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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. 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 tapen@itam.mx. 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 ?

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  1. 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 tapen@itam.mx

  2. Thistalk • ExportImport • Manufacturing • GDP • Reform of 2013 • Specialonoilproduction • A warningfromthepast

  3. 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

  4. 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

  5. Mexico: Imports • 50 percentfromthe US, 18 percentfrom China • Thisisonly a partialstory • Lot of importisintra-industrytrade • Mexicanmanufacturingisintegratedwiththe US and Canada • IsMexicoimmuneto US recessions?

  6. Industrial ProductionIntegration: Mexico US

  7. ManufacturingProductionIntegration: Mexico US

  8. Mexico: GDP

  9. Thereasonbehind flat GDP per capita in Mexicosince 1980

  10. Mexico: Violence

  11. 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

  12. 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

  13. PRI launchesreform • An electoral manifestocalledthePromisetoMexico (compromisos) • ThePromisewas a unilateral declarationbythe PRI as towhattheywould do in thenextsixyears (2013-2018) • ThiswasfollowedbythePactforMexico (el pacto) • ThePactwasanimplicitunderstandingbetweenparties (at firstallthreesignedon)

  14. Presidentproposedreform • Education • TaxReform • PoliticalProcess • Oil • Labor Market • Universal Pension • Telecommunication

  15. 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

  16. Education • Mexicanschoolsystemisdominatedbytheteachersunion • In places, positions weresold • Teacher strike had no consequence • Nobodyevenknewhowmanyschools are there

  17. Education • A reformwaspassedthatwouldrewardtheperformingteachers and firethenonperformingones • “Presidentforlife” of theunionwasjailed • Teacherswhogoon strike will be penalizedbysalaryreduction • Thefirstevercensuswastaken of theschools in Mexico (itturnedoutthattherewere 500 ghostschools)

  18. 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

  19. Labor marketreform • Nowitiseasiertohire and fireworkers • Flexibilityforemployers • Lesspowertounions • Lessrequiredadd-in costsforemployers

  20. 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).

  21. Oilproduction in Mexico

  22. 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

  23. 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

  24. 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

  25. Smallerones • Telecommunication: • Bustingthemonopoly of Telmex (80 percentlandlines, 80 percentbroadband, 70 percentmobilemarkets) • Breakingtheduopoly of Televisa/TV Azteca

  26. Rememberthe 1990s? • Loweredtariff • Joined OECD • Negotiated free tradeagreements • Formed NAFTA • Floatedcurrency

  27. Mexico as the Center of theUniverse Free TradeAgreements in 2000

  28. Tariffrates in NAFTA

  29. 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

  30. Thankyou! ¡Gracias! Questions? tapen@itam.mx

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