Overpromise and Under-Deliver: Growth in Mexico

Over the past three decades, and despite great hopes to the contrary, Mexico’s economy has under-performed. In the early 1908s, Mexico introduced aggressive political and economic reforms in an attempt to gain footing among the world’s strongest economies. These reforms embraced global markets and decreased the state’s role in the economy. An independent central bank was introduced along with more developed financial markets, as the country faced a tough macroeconomic stabilization period. Additionally, the country liberalized foreign trade and investment by privatizing nearly 1,000 state-owned enterprises. By 1994, Mexico joined the OECD, a sign that the country was on the right track. Despite these efforts, Mexico has  seen capita income grow by an anemic 1.1%  per annum over the past 25 years. Compared to other countries with similar economies (see below), Mexico’s relative stagnation seems all the more acute..

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 In 2012, Enrique Peña Nieto took office as Mexico’s 57th President, eager to tackle the country’s growth challenge. So far, President Nieto seems to be heading in the right direction promoting an ambitious reform agenda that seeks to not spur economic growth, but also develop and enforce anti-monopoly regulation. The President’s agenda highlights two main reforms: energy and education. His education reforms target the quality of working educators by introducing a series of rigorous tests that may cost teachers their jobs if they fail. The energy reforms aim to reduce the market share of Pemex , which will go along way in strengthening the energy sector through increased competition.

President Peña Nieto intends to have all reforms approved by the end of 2014, but this is just half the battle. The most challenging part of these reforms will be enforcing all the regulations once implemented and winning over the general population.

Early last year, Elba Esther Gordillo, the powerful leader of Mexico’s teacher’s union, was arrested on massive charges of embezzlement of over 2 Billion Pesos (159 Million USD). The arrest came the day after President Nieto signed the education reforms into law. Shortly after, thousands of teachers stormed the streets to protest the education reform package. This forceful disapproval of the president’s reform agenda is a much-needed reminder that optimism for growth in Mexico is far from reality, and that Peña Nieto still has much to accomplish.

According to researchers at the Wilson Center’s Mexico Institute, the principal cause of Mexico’s stagnant growth is misguided education reform and dismal worker productivity. Worker productivity in Mexico has failed to increase over the past three decades despite the steady increase in school enrollment over the past five decades (see figure below). Educational facilities in Mexico focus on teaching cognitive skills rather than the technical skills that employers demand. The lack of technical skill-focused education in Mexico has lead to disappointing levels of worker productivity. This will continue unless the government seeks further reform focused on increasing the quality of educators and the type of education, not just the amount of people who receive an education.


In the past, the government’s answer to dismal growth has been disjointed. The Mexican Government has managed isolated efforts with no comprehensive strategy to patch up the economy. This erratic policymaking has led to many conflicting reforms, hindering growth in an economy that has been dreaming of development for decades. President Peña Nieto’s aggressive reform agenda brings newfound optimism for growth in Mexico. In his four remaining years in office, Peña Nieto is expected to accomplish what many have failed to do. Is it finally Mexico’s time to shine?





Pacific Pumas

As the United States and Europe continue to fight long term stagnant economic growth amid crushing national debts, another region is shining bright. Latin America, an area once referred to as the “development of underdevelopment,” has emerged from the global financial crisis as a model of growth for emerging markets. A group of Latin American countries managed to not only survive the financial instability that rocked global markets, but actually grow during this period, and the World Bank forecasts that the region’s economy will grow 4.5 percent this year.  This regional success was fueled by a block of countries in Chile, Mexico, Peru, and Columbia, dubbed the ‘Pacific Pumas’, which have positioned themselves through sound policy and open trade to become drivers of Latin American economic growth in the burgeoning Pacific markets.

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Developing Countries Look To The Cloud

With the emergence of Google Drive, Dropbox, iCloud, and Chrome OS cloud computing is well on its way to becoming a necessity in most people’s life in the developed world. It allows for rapid sharing of documents and automatic back up of family pictures and school papers. But cloud computing is capable of much more: it now also allows for the actual applications and programs we use every day to be stored away from our personal computers and accessed through the web. IT-programs are increasingly accessed through the web instead of being physically shipped in a box and manually installed on your own computer.

Cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.

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Not all PPPs are Made Equal

Infrastructure development is an integral part of sustainable economic growth.  Indeed, a recent African Development Bank Group  (AfDB) article estimates that improving African infrastructure would lead to a 3% increase in annual growth.  In order to meet the Millennium Development Goals and achieve this level of growth, it is thought that $93 billion a year  is necessary to spend on infrastructure development in Africa for an entire decade.  The same AfDB article argues that public-private partnerships may help achieve these ambitious goals.

In the European Center for Development Policy Management’s (ECDPM) May 2012 publication of GREAT Insights Melissa Dalleau outlined six necessary conditions for successful public-private partnerships (PPPs) in infrastructure development.  According to ECDPM, the keys to success are “enabling environments” that facilitate PPPs; “project preparation”; “risk mitigation”; “coordination” of various governmental and private organizations; effective communication; and the “alignment of incentives” such that private endeavors benefit the public.  The successes and failures of particular infrastructure development projects best demonstrate the importance of these conditions.

The South African government has been particularly successful in leveraging the private sector to achieve development goals.  As of January 2012 South Africa has completed over twenty different PPP projects.  Most notable among these projects is the Gautrain rail system linking Pretoria and Johannesburg.  Costing nearly $4 billion, the project was realized through the combined efforts of Bombela Concession Company and the Gauteng province. Continue reading