phallerWhen Mexican President Felipe Calderon took office in 2006, he became leader of a nation divided by a close-run election that was tainted by allegations of widespread fraud. Six years later, and the legacy he will leave come the end of his term in December will be similarly divisive for Mexicans and foreign business interests alike.
Calderon will be best remembered for the 50,000 deaths in his war against Mexico’s drug cartels, a policy that has seen parts of the country degenerate into war zones and has seriously dented investor confidence. However, he will also leave behind six years of stable macroeconomic management, boosted foreign investment and a growing IT sector, tempered by a failure to tackle entrenched inequality and rising poverty – over three million Mexicans have slid below the poverty line in the last four years.
Opposition Takes the Lead
With the election to replace Calderon just three months away, his party is trailing badly in the polls behind the Institutional Revolutionary Party (PRI), which ruled Mexico for over 70 years in a one-party state renowned for corruption and cronyism. The latest polls show the PRI candidate, former State of Mexico Governor Enrique Peña Nieto, open up a 19 point lead over Josefina Vazquez Mota, Calderon’s former education minister and the candidate for the ruling National Action Party (PAN). The two frontrunners also have to contend with Calderon’s opponent in the 2006 election, leftist Andres Manuel Lopez Obrador, who is currently polling at 17% after remodeling himself as a business friendly socialist in the mould of ex-Brazilian president ‘Lula’ da Silva.
The issue of security is already dominating the elections. While Peña Nieto has capitalized on disillusionment with Calderon’s failure to control the violence, he has also had to fight off allegations that he would return to the approach many believe the PRI took before leaving power in 2000 – a pact between the government and the cartels to keep the peace.
In the IT and BPO sectors, the problem of security is more one of perceptions than real risk.
Security to Impact Outcome
Patrick Corcoran from organized crime analysis group Insight Crime believes that while the security situation may have an impact on the outcome of the election, the election is unlikely to have a serious impact on the security situation. “Everyone is giving voice to the fact that nobody is happy but there are not any obvious alternatives,” he said. “…there is a sense that Calderon has made a hash of things but as far as putting things back together it is a little trickier.”
In the IT and BPO sectors, the problem of security is more one of perceptions than real risk. Although some locations that had previously been popular BPO destinations such as Ciudad Juraez have been hard hit by the violence, Mexico’s IT sector is heavily concentrated in areas relatively unaffected by the conflict. Nevertheless, the constant headlines detailing brutal violence take their toll on investor perceptions. “The challenge is to work around the threat of the drug cartels and the violence,” said Marcelo Gomes da Costa, the Chief Marketing Officer for Mexico-based outsourcers Neoris. “This is what has a big chance of impacting the IT business – perception of Mexico being a safe place.”
Despite the security issues, the IT and BPO sectors have flourished under Calderon. Last year, Mexico climbed to sixth place in the in A.T. Kearney’s 2011 Global Services Location Index, aided by the efforts of the Mexico IT trade promotion initiative and of Prosoft, which offers IT companies tax incentives and subsidies running up to 50% of capital expenditure.
Investment in IT Sector Still Strong
“There has been a big effort to attract investment from the world and this is paying off,” said Enrique Cortes, the Director of Dell Services in Mexico. “In the last couple of years, Mexico has seen IT companies that were not here before coming to take advantage of the proximity to the US market, to take advantage of the skills and to take of advantage of NAFTA.”
With the two leading candidates firmly pro-business and Lopez Obrador keen to court the business community, those working in the sector expect government backing to continue whatever the outcome of the election. “Depending on who wins, we will see different policies but I don’t see a scenario where somebody will say ‘IT is not important to Mexico,’” said Cortes.
According to Cortes, the sector has strengthened to the point where government support is welcome assistance but no longer a necessity. “Even if subsidies are lessened, Mexico is in a different stage of development where that will be compensated for by private investment,” he said. Cortes stressed that his views are his own and not an official statement from Dell.
Education Falls Short
One obstacle to continued growth in the sector and potentially an important electoral issue is Mexico’s education system. Despite spending a higher percentage of its budget on education than any other OECD country, Mexico has consistently ranked near the bottom of OECD nations on performance indicators.
Although Mexico has one of the largest IT labor pool in Latin America, the quality of that education worries some in the sector. “I think the concern of people like myself who run companies and own companies is the talent pool,” said Cortes. “If we don’t develop, short term and long term, a proper talent pool that is world class then no matter what the incentives are we will not be competitive.”
According to experts, the biggest obstacle to educational reform is the national teachers union – the SNTE. By offering the votes of its 1.5 million members, the union has wielded immense political power, which critics say it has used to secure its position and block reforms. Although traditionally supporters of the PRI, in the last election the union struck a deal with Calderon, allegedly exchanging support for government posts.
However, the SNTE and the PRI have already declared an official split, Vazquez Mota has ruled out pursuing its support and Lopez Obrador is unlikely to ally himself with the union’s president-for-life Elba Esther Gordillo, who has been dogged by allegations of corruption. Now seemingly independent of the union’s influence, all three candidates have declared their intention to invest in education but have yet to detail any plans for widespread reforms.
No Clear Strategy
None of the candidates has yet released detailed plans as to how they would tackle Mexico’s problems with security and education. Yet despite these looming issues, Mexico remains a leading nearshore outsourcing destination in the short term at least, and, according to those working in the sector, that is unlikely to change no matter which of the three candidates wins in July.
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