Business

Mexico aims for G20 summit success

Kevin Davie

Drug-related killings have overshadowed the fact that Mexico's economy is alive and well, writes Kevin Davie.

Mexico City, one of the world's most populated cities, is home to the head offices of the country's growing multinational sector. (Ronaldo Schemitd, AFP)

There was concern internationally ahead of the COP17 deliberations on climate change in ­Durban that, as host country, South Africa was not doing enough to ensure that the talks would be a success.

I sat in a meeting at the Mail & Guardian at which a delegation of high-powered Americans expressed their concern that our government may not be giving COP17 the attention it deserved.

The message was that we should view it as similar to the World Cup and not mess up. Pointedly, we were urged to not do what the Danes had done and host a failed climate change convention, but rather follow the Mexicans, who had earned widespread praise for the handling of their convention.

Mexico is the president of the G20 group of nations. Ahead of the G20 summit at the coastal resort of Los Cabos later this month, it invited a limited number of journalists from G20 countries to visit. I was one of two South African journalists.

Mexico, at present, has been in the news for the wrong reasons lately. A photograph, published worldwide – including in the M&G – showed the corpses of people who had been strung up in the streets.

Progress
Reports spoke of police finding 49 headless, footless and handless corpses in one instance, among other mutilated bodies. Banners are sometimes displayed with the dead indicating the involvement of drug gangs that are fighting an increasingly violent war with one another.

I was to spend four days in Mexico City, one of the world’s most populous and highest-altitude cities, home to 21-million people who live at 2300m above sea level.

My time was spent walking in the parks, eating great food, swigging the odd tequila, taking in museums and art galleries when not interviewing a range of public and private sector economists and officials, most of whom are in one way or another engaged in the G20 process.

Under President Felipe Calderon, Mexico has been keen to ensure that, on its watch, the G20 will not be dominated by the eurozone crisis. Specifically, Mexico wants the G20 to make progress on a number of issues, including climate change, trade and investment, development, food security, the fight against corruption and financial stability.

The G20 summit takes place on June 18 and 19, the day after the Greeks go to the polls on June 17. The summit also coincides with parliamentary elections in France and presidential elections in Egypt.

Refreshing openness
Observers rightly point out that the euro crisis is a much bigger issue than merely a Greek problem. The contagion has spread to include Spain, the world’s 12th largest economy, where the government has acknowledged it needs the involvement of European institutions to recapitalise its banks.

The Mexican officials I interviewed included Calderon’s special representative (the Mexican sherpa in G20-speak), Lourdes Aranda, Deputy Finance Minister Gerardo Rodriquez and the head of the B20 or business representative group at the G20, Alejandro Ramirez.

A feature of these meetings, as well as those held with private-sector economists and academics, was how easy the conversation was. This is partly because the dialogue is South-South, with no Northern talking-down to the Southern party, but also because the Mexicans have a refreshing openness, while at the same time acknowledging their strengths and weaknesses.

There was a noted absence of spin and no awkwardness in addressing any subject. There was also, if my sample of interviews was anything to go by, a keenness to compare the performance of the Mexican economy with other developing economies in general and South American economies in particular.

A few times when we were discussing our respective economies, out came the graphs that showed our relative performance in, for instance, education and income inequality. The Mexicans reckon they do badly on the latter measure, notwithstanding their success in the creation of manufacturing jobs, which will truly sicken every South African rightly concerned with our high rate of unemployment.

Open and outward
Mexico runs a balanced trade account with about 85% of $350-billion worth of exports being manufactured items, the result of the restructuring of its economy over the past few decades from being inward and closed to open and outward.

This is closely associated with Mexico signing up to the North American Free Trade Agreement (Nafta). United States-Mexican trade is up 460% since Nafta came into operation in 1994, helping to make Mexico, with a gross domestic product of $1-trillion, the world’s 13th largest economy. (South Africa, with a GDP of R3-trillion, is the 25th largest).

Nafta allowed Mexico to maximise its locational advantage, the world’s largest economy in its backyard. Any number of multinationals have since set up shop in Mexico to manufacture for the American market, attracting $287-billion in foreign direct investment since 1999.

Although most are located outside Mexico City, their head-office operations are there. Witness the new business district at Sante Fe, a suburb of Mexico City, which is wall to wall new office blocks, hotels and malls.

Sante Fe is a monument to economic success, but perhaps as a manifestation of the Mexican psyche, I found no shortage of people ready to criticise it partly because they thought it was located in the wrong place and had poor transport infrastructure.
I was a few days into my visit when I realised that my view of Mexico was filtered through Hollywood, which gives the impression that Mexicans are so desperate to get out of their own country that they are willing to risk death in the desert to make it into the US.

Unrelated parallel universe
The relatively recent prosperity of Mexico, coupled with a weaker US economy, has resulted in the neutralisation of the migration position.

Viewed from Mexico City, the mafia-style drug wars seem to be an unrelated parallel universe, even though they have exacted a death toll of 10 000 people a year since President Calderon declared war on the cartels in 2006.

Surprisingly, the wars and associated carnage have not been enough to put off investment. Some companies that have set up operations in the country have done so in areas where the drug wars rage, Carlos Guzman of the agency Pro Mexico told me.
Mexico’s response to its drug-related mafia problem is twofold. Firstly, under Calderon, it has targeted the 37 top drug lords, 23 of whom have been arrested.

These mafia bosses are popular in some regions because their crops sustain local economies and their philanthropy can extend to providing facilities such as hospitals, which the government has not provided.

Secondly, Mexico has engaged with the US to get it to accept co-responsibility for the problem because it is the US market for drugs – said to be worth $20-billion a year – that ­creates the demand for narcotics in the first place and then it is lax US laws that allow drug smugglers to be supplied with weapons.

Not a failed state
Of 12 000 shops licensed to sell arms in the US, 7 000 are near the border with Mexico, I was told. Although previous US administrations banned the sale of assault weapons, this prohibition expired in 2003 and has not been renewed.

An article in Foreign Policy magazine last year stressed that Mexico was not a failed state and the shock-and-awe approach favoured by the US in dealing with the drug problem was not working. When noted drug lords were busted, their operations just atomised into smaller operations and continued.

The officials I interviewed said the recent intensification of the turf war was a sign that the authorities were closing in, giving drug gangs less room to operate. The view is that, however horrific the current situation, it is a war Mexico is winning.

Taking a longer view, there appears to be no shortage of voices, including that of President Calderon, who see the legalisation of drugs as the ultimate mechanism for the effective regulation of this industry.

But if you ask Mexican economists whether organised crime is the country’s biggest challenge, they say it is not. Rather, they point to factors such as an inflexible labour market and an underperforming education sector as greater challenges.
Mexico, which had its own debt ­crisis, the 1994 tequila slammer, reckons it can offer some perspective on the current euro crisis.

Rodriquez suggests the way ­forward is to adjust the narrative to one more in favour of growth. “Nothing happens without growth,” he said.

Kevin Davie visited Mexico as a guest of the Mexican government


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