nation address on Sept. 1, Obrador outlined plans to further strengthen Mexico’s military power, asking Congress to shift control of the National Guard away from civilian control and toward military command structures.
The National Guard was created in 2019, the same year the Mexican constitution was changed to allow the president to use the military in various roles to support civil authorities. Removing civilian control of the National Guard would go against Mexico’s constitutional structure, and Obrador does not have the votes to make a constitutional change, but rather seeks a simple majority to pass a change proposal.
There is considerable public support for the participation of the country’s armed forces in the fight against drug cartelsas a survey by La Nación shows that 80% of the public supports their role in the fight against organized crime.
GlobalData’s latest report, ‘Mexico Defense Market Size and Trends, Budget Distribution, Regulations, Key Acquisitions, Competitive Landscape and Forecast, 2022-2027.”, notes that Mexico’s defense industry will demonstrate a positive compound annual growth rate (CAGR) of 5.5% between 2023 and 2027, which is a faster growth rate compared to the period 2018-22 ., which posted a positive CAGR of 4.4%.
Mexico’s defense industry benefits from a close relationship with the US
USA and Mexico defense industries have long been intertwined; the resolve of their cooperation has been tested recently by political change in both countries. Mexico and the US were deeply involved in the Merida Initiative, an agreement aimed at strengthening the rule of law and providing funding for anti-narcotics operations.
However, political tensions between the administrations of López Obrador and US President Joe Biden have many questioning the viability of this agreement. The successor to the Merida Initiative is still uncertain as the original deal nears its renewal date.
“Counter-narcotics and organized crime operations under the Mérida Initiative were key drivers of Mexico’s defense spending. A decline in those will affect the allocation and allocation of defense funds,” says Wilde, who believes Obrador’s unconventional use of the military will offset operational funding requirements.
While Mexico may have seen a decrease in financial and operational cooperation with the US Department of Defense, the investment incentives of the Maquiladora in Mexico (IMMEX) may still benefit industrial relations.
“Unless relations deteriorate enough to threaten the USMCA, this beneficial relationship looks set to remain.”
IMMEX offers huge reductions in various taxes and significantly reduces barriers to trade. As an example, Mexico imports raw materials tax-free with the guarantee that they are then exported later as manufactured goods.
Wild continues: “Mexico’s defense industry benefits from a close relationship with the US due to the large presence of US firms operating in Mexico under IMMEX rules.
“Manufacturers benefit from cheap labor costs and fewer regulations when carrying out manufacturing procedures on Mexican soil, while Mexico gains knowledge transfer, a larger industrial skills base and increased operations of smaller Mexican firms that can to be able to tap into the supply chains of US firms operating in Mexico.
“The IMMEX program is complemented by the US-Mexico-Canada Agreement (USMCA, successor to NAFTA). Thus, unless the relationship deteriorates enough to threaten the USMCA, this beneficial relationship looks set to remain.”