TBY talks to Kai Bethke, Regional Director for Mexico, Central America, and the Caribbean at the UN Industrial Development Organization (UNIDO) Mexico, on the factors driving the Mexican economy and its industrial dynamic.
TBY What factors are steering the development of the Mexican economy?
KAI BETHKE Mexico started 2011 quite well, with 7.4% growth in the manufacturing sector in the first quarter as compared to the same period in 2010. In the second quarter growth dropped below 5%, and the reason for this is Mexico’s biggest vulnerability. Mexico manufactures a broad range of products, from traditional products such as textiles, furniture, and food products, to very complex products in the electronics and aerospace sectors, but unfortunately it has only one big client; 85% of Mexico’s exports go to the US. When the US has a problem, Mexico automatically has a problem. In the context of newly industrialized countries in the region Mexico is still performing very well, however. Another problem is the internal market. Although Mexico is the 12th largest economy in the world, it depends on oil for income; almost 40% of the federal budget comes from the oil industry. There are great discrepancies in the distribution of wealth, which means purchasing power is not as strong as it could be for a population of 112 million people. The UN’s statistics show that 45% of the population, or 49 million people, are living below the relative poverty line. The government is pushing to develop high-tech industries, particularly in the electronics, automotive, and aerospace sectors.
What is the state of industrial energy efficiency and sustainable living in Mexico?
This issue hadn’t been addressed at all before the current government came to power. Mexico has a predominantly petroleum-based economy, which affects the people’s mindset, and it is important to maintain the oil industry because it makes up 40% of the government’s revenue. President Calderón was previously minister for energy, and he is constantly reiterating that Mexico can only be competitive in the future if it can differentiate its energy sector. He launched two initiatives in 2009 that were unprecedented for this country: one is a law promoting renewable energies, and the other is a law requiring efficient energy use. The result has been that Mexico is already producing about 20% of its energy from renewable sources: wind, solar, and geothermal. Mexico actually has 30 years of experience with geothermal energy, and is the fourth largest producer of geothermal energy in the world. Mexico is a major partner in UNIDO’s Energy Program for Latin America thanks to its know-how in this area.
On the industrial side energy efficiency is not emphasized to the extent we think it should be. This has to do both with mindset and with the need for an even stronger government push to incentivize energy efficiency in the industrial sector. However, I feel that it is at least picking up speed. The landscape is changing and I would say Mexico is doing the right things to become more energy efficient and use more renewable energies.
In your opinion what advantages does the Mexican economy have over other Latin American countries?
Mexico’s greatest advantage is also its greatest weakness, namely its proximity to the US. The US is still the largest economy in the world, and even if it falls to number two, it will still remain a big buyer. Being part of NAFTA is a big advantage. Mexico has a very skilled workforce; it has numerous universities and technical schools, including some very good ones. The National Autonomous University of Mexico (UNAM) is the largest and best university in the continent, with some 3,500 researchers. The country’s broad industrial base is another asset; Mexico has large supply industries for various industrial sectors, including the electronic, automotive, and aerospace sectors as well as traditional sectors like wood, food processing, and textiles. In the region only Brazil has the kind of industrial base Mexico has.
What do you think about the current performance of Mexico’s industrial sector, and what is your outlook for its future?
It is going well, better than in many industrialized countries, especially those in Europe. Mexico has its public finances pretty much in order. As we can see in the US and Europe, and as we learned in this region in the 1980s, if a country gets into a debt spiral it can erode economic performance significantly. Mexico is doing well at the macroeconomic level, but it has a number of vulnerabilities. If Mexico continues on the path toward diversifying not only its industries but also its export base, it has an enormous potential to develop further. The inclusion of more of the Mexican population in the development process is an open issue that I know the government is addressing, but we at the UN feel that that will require a stronger approach.
© The Business Year