Mexico: New and Improved?

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Transcript Mexico: New and Improved?

http://icpr.itam.mx/AIDS/Mexico2014Sinha.pdf
Is Mexico “New and Improved” or is
it the old wine in a new bottle?
Tapen Sinha
AXA Chair Professor
ITAM, Mexico
Special Professor
University of Nottingham, UK
[email protected]
This talk
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Export Import
Manufacturing
GDP
Reform of 2013
Special on oil production
A warning from the past
Mexico: Exports
• Three main drivers:
• Oil
– 80 percent of the crude exported to the US and
then reimported as gasoline
• Tourism
– 58 percent of tourists come from the US
• Remittance by Mexicans living abroad
– 90 percent sent by Mexicans living in the US
How big are these items?
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Oil accounts for 10% of total exports
In 2012, PEMEX produced $36 billion
It also accounts for >30% federal budget
Remittance earned $22 billion in 2012
Tourism earned $23 billion in 2012
Mexico: Imports
• 50 percent from the US, 18 percent from
China
• This is only a partial story
• Lot of import is intra-industry trade
• Mexican manufacturing is integrated with the
US and Canada
• Is Mexico immune to US recessions?
Industrial Production Integration: Mexico US
Manufacturing Production Integration: Mexico US
Mexico GDP Per Capita Constant Khamish Geary
Dollars 1900-2010
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
1900
1920
1940
1960
1980
2000
Mexico: GDP
Mexico's Per Capita GDP as a percentage of the
US
40%
35%
30%
25%
20%
15%
10%
5%
0%
1900
1920
1940
1960
1980
2000
The reason behind flat GDP per capita
in Mexico since 1980
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
-
Productivity
Canada
United States
Mexico
1950
1970
1990
2010
GDP Growth
-0.10
GDP Productivity Growth Mexico 1951 2012
0.10
0.08
0.06
0.04
0.02
0.00
-0.05
0.05
-0.020.00
-0.04
-0.06
-0.08
-0.10
Producitivity Growth
0.10
10
Korea 5%
Mexico 0.5%
US 2%
8
6
4
2
0
1992
-2
-4
-6
-8
1997
2002
2007
2012
Korea
Mexico
United States
Mexico: Violence
Mexico: 2013
• A New (Old) party formed the federal
government: PRI
• It had ruled between 1929 and 2000
• It was called the “perfect dictatorship” by
Peruvian Nobel Laureate Mario Vargas Llosa
• PAN ruled for the next 12 years with very little
to show
• PRI candidate Enrique Peña Nieto got elected
– with 38 percent of the vote cast in 2012
Combination for reform
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Lower House, out of 500
PRI has 240 seats (with PVEM)
PRD plus has 136
PAN 114
Upper House, out of 128
PRI 61
PAN 38
PRD 29
PRI launches reform
• An electoral manifesto called the Promise to
Mexico (compromisos)
• The Promise was a unilateral declaration by
the PRI as to what they would do in the next
six years (2013-2018)
• This was followed by the Pact for Mexico (el
pacto)
• The Pact was an implicit understanding
between parties (at first all three signed on)
President proposed reform
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Education
Tax Reform
Political Process
Oil
Labor Market
Universal Pension
Telecommunication
Why Education
• Among the OECD countires, Mexico always
comes in the penultimate place in all
educational benchmark (Turkey comes last)
• In PISA scores, Mexico ranks 53 to 55 in the
world (Chile comes early 50s, Brazil is worse
than Mexico)
• Education is seen to be critical for launching
Mexico into the First World
Education
• Mexican school system is dominated by the
teachers union
• In places, positions were sold
• Teacher strike had no consequence
• Nobody even knew how many schools are
there
Education
• A reform was passed that would reward the
performing teachers and fire the
nonperforming ones
• “President for life” of the union was jailed
• Teachers who go on strike will be penalized by
salary reduction
• The first ever census was taken of the schools
in Mexico (it turned out that there were 500
ghost schools)
Tax Reform
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Raise taxes on the wealthiest
New taxes on sugarated drinks (junk food tax)
New taxes of 10% on capital gains
Frontier states VAT will increase from 11% to
16% (this is a boon for the US border states)
• New initiatives to bring the informal sector to
formalize: Extending benefits for small firms
that register with the IMSS
Labor market reform
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Now it is easier to hire and fire workers
Flexibility for employers
Less power to unions
Less required add-in costs for employers
Political Process
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Reelection of politicians
Independent candidates
They should make them accountable
However, there are elements that are not
desirable (for example, if the winning party
spends more than stipulated, the win can be
challenged BUT if the vote difference is more
than 5 percent – no penalty).
Oil production in Mexico
4000000
Field Oil Production 1970-2011
3500000
3000000
2500000
2000000
1500000
1968
1982
1995
2009
What is different about Mexican oil
production?
• First, Mexican oil generally has more sulphur
• This means extraction cost is 20% higher
• Second Mexico “loses” 20% of oil – this is due
to theft (US or Canada lose less than 1%)
• Who buys stolen oil?
• Not possible to sell it in Mexico
• But there is a thriving market in the US
What will be different about oil
• The black market for oil can easily be stopped
by not letting it into the US
• If large American oil companies get involved in
oil business in Mexico, they will stop this
illegal flow
• That leaves shale oil and deep water oil
• They are much harder to steal
• Result: New oil will not be stolen
Who will be in oil business
• PEMEX will remain in the current business of
extracting oil
• However, new oil coming from deepwater or
from shale will be the domain of large oil
companies like BP or Shell or ExxonMobil
• The additional revenue could easily add
additional 1% to GDP every year in five years
• Mexico pays 50% higher energy cost for industrial
production than the US
• With additional oil, the energy cost could fall in
Mexico
Smaller ones
• Telecommunication:
• Busting the monopoly of Telmex (80 percent
landlines, 80 percent broadband, 70 percent
mobile markets)
• Breaking the duopoly of Televisa/TV Azteca
Remember the 1990s?
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Lowered tariff
Joined OECD
Negotiated free trade agreements
Formed NAFTA
Floated currency
Mexico as the Center of the Universe
Free Trade Agreements in 2000
Tariff rates in NAFTA
30
Mexico
25
Canada
20
percent
US
15
10
5
0
81
83
85
87
89
91
year
93
95
97
99
What did NAFTA do?
• NAFTA came in with great hope of kickstarting
Mexican industry and raising living standards
• Result: Countries which did NOT do free trade
agreements have had HIGHER growth rate
than Mexico in the region
• Result: Mostly rich Mexicans benefitted from
NAFTA in terms of better quality goods and
better jobs
Thank you!
¡Gracias!
Questions?
[email protected]