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


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

Industrial ProductionIntegration: Mexico US


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

ManufacturingProductionIntegration: Mexico US


Mexico gdp

Mexico: GDP


The reason behind flat gdp per capita in mexico since 1980

Thereasonbehind flat GDP per capita in Mexicosince 1980


Mexico violence

Mexico: Violence


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).


Oil production in mexico

Oilproduction in Mexico


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


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

Mexico as the Center of theUniverse

Free TradeAgreements in 2000


Tariff rates in nafta

Tariffrates in NAFTA


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


Thank you gracias

Thankyou! ¡Gracias!

Questions?

[email protected]


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