BMI's Executive Summary

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The start of President Felipe Calderón's six-year presidency in December 2006 was inauspicious: with a narrow and contested victory in the elections six months earlier the new leader faced the bitter opposition of Mexico's left wing parties and lacked a majority in Congress. However, one year on, at the tail end of 2007, Calderón had surprised even his strongest critics by moving forward with tax and other reforms. One of his most popular decisions was taken right at the beginning, when the President brought the armed forces into the struggle against Mexico's powerful and murderous drug cartels. Early results on this front helped his standing in the opinion polls: some leading drug bosses were arrested or extradited to the US, and by late 2007 the security services were making record drug seizures. Cocaine prices in the US rose to a five-year high, reflecting a tightening of supply caused by the crackdown in Mexico. While the situation was clearly encouraging, and persuaded Washington to throw its support behind a US$8.4bn three-year Mexican drugs control programme, BMI warns that the drugs business remains resilient, and that most politicians who have proclaimed victory in the 'war against drugs' have been proven wrong.

A source of concern was the re-emergence of a dormant and little-known guerrilla group in central Mexico, the Popular Revolutionary Army (EPR), which in mid-2007 launched a series of highly damaging bomb attacks on natural gas pipelines, causing significant economic losses. The EPR appeared motivated by the presumed kidnapping of two of its members, and apart from this specific issue was not thought to be seeking to mount a major challenge to the new government. However, the way it had managed to keep 'under the radar' of the intelligence services, and the strength of the blow it delivered to the pipeline infrastructure, highlighted a significant security weakness.

Mexico maintains a small defence industry focusing mainly on the production of small arms and ammunition. Efforts to achieve a degree of self-sufficiency through co-operation with foreign firms floundered as a result of the economic difficulties of the early 1980s. Since then, Mexico has relied mainly on foreign, and in particular US, arms manufacturers for its large-scale weapons systems requirements.

Given that the US security guarantees against external threats, Mexico has never needed a very large army. The armed forces are, however, in need of modernisation – Mexico's army has no battle tanks in its inventory. Mexican armed forces continue to monitor rebel enclaves and strongholds, mounting occasional 'search and destroy' missions and making arrests; generally, however, there is a stalemate. Regardless of the internal protests Mexico can rely on US support, political and military, to assist with security issues: good news given the condition of Mexico's defence industry.

Contents

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Chapter 1 - Executive Summary

SWOT Analysis

Mexico Political SWOT

Mexico Security SWOT

Mexico Defence Industry SWOT

Mexico Economic SWOT

Mexico Business Environment SWOT

Chapter 2 - Political Overview

Domestic Political Outlook

Calderón Victorious – AMLO Defiant

Challenges Ahead

Foreign Policy

Ready For Reform

Chapter 3 - Security Risk Analysis

BMI’s Security Ratings

Risk Ratings

Table: Regional Risk Ratings

Table: State Terrorism Vulnerability Index

Regional Security: Latin America

US-Latin America Relations

Regional Arms Race

Narcotics And Security

Mexico Security Risk Rating

Mexico Conflict Risk

Mexico Terrorism Risk

Mexico Physical Safety Risk

Chapter 4 - Security Overview

Internal Security Situation

Gangs and the Drug Trade

External Security Situation

Mexico-US Relations

Al-Qaeda

Chapter 5 - Military Structure & Defence Industry

Armed Forces

Table: Regional Armed Forces (including conscripted) 2006

US-Mexican Military Co-Operation

Market Overview

Arms Trade Overview

Imports

Industry Trends And Developments

Procurement Trends And Developments

Chapter 6 - Industry Forecast Scenario

Table: Mexico Defence & Security Industry – Historical Data & Forecasts

Table: Mexico Defence & Security Industry – Historical Data & Forecasts

Key Risks To Forecast Scenario

Chapter 7 - Macroeconomic Forecast

Auto Sector Drives Up Forecasts

Table: Economic Activity Indicators

Chapter 8 - Company Profiles

Honeywell Aerospace

Productos Mendoza SA

Chapter 9 - BMI Forecast Modelling

How We Generate Our Industry Forecasts

Defence Industry

Sources

Chapter 10 - Appendix A: Risk Ratings Methodology

Conflict Risk Methodology

Terrorism Risk Methodology

Physical Safety Risk Methodology

Overall Risk Rating

State Vulnerability Index Methodology

Competitive Landscape for Latin America Defence & Security: Sample of  
Companies Ranked

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Rankings and Competitive Landscapes by production and sales; market share and change on previous year; number of employees, ownership structure and year established. Also includes analysis of company expansion, export and investment strategies.

Network of Defence & Security Sources

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BMI's Latin America Defence & Security Reports are based on an extensive network of multilateral organisations, government departments, automotive industry associations, chambers of commerce and company reports. Information sources include: