Mexico is on the move since President Enrique Peña Nieto took office in late 2012 and carried out a program of sweeping reforms aimed at transforming the country. With the consensus of the three main political parties (the Pact for Mexico), reforms have been approved to upgrade education, expand credit, improve telecommunications, open up oil and gas to private investment, and increase economic competition. Mexico is poised for a significant transformation, and the next few years will be crucial for the development and implementation of secondary legislation.
Reinforcing North America’s economic strength, diversifying international trade, and cooperation through the Pacific Alliance and the TTP, and overcoming cross-border challenges are some of the aspects emphasized by the Secretariat of Foreign Affairs to boost growth and transform Mexico into a major player in the America’s and on the global level.
As the largest Spanish-speaking country in the world, Mexico must play a key international role in economic, cultural, and political terms. José Antonio Meade Kuribreña, Mexico’s secretary of foreign affairs, argues, “We need to take advantage of our multiple belongings in the most strategic fashion and translate them into more opportunities for trade, for investment, for cultural and technological exchanges, while strengthening our bonds with the G20 community.”
“Mexico has a global, systemic, and important profile on many levels. We are a large economy; we are a populous nation, so there are few topics of global relevance where Mexico’s voice should not be heard. Especially at a time when Mexico is going through profound economic, political, and sociocultural changes that will increase its role on the international stage.”
However, managing to consolidate Mexico as a state that respects and defends international law, as a country that promotes free trade, guarantees the investments it receives, and as a supportive, responsible, nation that champions peace and solidarity between countries will not occur overnight.
The Mexico Brand
Secretary Meade admits that branding Mexico must be grounded on reality. “The Mexico brand has to be grounded on something that is profound and that will have consequences. We think that Mexico is perceived as a country that has important challenges, but is making an effort to transform itself structurally, and that, we hope, will generate a change in the world’s perception about Mexico today.”
To tackle the security and drugs issue, Peña Nieto’s administration is implementing a three-part strategy: police institutions will be better trained and equipped and led by a single command; the new system of oral trials aims to facilitate applying justice more quickly; and the attorney-general’s office will become autonomous. Homicides linked to organized crime have dropped by about 30 percent in the past year.
“I think that the way that we have been facing our challenges, especially in terms of security, reveals some success. At this stage it is clear that we still have a very important problem but our long-term strategy has been successful,” says Secretary Meade, adding that concrete examples are Ciudad Juárez, Tijuana, and Monterrey, three crime-ridden cities that have recovered their peace.
The general feel-good factor has yet to translate into expected levels of growth, with Mexican banks recently slashing growth expectation for 2014 to a current estimate of 3.01 percent from 3.09 percent, in March.
Luis Robles, president of BBVA Bancomer, the largest financial institution in Mexico blames poor results to date on three factors. “Slow growth in the US, due to bad weather; a halt in public spending by the Mexican government; and severe problems with the construction industry, namely the unsustainable housing sector which was unavoidable.” Nevertheless he understands that transformations of this nature and scope require time in the implementation of the reforms. He shares his optimism and expects results “in the near future.”
“Mexico is going through a historic moment, which will dramatically change its profile as a world player. We are on the right track.” Proving its commitment to Mexico, last year BBVA Bancomer announced an investment of $3,500 million over a four-year period to increase its strength and enhance its position as the leading banking institution in the country.
Paul D’Agata, managing director and head of Spanish Latin America, corporate, and investment banking for Scotiabank, the seventh-largest bank in the country, expresses similar optimism. As Scotiabank’s second-largest investment destination outside of Canada, Mexico now offers “phenomenal opportunities.”
“As the twelfth-largest economy in the world, within the top fourth-largest manufacturer of autos in the world, with booming manufacturing and exports in the field of electronics and aerospace, a young population, and growing middle class, with huge prospects for energy and mining, all together create an amazing combination.”
