No Reforms, No Growth

Despite Mexico advancing to a full neoliberalist position, the implementation of the structural reforms has been slow. Some reforms such as the Energy and Labor Reforms have yielded positive results but Francisco Gil, Chairman of the Board at Avanzia, said during the closing speech at Mexico Business Forum 2018 that the country’s productivity still needs to improve.

“Privatization allowed for changes in technology and modernization in the industry,” Gil said. “Thanks to Miguel de la Madrid’s bilateral efforts with the US, exports have increased to 24 times more than what they represented in 1980.”

According to Gil, structural reforms are crucial to participate in a modern market. Besides the deregulation that former President Carlos Salinas de Gortari implemented in the transportation segment, for example, in the early 1990s the country took its first steps toward becoming a government-independent economy when the exchange rate was freed from the control of the central bank. “Liberating the exchange rate meant prices were no longer subject to the peso’s position in the international market, which meant there was less tendency toward inflation and overall crisis.”

President Enrique Peña Nieto’s administration pushed a number of reforms that according to the OECD are fundamental for Mexico’s economic development. Gil highlighted how, thanks to the Energy Reform, the country has attracted several projects in wind, solar and cogeneration and how electricity prices have been impacted as a result. “Reducing the use of oil by 42 percent has led to significant drops in energy prices,” Gil said.

The Telecommunications Reform is a similar success case, according to Gil, who mentioned that broadband penetration increased by 64 percent in the mobile phone sector with internet access, along with the participation of the telecommunications sector in the national GDP that increased to 3.39 percent from 2.97 percent.

One of the main factors that stand in the way of further development, however, is over-regulation. “Over-regulation leads to higher costs to start a business,” Gil said. Paperwork for a new business represents 18.2 percent of the nation’s income per capita, which is three times the rate in Brazil and 10 times more than in North America. “A higher investment translates to more informality, which diminishes productivity.” Gil said.