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Business Management

Reformed Mexico Has Strength to Be a Knowledge Economy Leader

Of all the companies being talked up today as the next economic powerhouses, Mexico is perhaps the most powerful. Indeed, ex-Goldman Sachs chairman Jim O’Neill expects the Latin American country to soar in terms of gross domestic output through to 2020. He liked it so much that the man who gave the world the BRICS (Brazil, Russia, India, China, South Africa) bloc has made Mexico the ‘M’ in MINT, his new-ish acronym to describe another set of fast-moving economies. He has also forecasted that Mexico will leap from 14th in the world by GDP in 2012 to seventh in 2050. 

He is far from being alone in his positive outlook. In his 2009 book The Next 100 Years, for example, George Friedman, founder of geopolitical intelligence firm Stratfor, predicted that Mexico will become the US’s nearest economic (and military) challenger. Although he retains concerns, Freidman is still bullish, writing in 2012 that, measured by purchasing power, Mexico is actually the 11th largest economy in the world, behind the likes of France and Italy.

“Overall I’m very positive about Mexico,” says Duncan Wood, director of the Mexico Institute at research group the Woodrow Wilson International Center for Scholars.

Mexico being neighbours with the US and sharing one of the most traversed borders in the world is critical, he argues.

“We’re seeing a conjunction of factors that mean we can see relatively high levels of growth. Because of what’s happening in North America, geo-location really does make a huge difference. Mexico has benefited from high levels of investment into the manufacturing sector and the export market is predominantly to the US but Mexico has been able to diversify that.”

Wood notes that exports to the US have fallen from 88% of all exports to 80% at the same time as total value of those US exports have grown significantly. He also notes that Mexico has more free trade agreements than any other country in the world, pointing to the importance of NAFTA, the Pacific Alliance Latin American trade bloc and other memberships.

“Mexico needs to do a lot of work but if it keeps doing the things that it has over the last 10 years it should do well.”

Under the presidency of Enrique Pena Nieto, Mexico has made deep reforms, opening up oil exports (it’s the world’s 10th largest producer), liberalising banking and telecoms, and raising taxes on food and drink. That new platform has made Mexico the darling of many emerging markets watchers and is attracting foreign investment into the country. 

The growing technological and knowledge economy can help perpetuate growth and the rise of Mexico as an aerospace player is well documented. Companies like Bombardier have invested heavily to build aircraft in the former cactus fields of Querétaro, joining the likes of General Electric and Cessna in taking advantage of labour costs a quarter to a third less than those of the US. However, it is not just financial arbitrage that is pulling in aerospace giants: GE, the world’s biggest jet engine maker, also benefits from core engineering R&D in Mexico. 

Internet and technology startups are already prospering in hotspots such as Mexico City, Tijuana, Guadalajara, Monterrey and Mexicali, and the country benefits from having leading universities such as the Universidad Nacional Autonoma de Mexico and Tenológico de Monterrey. As a country of over 120 million people, its sheer scale also helps and Mexico ranks fairly well in terms of relative ease with which businesses can be started: the World Bank places it 36th on this criterion. The US connection is also helpful with Mexico sharing proximity and a time zone with California and Texas.

That environment has helped foster celebrated startups such as drone maker 3D Robotics, co-founded by Mexican Jordi Muñoz and ex-Wired editor and The Long Tail author Chris Anderson.

Follow the money clues too: Alta Ventures Mexico is an early-stage investment fund that focuses on Mexican, US and other new companies. The Mexican contingent includes online baby products seller Bebitos.mx, e-invoicing firm Diverza, software-testing firm Convert, and Citivox, maker of a mobile message board platform. Another accelerator fund, 500 Mexico City, adds the likes of card payments firm Clip and beer delivery service Growlers.mx “Desde la cerveceria hasta de la puerta de tu casa”/ “From the beer seller to the door of your house”).

In many ways the startup scene might appear like that of any Silicon Valley wannabe with plenty of boot camps and social gatherings for entrepreneurs, but there are some differences such as the several startups that address social issues. For example, there is the Rubberit discreet condom delivery service that matches sales with free supplies to Mexicans in an attempt to combat contraception’s moral stigma, diseases and unplanned pregnancies. And although Mexico is not always a country associated with gender equality, women are the founders of startups such as payments processor Conekta and online film production company NuFlick.

Mexican talent, like any talent these days, is also much in demand from abroad. Vocational education policies and more partnerships between colleges and business should help, and Mexico’s large, relatively young population makes it an obvious target for US recruiters.

Mexico still has many problems of course, and the divisions between haves and have-nots can be grim. Certainly there are paradoxes. Mexico is home to the world’s richest person, telecoms plutocrat Carlos Slim, and has the fortune to possess oil and silver but on the other hand it is beset by drugs cartels, a rampant black economy, social unrest and crime.

Luis Pazos of think-tank the Center For Free Enterprise (CISLE) has quipped, “Have you heard about the Mexican miracle? It is striking oil and going bankrupt.”

But Mexico has enormous potential and, thanks to recent reforms, a platform to become a far more prosperous and just society. Just as the ‘C’ in BRICS, China, outsprinted the progress of other countries, the ‘M’ country has the power to dominate MINT and become a beacon for Latin America renewal.

 

Martin Veitch is Editorial Director at IDG Connect

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Martin Veitch

Martin Veitch is Contributing Editor for IDG Connect

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