Viewpoint: Five myths about Mexico

1 May 2013 

Mexico is a country with a growing middle class and strong democracy

As US President Barack Obama visits Mexico this week, he may want to consider the new realities of the country, says Shannon O'Neil, from the Council on Foreign Relations.

President Obama's visit to Mexico is part of a long tradition of diplomatic relations between the US and its neighbour to the south.

But while many Americans feel that they understand the basic economic and social forces that drive Mexico, the realities are much more interesting.

Here five myths about Mexico, that have a direct impact on American foreign policy, are debunked.

Mexico is no longer a poor country

Mexico City is a modern hub of commerce and culture

Though many Americans think of Mexico as a country of either wealth or poverty, by most accounts it is now a middle-class country.

A majority of Mexican households - incorporating roughly 60m people - now have disposable income. Half of the people in Mexico own their own car, and one-third own a computer. Nearly everyone has a television and mobile phone.

These new urban middle-class Mexicans are also investing in their children's education. There are now 45,000 private schools, comprising nearly a third of all Mexico's schools.

Student enrollment in universities and beyond has tripled in the past 30 years, from under a million in 1980 to almost three million today.

The rise of the middle class has affected Mexico's politics, too, with this segment pivotal in voting out the long-ruling Institutional Revolutionary Party (PRI) in 2000, and then voting them back in to Los Pinos, Mexico's White House, last year.

This crucial voting bloc is increasingly up for grabs, rapidly joining the ranks of Mexico's proclaimed political independents.

They mirror the US middle class in their concerns, paying close attention to economic opportunities and security, two important issues in US-Mexico relations.

Mexican manufacturing doesn't harm US workers

Basing factories in Mexico allows American companies to be more competitive

For Mexico, the biggest issues in the US-Mexico relationship are economic, and President Enrique Pena Nieto is hoping to deepen commercial ties between the two nations.

In his State of the Union address, President Obama praised Ford Motor Company for bringing jobs back from Mexico as part of a strategy to make "America a magnet for new jobs and manufacturing".

Yet this statement, at least with regard to Mexico, is mistaken.

It isn't that globalisation doesn't lead some jobs to foreign lands. It does. But by expanding abroad, companies become more competitive, supporting and creating jobs at home.

Ford increased its US workforce (and plans on adding thousands more jobs by 2015), but it hasn't stopped hiring in Mexico. It is expanding a plant in Hermosillo and adding over 1,000 positions in the last few years in the state of Sonora.

A study by two Harvard business professors and a University of Michigan colleague shows that for every 10 people hired overseas by American corporations, two new jobs are created in the United States.

Mexican immigrants are not going to keep flooding the US

The net migration from Mexico to the US is zero, due to many factors. The US has cracked down on undocumented immigrants like these Mexican men being held by Border Control

The images of hundreds of thousands of Mexican immigrants illegally entering the United States each year, chased down by border patrol agents on foot, horseback, or truck, resonates widely. But this reality has changed.

The estimated numbers coming north each year are down to levels last seen in the 1970s.

In fact, a 2012 Pew Hispanic Report noted that the net immigration for Mexicans in and out of the United States was "zero". In other words the same numbers of Mexicans entered and left.

This can in part be explained by the US recession, but it also reflects changes within Mexico.

Mexico has undergone a major demographic shift in the last generation. In the 1970s, women were having an average of seven children, but today that number is closer to two - the same as the US.

With fewer citizens coming of age each year relative to the overall population, the decades where Mexico's "extra youths" headed to the US are over.

Mexico's democracy is not weakening

Mexican president Enrique Pena Nieto wants to expand business dealings between the US and his country

Although many feared that the 2012 return of the PRI would push Mexico back into its authoritarian past, checks and balances now exist and constrain whomever wears the presidential sash.

In Mexico's Congress, the three major political parties must negotiate to get any bill passed, and the nation's Supreme Court has increasingly exercised its autonomy to restrain both political officials and vested interests.

The country's media and civil society groups more generally are beginning to play an important watchdog role, questioning policies and exposing bad behaviour.

And finally, Mexico has reached a relatively enviable space, ranking in the upper tiers of nearly all relative international measures of democracy.

Mexico is not at risk of becoming a failed state

Mexico has its share of protests, corruption and violence, but the country continues to improve its institutions

Over the last six years, some 70,000 Mexicans have been killed in drug-related violence, and tens of thousands more have disappeared.

Mexico's police have often been unwilling or unable to stem the bloodshed, and the judicial system too has failed - with just 2% of all crimes ending in convictions.

But while Mexico faces a serious security threat from organised criminal groups, the country continues to collect taxes, build roads, run schools, expand social welfare programmes and hold free and fair elections.

