By Emily Fernwood
Deborah Riner, Chief Economist at the American Chamber of Commerce of Mexico since 1993, spoke to a small group of students, academics, and community members at UCSD’s Institute of the Americas on March 8, 2011. The talk expounded upon Mexico’s current economic situation and its outlook for the future. Though she did express that nothing about Mexico’s economy in the future is certain, there are many problems that must be addressed if Mexico is to move forward. Factors that currently restrict the growth in Mexico are the relative lack of jobs, the prevalence of the informal economy, and homogeneity in the export market.
Riner stated that in order to accommodate new workers, Mexico would have to create more than 1.2 million new jobs per year. Because growth has been slow and new jobs have not been forthcoming, many people are forced to look for work elsewhere, often illegally in the United States. Remittances – transfers of money from workers in the United States to their families in Mexico – account for around 2 percent of Mexico’s Gross Domestic Product (GDP).
Mexico’s informal economy also hinders growth. Riner referred to the fact that laborers in jobs such as housekeeping, construction, and street vending gain income that never goes through governmental systems. By some estimates, as much as 27 percent of Mexican citizens cannot be taxed, monitored, or regulated by the government. With such a high degree of missed tax revenue, it is difficult for the government to improve the lives of the most impoverished of its population.
Riner also pointed out that Mexico’s oil industry is rapidly heading for trouble. The country’s oil resources are increasingly difficult and costly to access, and are projected to be a nonviable export in as little as five years. To date, the Mexican government has not come up with a plan to fill the deficit in the export market when these resources dry up, and may have to resort to opening up the market to foreign oil companies.
In many ways, however, Mexico’s economic future looks promising. Riner, who has been involved with Mexican economic planning since 1984, has seen that the economic circumstances have vastly improved in the past few decades, and she believes the trend is likely to continue.
PROSPECT: In 2003, then-President of Mexico Vicente Fox stated that remittances “are our biggest source of foreign income, bigger than oil, tourism or foreign investment” and that “the money transfers grew after Mexican consulates started giving identity cards to their citizens in the United States.” If the United States places stricter controls on immigration, as Arizona has, and remittances are significantly reduced, what will this mean for the Mexican economy?
RINER: There are some states in the Republic of Mexico in which remittances actually exceed the wage mass of the formal sector of the economy. It would be a devastating blow to familial economies and living standards in states that are already very poor. I think, actually, that as visible and as upsetting as the kinds of laws that were passed in Arizona are to Mexicans, that perhaps a bigger effect of remittances is felt through the slowdown of the U.S. economy, particularly when private residential construction slows down, remittances also tend to fall. So a rapidly growing U.S. economy is important for Mexico not only in terms of the growth rate of its manufactured exports, but also in terms of the growth on remittances.
PROSPECT: One of the long-term goals of the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) is to reduce poverty and unemployment in Mexico as well as in other central and South American countries. Have they accomplished this?
RINER: Well, I think the decrease of poverty has to be a necessity of long term agenda and in the end the best way to decrease poverty is through empowering people in terms of better education—allowing them to improve their skill base, improving their productivity—so that they can have better paying jobs. That is a generational issue and not something you can resolve overnight. I think that the great promise of NAFTA to accelerate growth has been fulfilled, it has created better paying, more skilled jobs, and I think that is benefitting the Mexican populace, especially those who get those better jobs.
PROSPECT: Agriculture has historically accounted for a significant portion of Mexico’s GDP and employed a relatively large percentage of the population. As the economy shifts away from agriculture and more towards the industrial sector, in what ways will the workforce have to adjust?
RINER: Actually, it’s quite interesting. Agriculture is only about 4-5 percent of GDP, but it does employ about 14 percent of the labor force, which is an outsized percentage of the labor force compared to other OECD [Organisation for Economic Co-operation and Development] countries. In Mexico, like the United States, the services sector overwhelmingly dominates the economy. Manufacturing in the industrial sector is only about a quarter, 26 percent of the economy. So it is really services that are the bulk of the Mexican economy.
PROSPECT: Some experts including analysts at Goldman Sachs believe that Mexico is going to be the fifth or sixth biggest economy in the world by the year 2050, behind China, United States, India, Brazil, and possibly Russia. Do you think this is a likely projection?
RINER: It’s certainly possible. A lot depends on growth rates.
Photo courtesy of the IOA by Luis J. Jiménez