Mexico’s time?

Antonio Montes. Director of International Development. IE Business School

1 September 2013

Mexico looks like it is set to be the new Brazil, and Peña Nieto has taken over the helm with the clear objective of making it happen. Nevertheless, we have to ask ourselves if he really will manage to do it this time.

Lately we keep hearing a lot about Mexico being one of the countries that will lead the world economy over the next few years. We heard similar stories about Brazil, which has nevertheless fallen a little behind as indicators begin to point to serious structural and economic problems, further supporting the theory that Mexico is now taking up the baton.

Less than a year ago President Peña Nieto came to power after many years of PAN governments, and he has come with the firm intention of revolutionizing the country and transforming it into one of the emerging powers of this century. According to the current government, it is set to spend the next few years working on a plan based on a serious of national objectives aimed at achieving greater prosperity and equality for all Mexicans, combating poverty, which currently affects 45.5% of the population, and fostering sustainable economic growth.President Peña Nieto aims to make Mexico one of the world’s biggest factories, similar to China.

In order to do this he wants to leverage current conditions, given that for years Mexico did not benefit from the economic boom and growth seen in other major countries, which supplied raw materials as China’s awoke and became industrialized, helping them to achieve unprecedented levels of growth.

Mexico did not get a seat on this train, but now this is one of the keys to securing its future.

If we compare it with China, we find the following strengths:

1.- Mexico has more free trade agreements than any other country in the world. To be specific it has 12 agreements that span 44 countries, notably the US, Canada, the European Union, Colombia, Peru, Chile, Caribbean countries, etc. China has trade agreements with just 18 countries. This situation is key when it comes to attracting foreign investment and the establishment of companies from other countries.

2.- Mexico has a workforce that is specialized in specific sectors, such as the automotive sector, which makes it very attractive to manufacturers in related industries. 

3.- The cost of energy, chiefly natural gas and oil, is far lower than in China.

4.- The cost of labor is currently lower than in China, and it is expected that by 2015 it will have gone down still further to stand at some 30% less than that of the Asian Giant.

All these factors, coupled with the “Pact for Mexico” agreement with the main opposition parties (PAN and PRD) aimed at promoting a raft of reforms that will impact the education, energy, labor, telecommunication and fiscal sectors, will prepare the country to raise more money, exploit its energy resources more efficiently without depending too heavily on oil, and have a more highly skilled and specialized work force. The reforms will help build a modern country for Mexico’s citizens and businesses, making it a well-communicated country with cheaper services thanks to planned investments of 311.769 million dollars in infrastructures and telecommunications, that will also help the development of remote regions within the country.  The plan is to transform Mexico between 2013 and 2018, into an international logistics hub which will promote the industrial development of the country.

But there is a dark side to this promising future, which President Peña Nieto will have to know how to handle if he doesn’t want his plan to fail. I refer to the serious problems of insecurity for Mexico’s citizens because of drug cartels, public and political corruption, internal disputes in political parties, the deceleration of the economy (in order to achieve these objectives and create employment, Mexico will have to grow at a sustained rate of 5% over the coming years, not the current 3%), and the millions of people (53.3%) who live on or below the breadline.

Hence Mexico has a great opportunity and a promising future, but the way forward is strewn with pitfalls that will have to be negotiated and repaired if the goal is to be reached.
 

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