Mexico’s Macroeconomic Strength Improves its Competitiveness


Here is a link to my latest article on AQBlog, titled “Mexico’s Macroeconomic Strength Improves its Competitiveness” , published on Sep 16th, 2011. Please feel free to visit and comment. Here is a verbatim copy of it in case you prefer to read it on my personal blog, though I recommend actually going to the site because of additional content, other blogger’s articles, etc.



Mexico received some excellent news recently when the World Economic Forum (WEF) published its Global Competitiveness Report, calling attention to the fac that the country has made significant progress in improving its relative position in the world competitiveness rankings.
From last year to the 2011-2012 ranking, Mexico moved from 66to 58 place, an eight-spot improvement. Only seven other countries had a larger jump in the list. As competitiveness expert Beñat Bilbao explains, “(this variation) is very relevant. Fluctuations from year to year tend to be very low.”

Besides drops suffered by other countries closely competing with Mexico, such as the Russian Federation, Jordan and the Slovak Republic, Mexico’s improvement in the ranking results from progress made in efforts to boost competition and facilitate entrepreneurship by reducing the number of procedures and the time it takes to start a business. The report also mentions Mexico’s large internal market size, sound macroeconomic policies, technological adoption, and a decent transport infrastructure as helping it to move up in the WEF Report.

This is no doubt a great triumph for President Calderón. He has continuously boasted over TV messages and radio spots that his administration has invested more resources than previous governments into improving federal bridges and highways in Mexico. Calderón has also been vocal about an open market economy and sound financial policies as key ways to face the global economic crisis. According to WEF, he’s on the right track.

However, WEF also reports that Mexico’s largest shortcomings continue to hinder its capacity to compete with the strongest service economies in the world in terms of efficiency.

The obvious elephant in the room is security and the concerns it raises with regard to the ability to conduct business. As the Casino Royale tragedy in Monterrey and a number of cases in Reynosa, Ciudad Juárez and Tijuana have shown, extortion and protection quotas paid to organized crime (and presumably colluded municipal law enforcement officials) have reached a point where they have become disincentives for business and job creation in many Mexican urban areas.

Failure to comply with criminals has resulted in a number of arson attacks that have in the best cases end up in total loss for the business owner and in the worst ones, in horrific scenes with multiple civilian causalities. One newspaper in Ciudad Juárez reports that as many as 90 percent of businesses in this city to have fallen victim to protection quota extortion. The business community and government need to urgently work together to find a practical solution to this matter.

The rest of the weaknesses include an urgent need of reforms to improve education and innovation systems. From 149 countries listed in the WEF Competitiveness Index report, Mexico ranks 107th in terms of quality of education. As I mentioned in “Mexico Lowers the Bar on Education” this has less to do with budget issues and more with the system in itself. Professionalization of teachers is urgent. Addressing how the teacher’s union led by Elba Esther Gordillo (Sindicato Nacional de Trabajadores de la Educación, or SNTE) has become an obstacle for the effectiveness of the education system is a tough issue to tackle, but clearly a must.

On innovation, if Mexico is to improve its competitive position and continue migrating to a service economy, private enterprise also needs to do its part. Companies and private universities need to risk more and invest in R&D in order to improve the country’s inventive capacity. Obviously, government can help by providing research and development incentives and funding academic investigation in the public university, but historical global experience has proven that the largest breakthroughs come from the hands of private institutions, even in cases when they were government contractors. The business community needs to spearhead innovation development.

Now, while macroeconomic indicators show progress another important issue for Mexico’s long-term competitive position is definitely wealth distribution. At a current 48/100 score in the GINI index, some advancement has been made in the past 20 years but inequality remains a real and relevant issue.

The open market economy has been insufficiently capable of trickling down the wealth to the lower socioeconomic levels of society. As a result, the informal sector and organized crime’s participation in it continue to grow, feeding into impunity in a vicious circle. Raising taxes to the very few captive taxpayers (some studies indicate that only 10 percent of Mexicans pay their taxes) is not the answer. Formalizing the informal sector, thus broadening the taxation base and hence having a larger amount of government resources to development of social assistance programs, unpopular as it may be, is a sounder policy.

One last reflection: if Mexico’s competitiveness is advancing in spite of its current challenges, imagine where the country would be if it was able to effectively address and overcome them.

*Arjan Shahani is a contributing blogger to He lives in Monterrey, Mexico, and is an MBA graduate from Thunderbird University and Tecnológico de Monterrey and a member of the International Advisory Board of Global Majority—an international non-profit organization dedicated to the promotion of non-violent conflict resolution.


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