What Does Mexico Need in Order to Finally Become a Developed Country?

Endorsement of Mexico’s structural reforms has helped the nation take an important step toward becoming a developed country; but it still needs to work on developing its talent and abilities and encouraging innovation.  At least, that’s how Carlos Mota, a journalist specializing in business, economics and finance, described the situation during his lecture entitled, “An Objective Look at Mexico’s Economic Scene” at the recent FutureSource Summit in Mexico City’s Four Seasons Hotel.

“First of all, countries need to be able to spot opportunities, as well as identify where the needs lie.  They must then work to develop the abilities needed to be able to take advantage of these opportunities.  Finally, they should be able to isolate areas in which they have already proven successful so that they can recreate this success and make the dream a reality,” he told the audience.  “If, as a country we are successful in these three stages, I believe we can make the transition into becoming a developed country.”

Mexico’s GDP per capita, currently somewhere in the region of US$16,000, is evidence of the fact that it has still not managed to become what could be classed as a developed country.  According to Mota, for Mexico to qualify as a developed country it would have to report a GDP per capita of $35,000, putting it on a par with Spain, Portugal and other European countries.

Institutional Transformation

According to Mota, if Mexico wants to be recognized as a developed country the first step is to admit the need for an institutional transformation.  “This transformation includes the structural reformations that have already been approved. We’ve already checked that box,” he stated.  “Investment banks and analysis firms indicate that these reforms could boost the country’s GDP by up to 2%, resulting in a potential growth of up to 5%.”

Similarly, an increase in the amount of foreign direct investment in the country is anticipated.  Predictions show that it could reach somewhere in the region of $80 billion over the next five years – mostly derived from the first round of investments in the petroleum industry.  “This will also impact on other industries, such as the auto industry.”  Mota explained that Audi has already opened a plant in Puebla and Kia Motors has opened one in Nuevo Leon.  This will result in the construction of new residential properties, training institutions, hotels, restaurants and other services – “all as a result of direct foreign investment.”

Mota also pointed to the creation of the Federal Economic Competition Commission, which will take charge of regulating the competition (which is bound to increase as new players enter the different productive sectors) by researching and sanctioning the monopolistic practices. He also pointed out how the new reforms will generate more formal employment. “We are aware that Mexico needs quality employment. The Secretary of Finance and Public Credit, Dr Luis Videgaray informs us that more and more jobs are being registered by the Mexican Social Security Institute; indicating that informality is falling.”

Mota added:  “Political harmony is possible.  We have seen the Pact for Mexico, we have seen how political forces have come together to negotiate, with each one driving one or another of the reforms – The Democratic Revolution Party, the tax reform; The Institutional Revolutionary Party, the energy reform and The National Action Party, the telecommunications reform.  It’s true, these structural reforms have already gone through, but there is still the feeling that we haven’t quite got to where we really want to be.”

Producing Enough Talent

According to Mota, if Mexico wants to become a developed country within the next 15 to 20 years, it needs to start cultivating its talent and honing their abilities right away: “Once we have the structural reforms in place we need to know who is going to execute them and how. This is where we are faced with a big question mark.”

While it is true that universities in Mexico City, Puebla, Monterrey, Guadalajara and Xalapa, to name but a few, are making good inroads when it comes to educating the next generation of professionals, the quality of the education systems found in other areas isn’t so great. “Can we really trust the education being provided in states such as Chiapas and Guerrero?  It’s true that they are doing an important job, but who knows if the talent is being developed to reach its full potential.”

There is a significant demand for talent, insists Mota. This is especially true when it comes to some of the organizations that have been created since the institution of the energy reform, as is the case for regulatory agencies such as CENEGAS (Natural Gas Energy Control) and CENACE (National Center for Energy Control), who need to know they can rely on being able to contract specialized personnel.  The question is; where are they going to find said personnel?  “Maybe some could recruit from Pemex or from the Federal Electricity Commission, but recruiting standards, as well as the industry itself are still new to Mexico,” explained Mota.

“The quality of education is not sufficient. We have seen the importance of the education reform, but it is not necessarily seeing immediate results; it will take a while.”

According to Mota, there is a “serious” level of ignorance when it comes to globalization.  The average Mexican citizen believes that globalization is a one-sided equation; when it is really two-sided.  “The average Mexican believes that globalization consists of the iPhone 6 becoming available in Mexico as soon as it is released in the United States,” he explained.  “The benefits of globalization are incredible, but it also brings costs and added responsibilities with it.”

Mota continued:  “Mexicans don’t want to take what Mario Draghi, President of the Central European Bank says into account.  Neither do they weigh up the effect of the depreciation of the rouble or of Japanese Abenomics only functioning half-heartedly.  But it is all interrelated, and it is this ability to understand the global world that is still not one hundred percent formalized in Mexico.”

Many medium-sized businesses do not know how to react when faced with the increased competition that comes with globalization, Mota said. They are not able to develop the abilities or the talent needed to take advantage of the opportunities that have been made available in Mexico thanks to the structural reforms.

Failed Innovators

Mota explained that, in his opinion, when it comes to research and development, the country’s efforts are virtually non-existent, and this is where the real fault lies. “If Mexico wants to become a developed country it has to be innovative.  Research and development in proportion to its GDP hardly reaches the 0.4% mark. In developed countries it is somewhere in the region of 2%.”

Mota also explained how a great number of Mexican entrepreneurs run to the government for protection rather than trying to innovate. As an example, he cited footwear manufacturers from Leon who requested government protection when faced with the threat of footwear imported from China. When the tables are turned, however, these manufacturers are happy to make the most of everything offered by globalization, whether it be a new iPhone, the latest car, trips abroad etc. It’s only when it comes to providing a product that they seek refuge in government protection.

“On one hand they love globalization, but on the other they demand protection. This inconsistency blinds them to the possibilities afforded by innovation and investing in research and development,” Mota stated.

He also noted how, when businesses do decide to invest in innovation, it is vital they keep accurate records, as, “how will we become a developed country if we don’t keep track of the innovation we contribute to the global scene?”

Mota concluded by saying: “If the structural reforms are to work, the government has to ensure that the benefits are felt by all Mexicans, and this is extremely difficult.  I believe we have a shared responsibility to develop these abilities and talent and to start to innovate in order to get to where we want to be; with Mexico’s GDP per capita surpassing the $35,000 mark.”