Guadalajara
Reporter, Tom Marshall
Thursday, December 16 2010
Asked whether the Mexican economy is back to its pre-recession levels or
just rebounding slightly from a disastrous 2009, Guadalajara-based U.S.
businessman Ed Juline pulls out a coin and flips it.
For Juline, the coin flip represents what he perceives is a mixed bag of
opinions about the Mexican economy heading into 2011.
A number of less-than-encouraging comments by international analysts suggest
Mexico
is still a long way from the kind of growth anticipated in one of the world’s
up-and-coming economies.
Negative
Talking at November’s Expo Management 2010, Nobel prize-winning U.S. economist Paul Krugman said Mexico couldn’t be considered part of the
so-called BRIC (Brazil, Russia, India,
China)
nations that are commonly grouped together as the world’s most promising
economies.
“Mexico’s growth doesn’t
compare with that of other economies like China,” said Krugman. “What’s more,
it is very integrated with the United
States through the North American Free Trade
Agreement.”
Closer to home, Pablo Lemus, president of the Coparmex employers’
association, has warned that the U.S. government’s bailout packages
could still have an adverse effect on the dollar/peso exchange rate.
And Nora Ampudia, an economics professor at the Universidad Panamericana in Guadalajara, says that internal demand needs to be
increased so Mexican industry isn’t so reliant on exporting to the United States.
Positive
Meanwhile, the World Economic Forum’s 2010 Global Competitive report places Mexico at
number 12 in the 139 countries analyzed in terms of the size of its internal
market. The theory goes that although GDP may be lower than other North
American and Western European countries, the large population and growing GDP
are causes to be optimistic.
Juline, who helps represent foreign companies wanting to sell their products
in Mexico (www.mexicorepresentation.com),
believes Mexico
has a decent domestic market and that makes his job much easier.
“Most foreign clients already know about the strengths of Mexico’s
internal market,” stresses Juline. “Just look at how many Walmarts, Costcos and
Home Depots are springing up.”
Deborah Rinder, the chief economist at the American Chamber in Mexico City, is also
confident about the state of the Mexican economy, although she admits that
structural changes are still required.
“Next year should be decent but with not as much growth,” says Rinder, who
explains the Mexican economy contracted by 6.1 percent in 2009 but is predicted
to grow 5.1 percent in 2010 and 2.9 percent in 2011. “Foreign investment has
come back a bit too, no doubt.”
The statistics from the American Chamber reveal what many businessmen and
women are saying: the outlook for 2011 is tentatively quite good, although many
problems remain.
Infrastructure
Irishman Paul Kenny, General Manager of Pertek-Erler in Guadalajara, sees the uncertain tax structure
and inconsistency with contracts as major problems.
The WEF puts the following as Mexico’s major structural problems
(in order): 1. Inefficient government 2. Bureaucracy 3. Corruption 4. Access to
financing 5. Crime and theft 6. Restrictive labor regulations.
Rinder adds the specific problem of lack of competition in key sectors of
the economy as a further stumbling block.
Drugs, crime
One issue on everyone’s lips is how the drug-related violence and high crime
rates are affecting business and whether foreign firms are being put off
investment.
“We’re seeing it (have an affect) at a customer level,” says Kenny. “There’s
a certain trepidation about investing although Guadalajara’s looking much better than the
north of the country.”
Rinder, having worked at the AmCham since 1990, is an expert in Mexico’s
macroeconomic situation and says so far companies aren’t tending to pull out.
She highlights key advantages Mexico
has for U.S.
companies, such as its proximity to the market, a quality labor force and a
compatible time zone.
Juarez
Interestingly, reports from reputable news organizations have indicated that
in terms of manufacturing, Ciudad
Juarez is coping despite being widely known as an
extremely violent city.
“Since June 2009, more than 24,000 manufacturing jobs have been added in
Juárez, on the Texas-Mexico border, and the amount of tractor-trailer traffic
hauling goods through the region increased by 22 percent from January to June
of 2010 compared with the first six months of last year,” writes Julian Aguilar
in the December 12 edition of the New York Times.
The governor of the Bank of Mexico (Agustín Carstens) remains buoyant about
levels of foreign investment: “It’s still high, higher than previous years and
with predictions saying it will get even better.”
Fiscal stability
Another big plus for Mexico,
even throughout the darkest days of the recession, has been the country’s
fiscal stability.
The WEF praises Mexico’s
“remarkably sound fiscal policies,” and place the country at number 28 (out of
139) for macro-economic stability. With inflation and the dollar/peso exchange
rate relatively stable for several years, the harrowing memories of the
economic crises that dogged Mexico
in the 70s, 80s and 90s are fading fast.
“It’s something that needs to be stressed, that the central bank has done a
very good job” says Juline.
There’s one huge caveat that runs through the positivity and probably gives
President Felipe Calderon some sleepless nights. It goes back to what Krugman
said about the high level of integration between the U.S.
and Mexico.
If the United States suffers
more economic setbacks, the knock-on effect in Mexico would be huge.
Thus the old adage: “When the United States
sneezes, Mexico
catches a cold.” The flip side, Krugman points out, is that if the United States recovers well, the rewards for Mexico will be
great.