In May 2013, Fitch Ratings upgraded Mexico’s sovereign ratings by one notch (Long-Term Foreign Currency IDR to BBB+ from BBB; Long-Term Local Currency IDR to A- from BBB+), “to reflect the country’s improving fundamentals and the greater-than-anticipated reform momentum under the Peña administration.” Eugenio Lopez, general director of Fitch Ratings Mexico explains, “The potential is huge, but the outcome will depend on how the final reforms are implemented.” One of the key assumptions underpinning Mexico’s upgrade was the expectation that it will continue to make progress on reforms that improve its fiscal flexibility and promote economic growth. “But today we need to wait and see,” Lopez concluded.
Despite its daunting primary hurdle—security—the fact is that there is huge positive interest from the global community, and foreign direct investment (FDI) has been flowing in, signaling strong confidence.
The transformative push Mexico has undertaken since President Enrique Peña Nieto took office has its correlate in the realm of foreign policy. Such an ambitious set of economic, political, and social reforms is the bedrock of Mexico’s role as an actor with global responsibility. Our increasingly robust institutions and rules have given us the renewed strength and coherence needed to push our principles and interests out into the world. Herein lies our certainty that the country is called to assume a new and enhanced position in the international arena. Facing this new state of things, North America appears as a privileged gateway into the world. Foreign policy is based on four pillars: political dialogue, protection of Mexican communities and interests, cooperation, and promotion of Mexico abroad.
As those devoted to the study of Mexican foreign policy know, in the last three decades, the relationship with the United States has revolved around four elements: our shared border, security, migration and economic exchanges. Those issues are of paramount importance for the relationship and are, in many respects, unavoidable components that shape the dialogue between our nations. However, both countries have agreed that our relationship has arrived at a state of maturity that calls for new ways of action based on the historic paradigm of shared responsibility, mutual trust, and respect of jurisdictions. The integration process unleashed by NAFTA twenty years ago, along with the emergence of what some have called “knowledge economies,” have exposed us to unforeseeable challenges and opportunities that ought to be addressed in a new and imaginative fashion. Therefore, Mexico has proposed a new agenda that, without abandoning much-needed dialogue and cooperation on fundamental issues, aims at promoting a shared and inclusive prosperity.Mexico’s intent conceals a will to make the so-called “Mexican moment” merely the beginning of a “North American moment,” or a "North American project" that is already in the making. As we speak, several forces are reshaping the region, such as dynamic transnational chains of supply and production, demographic complementarities that are de facto integrating labor markets, recent paradigm shifts that are making North America energy-independent, and the progressive building of shared infrastructure and common goods that, in turn, improve our logistical advantages. Making this even more exciting, there is the human element. Both countries share a binational segment of our population—several million in size—with the cultural richness and roots needed to become multi-citizens. This population is well-known and respected for their tireless will to create opportunities for themselves and for their skills that enable them to perform successfully across borders. With Mexico and the United States acting jointly, we will use this transformative energy to consolidate North America as the most dynamic and competitive region in the world; the most exciting, vibrant and interesting region in the globe.
In order to face this challenge, steps are being taken to increase our competitiveness. On the one hand, a high-level economic dialogue has been inaugurated with the United States, which has led to forward-looking new mechanisms directed to attain increased, safe, and orderly mobility, with the Twenty-First–Century Border Declaration; set new policies enabling innovation and promoting entrepreneurship, with the Mexico-U.S. Entrepreneurship and Innovation council; and significantly increase our exchanges in education and cooperation in research, technology and innovation, with the Bilateral Forum on Higher Education, Innovation, and Research. With our other North American partner and friend, the Mexico-Canada Alliance has been relaunched with renewed commitment through the 2014–2016 Joint Action Plan. Both countries have agreed to promote competitive and sustainable economies, cooperate to strengthen our justice systems, improve mobility of labor, and lead together global initiatives for peace, aid, and security.
