Wednesday, 28 November 2012

Despite crippling violence Mexico thrives with planned reforms

Large New Zealand companies such as Fisher and Paykel and Gallagher have been operating in Mexico for some time. The cheap manufacturing costs and proximity to the United States are huge draw-cards for technology brands.

Yet reforms are needed, especially in energy and labour, to attract more foreign investment.

President-elect Enrique Pena Nieto has outlined important measures his government intends to take to bring Mexico’s economy further up the development line.

Mexican labour prices could soon be at a stage to challenge China, where prices are rising. Labour laws in Mexico still make it expensive for companies to operate in the country, but those laws are being debated by Mr Nieto with the potential to be further liberalised.
The Mexican Senate has been debating a bill to make important changes to Mexico’s labour laws. These changes will stop short of altering the convoluted labour strictures, focusing instead on the more malleable labour laws. 

Attracting foreign investment will become even easier for Mexico as these reforms roll back the stifling labour monopolies.

Foreign trade, according to a 2011 PWC study, is extremely important for Mexico to service its large external debt. This debt is significant, amounting to US$56 billion in 2008. Mexico has sufficient mineral resources to cover its external debt but analysts point to obstacles in Mexican law that need to be overcome in order to streamline mineral extraction.

The Mexican constitution currently forbids foreign ownership of mineral resources, proffering instead to issue fee-based contracts. This is in stark contrast to many countries around the world and an obstacle to foreign investment the new government is looking to rectify.

A free-trade agreement with the United States is attractive to foreign companies considering investment in Mexico. Mexico shares a long and porous border with the world’s largest economy and their cooperation is increasing.

But there is a war going on in Mexico that has killed over 50,000 people in the last ten years. Few conflicts even in the third world could claim such horrific stats. It is such a relatively underreported war, compared to the larger profile American wars in the Middle East that one could be forgiven for not keeping track.

Most of the killings in Mexico are a result of the so-called ‘Cartel wars’. A long-running battle between rival drug cartels growing more brutal and vicious as each year passes. 2011 being the worst year with some 16,000 people killed.

Mexico’s drug war claimed the life of the mayor of Tiquicheo, Dr Maria Gorrostieta last week. Her death comes after two previously failed assassination attempts. Dr Gorrostieta is one of the almost two dozen Mexican mayors killed by drug violence in the last decade.

The lucrative market for drugs in the United States feeds cartel ambition, and control over the land routes traversing the long and mountainous Mexican highland is brutally contested by the cartels. A sort of cat-and-mouse game behind the scenes plays out between U.S. and Mexican law enforcement and the drug organisations.

Extremely high profits for drugs can be made in the Asia Pacific region as well. Mexican drug trafficking organisations have established themselves in Australia and the Eastern Hemisphere.

Prices for one kilogram of cocaine can fetch US$250,000 in Australia and New Zealand, whereas the equivalent amount may collect US$30,000 in the United States.

Granted, what happens in Mexico is not yet as significant as perhaps the politics of Japan or Saudi Arabia. But Mexico came in as the 13th largest economy in the world by GDP this year and in spite of the violence their strong economy continues to expand.

Mr Nieto understands that his country’s economy could be doing even better if it weren't for the crippling violence infecting almost every corner of the nation. One of his campaign promises was to halve the murder rate in the next six years, the length of his term as President.

Jorge G. CastaƱeda, Mexico’s Foreign Minister from 2000-2003, outlined in a recent Foreign Affairs article that the direction Mr Nieto intends to take Mexico must signal to the world a credible narrative about its future.

He says “the country is less than a generation away from becoming the full-fledged middle-class society it aspires to be.” And with a new government in Mexico City, ready to focus on those reforms, the next several years should see a significant positive shift towards further economic expansion.

In the last 17 years, the Mexican economy has become one of the world’s most transparent. And business development has been stable even with the financial troubles confronted by some of the Mexico’s biggest trading partners, such as the United States and Europe.

Despite the persistent drug violence, Mexico has a robust and strong economy that investors are eyeing with interest.

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