ZEEs Could Help Bridge gap Between ‘TWO MEXICOS’Thu, 01/11/2018 - 10:46
Q: What is the OECD’s view of the presidential election in Mexico and the impact on infrastructure development?
A: Presidential elections tend to pause decision-making and public expenditure on large infrastructure projects. Although financial and political analysts cannot forecast the economic conditions for the year, what we do know is that there are immense projects that are under way and that require certainty regardless of the change of administration.
The OECD has released three reports for the development of NAIM with support from GACM to strategically analyze the governance aspects of this project. We advise the governance of such an immense project where risks must be mitigated to ensure transparency with reference to best international practices. We analyzed GACM’s decision-making processes and organizational structure and made recommendations to make sure the federal government supported GACM with a highly specialized team. Because GACM is a public company, it should be autonomous when it comes to making technical and managerial decisions. GACM has complied with the OECD’s recommendations and we are pleased that it has integrated most of our recommendations.
Q: What are the main factors holding back Mexico’s economic growth and what should be done to boost development?
A: It is unacceptable that there is growing inequality across the different regions in Mexico. There is always talk about the Two Mexicos, which have been studied by McKinsey and The Economist, describing how Mexico is split into two. One Mexico is extremely dynamic and is growing and another is poor and lagging. This is something that truly worries the OECD as a structural vulnerability of the Mexican economy. Inequality has tripled between Mexico’s most dynamic and its poorest states over the course of two decades. The ZEEs are a very ambitious proposal to revert this disparity. The next administration may modify or redefine the program, but we believe it is a great way to generate activity in Mexico’s southern regions and boost economic growth.
The OECD has insisted on structural reforms that will generate better regulatory and competitive conditions. The ZEEs program or the already announced infrastructure programs of the incoming federal administration must create favorable conditions to attract investment in lower-income regions of Mexico. This implies a long-term commitment and requires coordination between Mexico’s industries. In particular, logistics infrastructure will play a vital role in the development of these zones and it cannot operate well if security is not ensured. The OECD recommends not only the improvement of logistics infrastructure but also the development of energy infrastructure, which means that the government must have a greater fiscal capacity.
Q: How can Mexico improve its fiscal capacity to fund much needed infrastructure projects?
A: At one point, 11 percent of Mexico’s GDP came from tax collection, which was one of the lowest levels in the OECD. There has been an improvement in how much the country is collecting, which was 17 percent of GDP in 2016, but the country undeniably still needs to improve tax collection. The return on investment in infrastructure is high because not only does it create jobs, it has a pull effect on the supply chain the private sector creates. In our recent report, Getting it Right, we provided all presidential candidates with recommendations for the next six years.
Mexico is among the Top 20 largest economies in the world. To become a leading economy, Mexico’s growth must be more dynamic according to its size. The country’s economy is not growing as it should and its growth rate must be doubled. That also goes hand in hand with higher inclusion levels. The additional growth the country needs must be characterized by greater inclusion, especially of women and the lagging regions.