To spearhead this nuanced and multilayered process, Mexico is using both traditional diplomatic channels and the fifty-six offices that form the Mexican Consular Network in North America—one of our biggest foreign policy assets to date. Besides their traditional and fundamental responsibility of providing services, assistance, and consular protection to Mexicans abroad, they permanently work with local authorities and other partners (community organizations, business leaders, religious groups, local media, and cultural institutions) to build long-lasting relationships at the local level. Mexican Consulates lead concrete actions to promote trade, tourism, investment, innovation, and joint projects, while fostering cultural and academic exchanges between our countries. We are clear that in times when global and local issues are in desperate need of reaching each other, consular diplomacy is of vital importance to weave networks of virtuous cooperation among subnational stakeholders. This everyday grassroots work, facing the needs of the people and providing for better mutual understanding and closer collaboration, is the key needed to unleash the vibrant energies of North America.
It is noteworthy that the final objective of such foreign policy efforts is not any different from the one pursued by Mexico’s internal agenda of reforms. On all fronts, Mexico is aiming to bring about the economic competitiveness and political will needed to generate sustainable human development in the long run, that takes the form of concrete benefits both for its people (i.e., employment, better wages, improved quality of life) and for our partners in the region. That, for us, is what being an actor with global responsibility is all about.
Advanced human capital, design, innovation, and decreasing costs have indeed substituted crime in the border city of Tijuana. Only a few years ago, between 2008 and 2010, the then violence-ravaged city in Mexico’s northernmost state, Baja California, left authorities stunned and speechless. Violent attacks affected everyone from women to security guards and prominent businessmen. Now, few locations in Mexico offer what Tijuana does in terms of innovation, service, and cost for businesses, with superior education, excellent transportation, fancy Baja-Med cuisine, and improved security.
Jorge Astiazarán, mayor of Tijuana and a staunch defender of metropolitan politics, is enacting a strong triple-play strategy not only for the municipality of Tijuana but for the greater Baja region. “The government doesn’t create work; it’s the private sector, but the government allows investment in infrastructure, security, and schooling. In other words, we work together.”
With the rehabilitation of the Tijuana-Tecate rail network planned for this year, the manufacturing city will be connected to the rail system in the United States, allowing for goods from Asia to reach the Port of Ensenada bypassing the Panama Canal and avoiding the congested US ports while assisting Mexico’s growing maquiladora (manufacturing) industry.
Since 2004, Tijuana has positioned itself as the nation’s leader in the areas of medical devices, electronics, and automotive, and most recently developed a unique aerospace industry. With over sixty firms established in Baja California, the state hosts 25 percent of the total companies in Mexico; the manufacturing, assembling, repairing, and designing aircraft components is mostly located in the Tijuana-Tecate-Mexicali corridor.
As a practicing physician, Astiazarán believes “there are big changes on the horizon in the next few years and not only in the automotive industry but in the aerospace, biomedical and medical tourism areas. I envision this city with more openness, more transparency, and better infrastructure.” In line with Tijuana’s Economic Development Center’s slogan, “Be more global, more competitive, and far more profitable!” Astiazarán insists the city has become a truly global player. “Relations with the United States have evolved and both countries are now excellent partners. Our neighbours keep telling us Tijuana is Mexico’s best-kept secret. Drugs and crime still exist, but the city is a much safer place.”
“We are not going to end the corruption but we are working to not increase it,” Astiazarán explains. “As long as our citizens keep on interacting the way they have been doing, we are certainly going to grow in the right direction.”
Mexico’s “agenda of changes” is intended to boost economic growth, which has averaged only 2.4 percent annually during the past thirty years, and will help create jobs for young people.
Paradoxically, companies like Mexichem, Cemex, América Móvil, Alfa, and Gruma are truly global competitive players and, according to the Boston Consulting Group, have been for decades. The largest bread producer, BIMBO, is Mexican. And telecoms tycoon Carlos Slim is one of the richest men in the world thanks to América Móvil. Furthermore, global brands are turning to Mexico as if it were going out of style.
Yet the government’s biggest challenge in terms of innovation and competitiveness on a global scale is to increase and enhance human talent and adapt it to the needs of the industry.
Francisco González, director of ProMexico, the trade and investment promotion board, explains the need to boost highly skilled human capital so it can further respond to the needs of added value and high technology activities, such as automotive, aerospace, information technology, electronics, medical, and creative industries. “We are aligning our strategy to the needs of the country: connectivity, talent, and technology will be the milestone of ProMexico’s role as a catalyzer and facilitator of business between Mexico and the world.” González continues, “Mexico can increase its role as a competitive player by adding value chains in its productive and export sectors, especially in knowledge-based industries and complex manufacturing processes.”
