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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. Export Import Manufacturing GDP

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is mexico new and improved or is it the old wine in a new bottle

http://icpr.itam.mx/AIDS/Mexico2014Sinha.pdf

IsMexico “New and Improved” orisittheoldwine in a new bottle?

Tapen Sinha

AXA ChairProfessor

ITAM, Mexico

SpecialProfessor

University of Nottingham, UK

[email protected]

this talk
Thistalk
  • ExportImport
  • Manufacturing
  • GDP
  • Reform of 2013
  • Specialonoilproduction
  • A warningfromthepast
mexico exports
Mexico: Exports
  • Threemain drivers:
  • Oil
    • 80 percent of thecrudeexportedtothe US and thenreimported as gasoline
  • Tourism
    • 58 percent of tourists come fromthe US
  • RemittancebyMexicans living abroad
    • 90 percentsentbyMexicans living in the US
how big are these items
Howbig are theseitems?
  • Oilaccountsfor 10% of total exports
  • In 2012, PEMEX produced $36 billion
  • Italsoaccountsfor >30% federal budget
  • Remittanceearned$22 billion in 2012
  • Tourismearned $23 billion in 2012
mexico imports
Mexico: Imports
  • 50 percentfromthe US, 18 percentfrom China
  • Thisisonly a partialstory
  • Lot of importisintra-industrytrade
  • Mexicanmanufacturingisintegratedwiththe US and Canada
  • IsMexicoimmuneto US recessions?
mexico 2013
Mexico: 2013
  • A New (Old) partyformedthe federal government: PRI
  • Ithadruledbetween 1929 and 2000
  • Itwascalledthe “perfectdictatorship” byPeruvian Nobel Laureate Mario Vargas Llosa
  • PAN ruledforthenext 12 yearswithverylittleto show
  • PRI candidate Enrique Peña Nieto gotelected – with 38 percent of the vote cast in 2012
combination for reform
Combinationforreform
  • LowerHouse, out of 500
  • PRI has 240 seats (with PVEM)
  • PRD plus has 136
  • PAN 114
  • UpperHouse, out of 128
  • PRI 61
  • PAN 38
  • PRD 29
pri launches reform
PRI launchesreform
  • An electoral manifestocalledthePromisetoMexico (compromisos)
  • ThePromisewas a unilateral declarationbythe PRI as towhattheywould do in thenextsixyears (2013-2018)
  • ThiswasfollowedbythePactforMexico (el pacto)
  • ThePactwasanimplicitunderstandingbetweenparties (at firstallthreesignedon)
president proposed reform
Presidentproposedreform
  • Education
  • TaxReform
  • PoliticalProcess
  • Oil
  • Labor Market
  • Universal Pension
  • Telecommunication
why education
WhyEducation
  • Amongthe OECD countires, Mexicoalways comes in thepenultimate place in alleducationalbenchmark (Turkey comes last)
  • In PISA scores, Mexicoranks 53 to 55 in theworld (Chile comes early 50s, BrazilisworsethanMexico)
  • Educationisseento be criticalforlaunchingMexicointotheFirstWorld
education
Education
  • Mexicanschoolsystemisdominatedbytheteachersunion
  • In places, positions weresold
  • Teacher strike had no consequence
  • Nobodyevenknewhowmanyschools are there
education1
Education
  • A reformwaspassedthatwouldrewardtheperformingteachers and firethenonperformingones
  • “Presidentforlife” of theunionwasjailed
  • Teacherswhogoon strike will be penalizedbysalaryreduction
  • Thefirstevercensuswastaken of theschools in Mexico (itturnedoutthattherewere 500 ghostschools)
tax reform
TaxReform
  • Raisetaxesonthewealthiest
  • New taxesonsugarateddrinks (junkfoodtax)
  • New taxes of 10% on capital gains
  • Frontierstates VAT willincreasefrom 11% to 16% (thisis a boonforthe US borderstates)
  • New initiativestobringthe informal sector toformalize: Extendingbenefitsforsmallfirmsthatregisterwiththe IMSS
labor market reform
Labor marketreform
  • Nowitiseasiertohire and fireworkers
  • Flexibilityforemployers
  • Lesspowertounions
  • Lessrequiredadd-in costsforemployers
political process
PoliticalProcess
  • Reelection of politicians
  • Independentcandidates
  • Theyshouldmakethemaccountable
  • However, there are elementsthat are notdesirable (forexample, ifthewinningpartyspends more thanstipulated, thewin can be challenged BUT ifthe vote differenceis more than 5 percent– no penalty).
what is different about mexican oil production
WhatisdifferentaboutMexicanoilproduction?
  • First, Mexicanoilgenerally has more sulphur
  • Thismeansextractioncostis 20% higher
  • SecondMexico “loses” 20% of oil – thisisduetotheft (US or Canada lose less than 1%)
  • Whobuysstolenoil?
  • Notpossibletosellit in Mexico
  • Butthereis a thrivingmarket in the US
what will be different about oil
Whatwill be differentaboutoil
  • Theblackmarketforoil can easily be stoppedbynotlettingitintothe US
  • Iflarge American oilcompaniesgetinvolved in oilbusiness in Mexico, theywill stop thisillegalflow
  • Thatleavesshaleoil and deepwateroil
  • They are muchhardertosteal
  • Result: New oilwillnot be stolen
who will be in oil business
Whowill be in oilbusiness
  • PEMEX willremain in thecurrentbusiness of extractingoil
  • However, new oilcomingfromdeepwaterorfromshalewill be thedomain of largeoilcompanieslike BP or Shell or ExxonMobil
  • Theadditionalrevenuecouldeasilyaddadditional 1% to GDP everyyear in fiveyears
  • Mexicopays 50% higherenergycostfor industrial productionthanthe US
  • Withadditionaloil, theenergycostcouldfall in Mexico
smaller ones
Smallerones
  • Telecommunication:
  • Bustingthemonopoly of Telmex (80 percentlandlines, 80 percentbroadband, 70 percentmobilemarkets)
  • Breakingtheduopoly of Televisa/TV Azteca
remember the 1990s
Rememberthe 1990s?
  • Loweredtariff
  • Joined OECD
  • Negotiated free tradeagreements
  • Formed NAFTA
  • Floatedcurrency
slide38

Mexico as the Center of theUniverse

Free TradeAgreements in 2000

what did nafta do
Whatdid NAFTA do?
  • NAFTA came in withgreat hope of kickstartingMexicanindustry and raising living standards
  • Result: Countrieswhichdid NOT do free tradeagreementshavehad HIGHER growthratethanMexico in theregion
  • Result: MostlyrichMexicansbenefittedfrom NAFTA in terms of betterqualitygoods and betterjobs
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