Its economy has grown steadily, if somewhat slowly, and Mexico maintains an important presence in multilateral groups and summits.

It has also begun the long and arduous path of professionalising its police forces and transforming its courts to create a democratic rule of law.

One thing about Mexico that remains true is the deep and now permanent economic, political, security, and personal links between Mexico and the United States.

For Presidents Obama and Pena Nieto, there is much to gain from a better understanding of each other's country.

Shannon K. O'Neil is a senior fellow for Latin America Studies at the Council on Foreign Relations and the author of Two Nations Indivisible: Mexico, the United States, and the Road Ahead
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How Mexico Got back in the game

By THOMAS L. FRIEDMAN
Published: February 23, 2013


In India, people ask you about China, and, in China, people ask you about India: Which country will become the more dominant economic power in the 21st century? I now have the answer: Mexico.
Impossible, you say? Well, yes, Mexico with only about 110 million people could never rival China or India in total economic clout. But here’s what I’ve learned from this visit to Mexico’s industrial/innovation center in Monterrey. Everything you’ve read about Mexico is true: drug cartels, crime syndicates, government corruption and weak rule of law hobble the nation. But that’s half the story. The reality is that Mexico today is more like a crazy blend of the movies “No Country for Old Men” and “The Social Network.”
Something happened here. It’s as if Mexicans subconsciously decided that their drug-related violence is a condition to be lived with and combated but not something to define them any longer. Mexico has signed 44 free trade agreements — more than any country in the world — which, according to The Financial Times, is more than twice as many as China and four times more than Brazil. Mexico has also greatly increased the number of engineers and skilled laborers graduating from its schools. Put all that together with massive cheap natural gas finds, and rising wage and transportation costs in China, and it is no surprise that Mexico now is taking manufacturing market share back from Asia and attracting more global investment than ever in autos, aerospace and household goods.
“Today, Mexico exports more manufactured products than the rest of Latin America put together,” The Financial Times reported on Sept. 19, 2012. “Chrysler, for example, is using Mexico as a base to supply some of its Fiat 500s to the Chinese market.” What struck me most here in Monterrey, though, is the number of tech start-ups that are emerging from Mexico’s young population — 50 percent of the country is under 29 — thanks to cheap, open source innovation tools and cloud computing.
“Mexico did not waste its crisis,” remarked Patrick Kane Zambrano, director of the Center for Citizen Integration, referring to the fact that when Mexican companies lost out to China in the 1990s, they had no choice but to get more productive. Zambrano’s Web site embodies the youthful zest here for using technology to both innovate and stimulate social activism. The center aggregates Twitter messages from citizens about everything from broken streetlights to “situations of risk” and plots them in real-time on a phone app map of Monterrey that warns residents what streets to avoid, alerts the police to shootings and counts in days or hours how quickly public officials fix the problems.
“It sets pressure points to force change,” the center’s president, Bernardo Bichara, told me. “Once a citizen feels he is not powerless, he can aspire for more change. ... First, the Web democratized commerce, and then it democratized media, and now it is democratizing democracy.”
If Secretary of State John Kerry is looking for a new agenda, he might want to focus on forging closer integration with Mexico rather than beating his head against the rocks of Israel, Palestine, Afghanistan or Syria. Better integration of Mexico’s manufacturing and innovation prowess into America’s is a win-win. It makes U.S. companies more profitable and competitive, so they can expand at home and abroad, and it gives Mexicans a reason to stay home and reduces violence. We do $1.5 billion a day in trade with Mexico, and have been spending $300 million a day in Afghanistan. Not smart.
We need a more nuanced view of Mexico. While touring the Center for Agrobiotechnology at Monterrey Tech, Mexico’s M.I.T., its director, Guy Cardineau, an American scientist from Arizona, remarked to me that, in 2011, “my son-in-law returned from a tour of duty in Afghanistan and we talked about having him come down and visit for Christmas. But he told me the U.S. military said he couldn’t come because of the [State Department] travel advisory here. I thought that was very ironic.”
Especially when U.S. companies are expanding here, which is one reason Mexico grew last year at 3.9 percent, and foreign direct investment in Monterrey hit record highs.
“Twenty years ago, most Mexican companies were not global,” explained Blanca Treviño, the president and founder of Softtek, one of Mexico’s leading I.T. service providers. They focused on the domestic market and cheap labor for the U.S. “Today, we understand that we have to compete globally” and that means “becoming efficient. We have a [software] development center in Wuxi, China. But we are more efficient now in doing the same business from our center in Aguascalientes, [Mexico], than we are from our center in Wuxi.”
Mexico still has huge governance problems to fix, but what’s interesting is that, after 15 years of political paralysis, Mexico’s three major political parties have just signed “a grand bargain,” a k a “Pact for Mexico,” under the new president, Enrique Peña Nieto, to work together to fight the big energy, telecom and teacher monopolies that have held Mexico back. If they succeed, maybe Mexico will teach us something about democracy. Mexicans have started to wonder about America lately, said Bichara from the Center for Citizen Integration. “We always thought we should have our parties behave like the United States’ — no longer. We always thought we should have the government work like the United States’ — no longer.”