For petrochemical leader Mexichem, the first global company in Mexico in sales volume, innovation started a little more than a decade ago when its engineers found a solution to extract and purify fluorite from a mine in the state of San Luis Potosi, one of the world’s largest reserves of fluorite. “This innovation cut Mexichem’s costs by 90 percent, triggered growth and transformed the company into a supplier of value-added products,” says Antonio Carrillo, CEO of Mexichem.
This was the first step to becoming what Mexichem is today: a global player within the chemical industry, whose stock price has increased by 400 percent over the past seven years. “A sound corporate vision, a vertical integration model, and adding value through innovation are the ingredients of the company’s track record,” says Carrillo.
Samantha Ricciardi, Mexico managing director for BlackRock , which manages investments worth close to $4 billion in thirty countries, believes the country’s main two assets—growing competitiveness, especially ahead of China, and energy reserves—makes it a very appealing investment destination for their clients. Its biggest challenge, she says, is education. “The reforms will never take full effect if we do not tackle developing a competent workforce. The education reform is a first step but there is still much more that needs to be done. We need a much more aggressive and progressive approach.”
Education: The Challenge
With only four thousand Americans studying in Mexico versus fourteen thousand Mexicans studying in the United States, much more can be done to increase binational education exchanges for educators and work force training purposes.
Last year, Enrique Peña Nieto enacted a major reform of the education system. The law, which was approved by Congress in December 2013, calls for the creation of a professional system for hiring, evaluating, and promoting teachers without the “discretionary criteria” currently used in a system where teaching positions are often bought or inherited. Though critics say the changes could signal the start of the privatization of education in Mexico, Secretary of Education Emilio Chauyffet stresses that the education reform seeks to give children and young people in Mexico “better-trained teachers, schools that are better built and equipped, and the chance to study longer and more effectively.”
Senator Juan Carlos Romero Hicks says the goal of the reform is quality education. “The reform is a very necessary step towards creating a true change in the national education system. For this there are two big things: evaluating professional teachers and the body that will evaluate the system," admits the president of the Senate’s Education commission. “But time will be needed to see tangible results.”
Luis Arnal, founder and CEO of Insitum, an innovation consultancy firm with offices in Mexico, São Paulo, and Chicago, stresses that one of Mexico’s biggest challenges will be its ability to generate innovation through human talent. “If Mexico wants to increase its competitiveness in the global arena, it will need to boost its national talent. The educational reform is a first step, and proof of the government’s commitment to tackle shortcomings in this field. But while tangible results can be witnessed, it is essential for Mexico to repatriate Mexican knowledge from abroad and appeal to those who have had the chance to study in the most prestigious universities around the world.” Arnal, who has more than fifteen years of experience as an innovation consultant, emphasizes the need to increase cooperation with international universities, create stronger links between education and business, and incorporate higher levels of technology and innovation in learning.
A shining example is the prosperous state of Querétaro with its aerospace university, Universidad Nacional Aeronáutica en Querétaro (UNAQ). As a result of the joint commitment of the federal and state governments to invest in education aligned strategically with industry needs, UNAQ has provided skilled technicians and engineers who have attracted aerospace firms worldwide, and thus has been one of the critical factors behind Bombardier’s initial investment in Querétaro in 2006, followed by Airbus Group. That investment, in turn, paved the way for the growth of a robust aerospace cluster, which recently inaugurated a major joint Delta-AeroMéxico maintenance, repair, and operations facility, with more than one thousand workers trained at UNAQ. Governor José Calzada is now part of Leadership with a Worldview, as the state of Querétaro’s office of international relations and government innovation maintains an International Leaders network, which includes representatives from industry, government, NGOs, universities, and other members of civil society. The group meets monthly to hone and execute a multifaceted “social diplomacy” plan, which includes strategic partnerships with peer cities.