TBY talks to Juan E. Pardinas, Director General of the Mexican Institute for Competitiveness (IMCO), on Mexico’s road to becoming a highly competitive emerging market economy.
TBY How competitive is Mexico when compared to the rest of Latin America and the BRIC countries (Brazil, Russia, India, and China)?
JUAN E. PARDINAS The global economic crisis that occurred in 2008 and 2009 marked a coming of age for the Mexican economy, making it behave in a mature way despite a dramatic shock to the real economy and a loss of employment, as well as a contraction in GDP. Mexico is now coming back in a strong position due to stability, which is in huge contrast to the Mexico of my youth when a crisis could break the country for a decade. Mexico has demographic strengths, relating to the amount of people in employment and the amount of people receiving pensions, and those too young to work. Our political system also received a shock during the 2006 presidential elections, but we managed to solve the political conflict through institutions and electoral tribunes, which also represented a coming of age for Mexican democracy. Compared to some of the BRICs, such as China, Mexico has succeeded in achieving a stable, democratic political environment. There is no better system than democracy. Mexico also has huge consumer power, on par with the BRICs. Its free trade agreements are also well developed, and this is positive when looking at the situation of other Latin American countries.
What major steps have been taken to improve the competitive index?
We cannot point to the government when discussing competitiveness. A famous political commentator once said that there are a number of centers of power, and one of those is Congress. Sadly, Congress is not up to the task of promoting reforms as fast as it should in order to keep pace and increase productivity to make Mexico an even more attractive destination for talent and investment. Mexico is achieving macroeconomic goals in many areas, including inflation, which Banco de México has kept at around 3%. Now, the challenge is to transform this low inflation rate into low credit interest rates, which are still at a level generally seen in developing economies. The country does, however, need to shake up its attitude to collecting taxes, as the collection regime has been too relaxed in the past.
What role does innovation in human capital development play in the development of Mexico’s competitiveness?
One thing we have found is that we need to improve the quality of Mexican schools. Having more years of education improves the income level of an individual. If you don’t finish secondary school, you are severely disadvantaged. If you finish university, your income will be, on average, 150% higher than if you don’t finish high school. Therefore, we need to improve the education sector, and guarantee that Mexican children stay in school longer.
What have been the effects of the country’s security concerns on its perception abroad?
We receive a lot of foreign investment, but it is impossible to know what is going on in the boardrooms of potential foreign investors around the world. The issue is, would you stop going to New York because New Orleans or Detroit have high murder rates? Of course not. Certain regions are experiencing problems, yet most states have no trouble.
You have defined competitiveness as the ability of a country to attract investment. How is Mexico working to ensure the attraction and retention of investment?
The Mexican government has made huge efforts to simplify the process of starting companies. One of the best decisions it has made was to liquidate the electric utility that served Mexico City and the surrounding areas in 2009. That had two benefits; a huge improvement in the level of service in Mexico City, and improvement in the allocation of public services, as this company was collecting $4 billion in subsidies every year. One of the biggest challenges Mexico faces is to improve the quality of spending, especially in terms of energy subsidies, which also contribute to global warming, an issue we should be fighting. Fixing these issues will make the country much more attractive.
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