Sweet spot in Mexico earns second look from investors

By Patrick Rucker


(Reuters) - Mexico's improving economic prospects, coupled with low inflation, are winning the country a second look from international investors and fund managers.

Investors see potential in Mexico's services sector and in enticing more companies to market, and are also bullish about new financial tools which could send billions of dollars into infrastructure and private equity deals.

Expected economic growth of about 4 percent this year, combined with inflation of about 3.5 percent, compares well to regional peers, many of which are tightening monetary policy to fend off surging prices.

"In our view, the Mexican economy is very much in a sweet spot," Lupin Rahman, senior vice president of emerging markets portfolio management at bond giant Pimco, told a LatinFinance summit this week.

"In terms of output, in terms of growth, in terms of inflation, all these dynamics point to a very positive 2011 for the Mexican economy."

Mexico's apparent comeback in the sentiment stakes follows several years in the shadow of Brazil, which weathered the global crisis better but is now wrestling with high inflation.

Emerging market investors surveyed by Bank of America Merrill Lynch in February put Brazil at underweight for the first time in the survey's history, while preferences for Mexico are increasing.

But Mexico still has some homework to do.

The economy depends heavily on manufacturing exports to the United States, and while the recovery in U.S. consumer demand has prompted economists to lift forecasts for Mexican growth, investors also look for diversification and for structural reforms.

"If Mexico can turn the engines and start opening its service sectors it will be a fantastic run for the economy," said Alfredo Thorne, head of global markets at Banorte bank.

"It can seriously not only grow at 6, 7 percent but actually perform much better than the BRICs." Brazil's growth is expected to slow in 2011 to 4.5 percent, according to the International Monetary Fund.

Thorne estimates Mexico's drugs war, which has killed more than 34,000 people in the last four years, is cutting 1-2 percentage points from annual growth, but says it will be worth it. "If Mexico manages to win this war, it will be the most important structural reform," he said at the summit.

Luis Harvey, co-founder of private equity firm Nexxus Capital, said Mexico's service sector was underrated.

"You have a huge internal market which has a per-capita income twice as big as Brazil's," he said.

Leisure, health and consumer finance are some of the industries getting a lift from the expanding middle class and sectors where Harvey has put money to work.

Buyout firms typically drive their acquisitions toward a public offering and the Mexican exchange has room to grow with $550 million of shares swapping hands daily compared to the roughly $3.6 billion traded daily in Brazilian stock markets.

"You need to get more companies going to the market; more people investing in equities," said Harvey.

NEW FINANCIAL TOOLS

New financial instruments are also helping improve Mexico's reputation among global investors, after bureaucratic hurdles and inertia caused many to lose patience.

Brazil buyout firm GP Investments (GPIV11.SA), for one, opened a Mexico City office four years ago intending to make a splash in Latin America's second-largest economy, but pulled out. Partners remember the attempt as a costly mistake.

Carlyle Group CYL.UL also retreated, leaving behind one money manager who has spent much of the last two years in a time-consuming effort to draw Mexico pension fund investment. Now he is finally starting to see results.

Mexico is rolling out new investment options, such as real estate investment trusts (REITs) and a hybrid security designed solely to serve the country's retirement funds.

Those Mexican pension funds, which sit on 1.4 trillion pesos ($116.5 billion) in assets, are expected to drop sizable investments into REITs. Joaquin Avila, the Carlyle veteran, expects his EMX Capital will soon win pension fund financing.

"It has been a tremendous amount of work. To some extent cumbersome and to some extent understandable," said Avila. "These are new securities to Mexico."

Local money managers say the new securities will bring welcome efficiency and competition to Mexican markets.

"Now we are seeing real sophistication in the financial marketplace," said Juan Alberto Leautaud, a local real estate money manager whose infrastructure investment plan recently won $220 million in pension fund cash.

New financing has drawn money managers like Paul Ahlstrom, who brought his wife and six kids to Monterrey in Mexico's north as he made a private equity pitch to the funds.

It took nearly two years, but Ahlstrom says a deal is near with his Alta Growth Capital that will blend pension cash with $75 million of outside capital.

"This deal will happen. It's just painful to be a pioneer," he said. "I hope we don't become the pioneer with arrows in his back."

(Additional reporting by Guillermo Parra-Bernal in Sao Paolo, Editing by Chizu Nomiyama)


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