KITE Invest met with Mexico’s Secretary of Economy, Hon. Ildefonso Guajardo, to address Mexico’s future prospects and the issues that still need to be overcome in order for Mexico to achieve the projected economic growth.
KITE Invest: In the international context how will Mexico deal with potential external risks, such as oil prices and the bases set for future growth that are increasingly diversifying and are less dependent on oil. Specifically, please address “the Mexico of tomorrow and after tomorrow”, and the strategy to add value to international trade through its commercial opening.
Secretary Ildefonso Guajardo: Mexico enjoyed for almost over a decade a buoyant situation in the oil market that somehow allowed a fairly conventional process for a healthy managing of public finances. Although structurally the Mexican economy lacked the effort to achieve the optimal conditions to operate in this last decade, the oil bonus allowed the country to be in a relatively acceptable situation to drive the fundamental macro scale of public finances. The absence of this process has created an acceptable rate of average growth over last three decades of 2%.
The country took two fundamental decisions in its history, which were undoubtedly two of the elements that benefited Mexico’s development at the end of last year and at the beginning of the new millennium, and basically caused Mexico’s opening. In 1985, Mexico had an export platform that was 65% based in oil and less than 35% in manufacturing. Today, Mexico’s export platform is basically that manufacturing has turned a corner and the radical change of eliminating the dependence on oil. That coupled with a disciplined pattern of healthy public finances and the autonomy of the central bank sends a clear signal about monetary policy. These factors conceptualise two major assets in the new millennium of the Mexican economy, which are fiscal discipline and monetary stability, plus of course, the importance of trade openness.
In the last 20 years, Mexico has built a platform of very important free trade treaties, especially with North America and Europe, which has multiplied exports by seven times and as of today has registered an average of USD$30 million in FDI.
KITE Invest: Please address the impact of economic reforms in key sectors for the country’s growth, in attracting foreign investment, and in increasing the competitiveness of the Mexican economy. How would you classify Mexico’s attractiveness to foreign investors against this volatility in financial markets?
Secretary Ildefonso Guajardo: For 70 years Mexico was in a fully suboptimal energy model, exporting seven dollars for every dollar we imported. Today that relationship is $1.64 to $1. The former rate obviously imposed on the Mexican economy a high cost of energy inefficiency, which unfortunately had to be offset by other attractions in order to become the manufacturing export powerhouse we are today. Also an economic competency framework never existed, having only been introduced 20 years ago weakly as part of the debts to the competitiveness of the economy.You cannot demand from the most productive economic sectors within your country to compete at a global scale when costs are high due to telecommunication, finance and energy systems that were in place.
The strategy of reforms, six of the 11 that the President motivated, and especially the financial reform, are directed primarily at equalizing the field of competitiveness for the business sector, but above all are directed at the progress of small and medium enterprises. In the country’s economic model before the reforms, large companies did not have many difficulties. When you look at who had contributed most to exports, you clearly see which were the large, global companies, as they had already obtained funding from international markets, were able to self-generate power due to their size, and they could turn around structural inefficiencies in the country’s economy. The reforms are designed to compensate and correct these structural weaknesses in all areas. The financial reform, the energy reform, the economic competition reform, the telecommunication reform, as well as, the education reform all have a great economic impact on the consolidation, training and development of human resources production processes. The reforms have the objective to take advantage of Mexico’s strong position at an international scale.
KITE Invest: Some of the greatest challenges for Mexico are the large dynamic sectors that are connected to international competitiveness. How will Mexico confront this and make the most dynamic sectors contribute more to the value chain and the traditional sectors increase productivity?
Secretary Ildefonso Guajardo: If we make an analysis of the most important industries from the point of view of dynamism, it is the automotive sector that primarily corresponds. In the two years of President Peña Nieto’s Administration, we have received USD$19 million of investment going into auto parts and the auto manufacturing industries alone, generating 45,000 new jobs. This summer established three new plants by brands that did not exist in Mexico before: a vehicle production line of the high level Nissan Infinity model in conjunction with Mercedes, a new line of Mercedes Benz, and a new Korean plant that is opening in Monterrey to produce 400,000 Kia Motors vehicles.
Another sector with double-digit export growth is the aerospace industry, with an impressive development in the Midwest and of key importance in locations such as Chihuahua and Tijuana. There also exists a direct relationship with British companies, like Rolls Royce, in the aerospace industry. The information technology sector is a high performance area in which Mexico is positioned as the third country in “outsourcing” of services worldwide.
KITE Invest: As the Prince of Wales said during his visit, “Today, the ties between both nations are stronger than ever.” What is your vision of the bilateral relationship between Mexico and the United Kingdom following the proclamation of the Dual Year?
Secretary Ildefonso Guajardo:The plan with the United Kingdom is part of an optimization strategy.The first step that the President took was to have the agreement we signed with Europe 14 years ago be recognized obsolete, because it highly limited the potential of the new trade dynamics. On his first trip, within less than two months in office, in Santiago, Chile at the CELAC meeting with the European Union, the President pledged along with other dignitaries to modernize the free trade agreement with Europe. A process that had already begun in Brussels and where we believe during the first quarter of 2015 we will be to close the negotiations. The treaty with the European Union is extremely limited, not including “modern strategic areas with special emphasis on the agricultural part of Mexican exports,” there are chapters that should be and not referenced today. The treaty with Europe is what gives us the parameters to determine the commercial dynamics, as having set a target to double bilateral trade with Britain.
On our part we have already established a business committee for the Dual Year 2015, consisting of a very important group of Mexican business figures. I have confirmation from my British counterpart that Lord Livingston has also already established a British delegation, to which we have a major program of activities to promote business exchanges between the two nations. The investment promotion agency, ProMexico, is providing an outline of new meetings that will bring added value, thematic meetings, and an energy seminar that will begin with the President’s visit to the UK.