Mexico & Nafta - 14 September 2004

The Banco de Mexico reported that remittances from Mexicans working in the US were up by 25% in the first seven months of 2004, compared with the same period of 2003, at US$9.37bn. The question is whether the actual volume of remittances has increased: our view is that the statistical increase largely reflects a change in the form of the remittances. 

Remittances have only recently become seen as an identifiable item in a country's and Mexico's balance of payments. Satisfyingly for officials, remittances have increased dramatically since they were given their own line in the balance of payments statistics. Whether this is a real increase, or just the product of better monitoring, is far from clear. This year, for the second consecutive year, remittance revenues are likely to outstrip foreign direct investment.

A 25% jump in the value of remittances would seem to indicate either a surge in the number Mexicans working in the US or an increase in their disposable income. A surge in the number of migrants working in the US would, in an US election year, have drawn at least some comment and analysis. There has been little or none such comment. Equally, there is little external statistical support for the suggestion that the labour market in the US has tightened to such an extent that wages are rising. With the labour market still delicate in the US, according to the most recent employment statistics, it hardly seems likely that Mexican workers are doing much better than everybody else. 

The most likely reason for the surge in remittances, which should take them over US$15bn this year, is that the central bank is capturing more of the transactions in its monitoring. The raises the questions of how much remitting is actually going on and whether it has changed much in the past five years. As remittances increased by 30% last year, it could be that they are still significantly understated.

Another possible explanation for the huge increase in remittances is that it has been caused by the demographic changes in the Chicano (Mexican-American) population in the US. The population is ageing, so there are proportionally more people of working age in the US. It could be that there are more job-shares and family businesses in the Chicano part of the population so the base of potential remitters is broadening. Instead of a couple and say a pair of their in-laws sending back money, the next generation down is now also working, often for relations, and sending money back. Equally, it could be that the central bank is still including other transactions in its remittance data, though this is less convincing. It hardly seems likely, for instance, that drug smugglers would remit tiny amounts of money (US$325.9, on average) electronically each month. The average remittance this year is up by only 3% from last year's average of US$316.7. 

The central bank reported that there were 28.76m remitting transactions in the first seven months of the year. The bulk of these were electronic transfers (worth US$8.16bn); US$1.1bn were postal orders and only US$104m were made in cash. What is interesting is that there have been significantly more electronic transactions this year than there were last year. The bank reckons that the number of electronic transactions increased by 22% in the first seven months of the year, compared with the same period of 2003. 

The bulk of the remittances go to four states: Michoacán, Guanajuato, Zacatecas and Jalisco. The government reckons that almost 6% of Mexican families benefit from remittances: around 6.3m people. The Consejo Nacional de Población reckons that there are 14m people of Mexican origin working in the US; of these 9.5m are legal migrants and 4.5m are undocumented. 

• Wal-Mart, the biggest retailer in the US (and the world) said on 6 September that it expects to buy more fresh fruit and vegetables from Mexico. The announcement followed a visit by Wal-Mart's global food purchasing chief, Wayne McKnight, to Mexico where he met the agriculture minister, Javier Usabiaga. Wal-Mart is particularly interested in buying more tomatoes, peppers, mangoes, bananas and avocados. 

Currently Wal-Mart buys more fresh fruit and vegetables from Argentina, Chile and Russia than it does from Mexico. McKnight also said that Mexican food companies may become Wal-Mart's suppliers of Latin American foods. Wal-Mart wants to increase its direct purchases: in 2003 it bought US$150m worth of foods directly from Mexican producers. It bought another US$1.35bn worth through intermediaries.