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Eduardo Pérez Motta April 2008

Jumpstarting Mexico: Competition and competitiveness. Eduardo Pérez Motta April 2008. Telecommunications. Mexico’s place among OECD members. 30 countries, prices in USD PPP. Intensity. Service. High. Medium. Low. Residential fixed line telephony. 7th most expensive.

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Eduardo Pérez Motta April 2008

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  1. Jumpstarting Mexico: Competition and competitiveness Eduardo Pérez Motta April 2008

  2. Telecommunications Mexico’s place among OECD members 30 countries, prices in USD PPP Intensity Service High Medium Low Residential fixed line telephony 7th most expensive Business fixed line telephony 4th most expensive Mobile telephony Broadband Internet 3rd most expensive (price/MBps) Source: OECD Communications Outlook 2007 Mexico’s regulated sectors show evidence of significant inefficiencies… 6th most expensive 3rd most expensive 10th most expensive 14th most expensive 2nd most expensive Decline in Competitiveness

  3. … which have a negative impact on the rest of the economy and result in low growth 2007 2008 Projections of annual economic growthChange in real GDP % World average 2007: 5.2% 2008: 4.8% Advanced economies Emerging and developing economies Notes: * Includes Korea, Taiwan Province of China, Hong Kong SAR and Singapore. ** Includes Canada, France, Germany, Italy, Japan, United Kingdom and United States. Source: International Monetary Fund, World Economic Outlook, October 2007.

  4. Competitionpolicyisanessentialinstrumenttoclosethecompetitiveness gap and increasewelfarebecause it provides incentives for a more efficient allocation of resources Production Possibilities Frontier Long run: To invest in education, health, capital To expand production possibilities Short run:To improve markets’ efficiency  To optimize resources Current situation

  5. National and international institutions agree that competition is key to address low competitiveness and growth “[La] falta de competencia, particularmente en la provisión de insumos básicos para la producción … propicia el deficiente desempeño del resto de los factores. Es urgente eliminar las barreras existentes para la entrada a los mercados.” “Para estimular la productividad de las empresas y mejorar su competitividad se requiere más competencia en los mercados.” “Mexico’s competition environment, regulatory framework and investment climate are major priority areas to increase Mexico’s competitiveness.” The World Bank “Mexico needs stronger competition and better regulation to boost productivity and growth.” “Strengthening competition (…) should also have high priority, and –as international experience has shown- may also facilitate reform in other areas as well as helping equity.” “Mexico’s goods markets suffer from inadequate (foreign and domestic) competition conditions, with overregulated and rather closed key economic sectors. Only by addressing these challenges can Mexico begin to fully leverage its important competitive advantages.” Sources: Banxico, Presentación del Dr. Guillermo Ortiz ante la Cámara de ComercioBritánica, diciembre 6, 2007 IMCO, Punto de inflexión: Situación de la competitividad de México 2006 Banco Mundial, Mexico 2006-2012: creating the foundations for equitable growth,junio, 2007 OECD, Economic survey of Mexico, 2007. IMF, Mexico: Staff report for the 2007 Article IV consultation WEF, The Global Competitiveness Report 2007-2008.

  6. NOT EXHAUSTIVE The CFC’s has issued opinions with some positive results Sector Subject Result • Pro-competitive reforms to the LPG Regulations: • Eliminate exclusive distribution areas • Transparency in first hand sales • Retail sales in commercial establishments Energy LP Gas Convergence Telecomms • Portability and interconnection (in process) • Must-offer must-carry obligations to Televisa Contents Transport • More competition among airlines: more routes, more passengers and lower prices Airlines Pensions • Reforms to the Pension System Law: • Elimination of the commission over balance Financial Services • Reforms to the Credit Institutions Law: • Promote account mobility • Equitable access to payment systems • Strengthened supervision and regulation Credit cards

  7. Reform strategy Main actors Political impact • Macroeconomic adjustment • Reduction in government size • End of protectionism • President and cabinet • Central bank • Private sector and investors • “Temporal corrections” • Atomization effect • Institutionalization • Competition impetus • Reforms (health, education, etc.) • President and Cabinet • Congress • Bureaucracy • Judicial Power • Unions • ... • Permanent elimination of privileges of specific groups Boosting competition requires political will, because it implies a confrontation with the beneficiaries of the status quo … Economic reforms in Latin America 1985 - 2000 2000 - ??? 1st generation reforms 2nd generation reforms Source: Naím, Moisés. “Latin America: The second stages of reform”. Journal of Democracy 5, no. 4, 1994.

  8. … but Australia’s experience shows that a solid competition policy can substantially increase competitiveness and household income = 58,000 Mexican pesos Source: OECD, Economic Survey of Australia, OECD Policy Brief, March 2003, p. 5. Available at http://www.oecd.org/dataoecd/4/6/2497195.pdf

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