Juan Pablo Castañón
National President
View from the Top

Framework for Formalization Must Continue Momentum

Mon, 09/01/2014 - 16:04

Q: How does Coparmex view the impact of the reforms on the Mexican economy?

A: The reforms have seen Mexico take a step forward in education, telecommunications and energy. Mexico is the fourteenth largest economy in the world, but despite being one of the most open economies, it still suffers from significant lags. Mexico has FTAs with 45 countries, but some of its rules are still unclear and do not correspond with the spirit of the reforms. These reforms are only the first generation of reforms that the country needs in order to move forward. We have to strengthen them with secondary legislation while adding transparency laws, accountability, the administration of justice, and the strengthening of institutions to provide Mexico with the necessary security to become more attractive for foreign investment. The fiscal framework must also continue to be improved, especially as the new tax law does not favor the formalization of the economy. 60% of Mexico’s economy is informal, and this can reach up to 70% in some states. We need a fiscal framework that encourages investment and formalization. Statistics concerning the formalization of the economy show that the presence of more formal enterprises leads to less poverty and more economic success. In Nuevo Leon, where formalization rates are high, extreme poverty affects only 2.5% of the

Q: How will the Energy Reform affect energy-hungry sectors like automotive?

A: We need to convert the Mexican industry to natural gas, which involves interesting competitive challenges. Coparmex is looking to help create the infrastructure needed for natural gas to be imported from the US at lower prices. The government has said that the Energy Reform could lower the cost of electricity in Mexico by 25%, but it needs to go further than this. If we can harness Mexico’s thermoelectric and hydro resources, a new generation of Mexican companies could be created. This could be achieved through a series of strategic alliances with foreign companies. Without this joint cooperation, the development may take too long as Mexico is lacking in technology.

Q: How is Coparmex ensuring that the industries supporting the Mexican economy get a steady supply of skilled labor?

A: We are implementing a dual training model along with the Ministry of Education, the Ministry of Labor and the Ministry of Economy. This model allows students to learn in the classroom and in industry. We are starting with a pilot program but we want to focus on giving young people access to clusters, such as those that exist for automotive or aerospace. Mexico must meet the challenge of having more homegrown engineers and technicians. In the business culture of today, many of the investments made by entrepreneurs are directed toward the service industry rather than generating technology. We have to push technological development in the country and the way to do so is by creating a cultural shift in the way research in Mexico is rewarded.

Q: How can Coparmex at a national level strengthen the role of clusters at the state level?

A: We are convinced that the economic progress of a nation cannot be achieved through general public decision-making. It must be focused by region and by clusters and specialties. We are trying to convince the federal government to address nine clusters, targeted at bringing SMEs into value chains alongside large companies. These clusters concern the automotive, mining, tourism, electronics, and aerospace sectors among others. We need to generate value chains in each cluster and technology transfer agreements to drive further growth in these industries. This leads to a triple-helix model in which we need to incorporate academia and research centers. Coparmex must also create opportunities for strategic partnerships with entrepreneurs from other countries to venture into these clusters. The role of Coparmex is to drive regional development, cluster by cluster. Mexican states compete for OEMs to set up shop in their territory. Once an OEM is established, there must be synergies between certain states to generate Tier 2 or Tier 3 suppliers that can provide parts for several manufacturing plants. Therefore, we are targeting SMEs who can turn their capacity toward the automotive industry. These companies could well form strategic alliances with small foreign businesses that are facing barriers to entry Mexico.