Mexican exports: growth, destinations and products.

Extract of the article published in Plaza de Armas, May 9th, 2011

Since Mexico entered the GATT in the 80s, commerce began a dynamic of internationalization that has generated the signature of 15 trade agreements with more than 40 countries.

Let’s analyze the exports side of the foreign commerce activity.. If we evaluate since 1993, a year before the beginning of NAFTA, Mexican total exports has had an average annual growth of 10.8%. This growth has placed Mexico in number 15 during 2009 according to the World Economic Forum (an improvement of one place compared with 2008).

Now, I’ll focus the analysis only in non-oil exports (oil exports represent 14% of the total exports), to understand the behavior of the products that come from the rest of economic sectors.

In 2010 we exported products to 199 countries. When we see the composition of those exports, we find a high concentration in the United States. In 2000, that concentration had its peak when it represented 90% of non-oil exports; but since then, there has been a slight trend to reduce that concentration, reaching 80% levels since 2008. The regions that have increased its participation are South America, Asia and Europe.

Region/Country	Participation in 2000	Participation in 2010	Change
United States	90.1%	79.4%	-10.7%
South America	1.7%	5.6%	+ 3.9%
Asia	1.2%	3.8%	+ 2.6%
Europe	3.2%	5.2%	+ 2.0%
Canada	2.0%	3.9%	+ 1.9%

Made by  Atalaya with data from the Group of Work of External Commerce Statistics, formed by BANXICO, INEGI, SAT and Economía.

The countries that have influenced more this change in composition due to their growth as destinations are Colombia, Brazil, Argentina, Chile, Holland, Germany, China and Japan.

Now, regarding the kind of products, the two main sectors are machinery and electrical material, as well as vehicles and materials for transportation. These sectors represent approximately 66% of non-oil exports. There are sectors that have increased their participation in exports, like precious metals and stones, products of food industry, and medical and optical instruments. On the other hand, textiles have reduced its participation in exports.

As statistics show, different entrepreneurs are looking abroad, and it can be a strategy to diverse risks considering the different economic events that appear to be slowing down the current growth dynamic. There are different possibilities for exporting, and it can be either focusing in the destinations available through trade agreements (as with South America, considering the creation of a new commercial block with Peru, Colombia and Chile), or focusing in economies that are having strong growths (as China and India).

Construction in Mexico: recovering, but still a long way to go

Extract of the article published in Plaza de Armas (www.plazadearmas.com.mx), May 2nd 2011.

Construction represents 6% of the National GDP, and 8% of the employment. Besides, according to the Mexican Chamber of Construction, this sector has a direct influence in the development of other 37 economic sectors that are suppliers of materials and services. That’s why, traditionally, the economic sector is considered as a good indicator of the economic health of a country.

In Mexico, although the national economy has recovered the levels it had at 2008 1^st Q, construction is still 7% below the peak it had 3 years ago; in other words, it is at the levels it had at beginnings of 2007… so far, 4 years lost for the sector.

Elaborated by Atalaya, with data from INEGI.

(Seasonally adjusted, constant currency)

2008 1^st Q=100

A good result is that during the 4 quarters of 2010, it had a growing trend that resulted in a growth of 4.2% (you can read precedents of Construction and other economic sectors here).

What has happened at the beginning of 2011? The most recent figures come from the National Survey of Construction Companies, that do not represent the total of the sector, but let us know the level of activity of those companies by State and by kind of construction. According to the survey, the first 2 months of the year show an increase of 5.3% compared with the same months of 2010, in all the kinds of construction, including buildings (housing, schools, offices, industrial and commercial buildings, hospitals, etc.), that was the sector with more lags.

The perspectivas for the resto f the year are of growth. The Chamber has an estimate of 2.6%, less than the one obtained the last year; but other estimates of commercial banks gathered by the same Chamber has an average estimate of 4.5% growth. If this last forecast is fulfilled, the sector will be hardly reaching the levels it had at the end of 2007, still behind the peak of 2008; so, the perspectives keep positive but there is still a long way to go to have a total recovery.

In Queretaro, 2009 and 2010 had annual falls of 7.7% and 7% respectively. 2011 begins with an important growth in building and hydraulic constructions. Last week, the Secretary of Sustainable Development in the municipality of Queretaro announced the arrival of $4,000 million pesos in investments for executive hotels, industries, services and commerce companies. So, all the companies that participate in the productive chains for these constructions will have different opportunities during the year if the investments arrive.

Creation of employment: a race against the clock

Article published in Plaza de Armas (www.plazadearmas.com.mx) , April 25^th, 2011

Definitely the variable that has recovered more slowly in the world after the economic crisis we had is employment. Since the ending of last year, OECD projected that unemployment figures for its 34 countries would remain high during all the 2011, and it even predicted that we could be facing a structural situation, where high unemployment levels will be a new economic reality in our societies.

The International Labour Organization estimates that at world level there are 30 million more unemployed people than in 2007, and it mainly affects young people.

In Mexico we have different bright and dark sides regarding this subject. First, let’s understand that the official figures published by INEGI are occupation data, and therefore it considers any kind of activity developed by the population that is 14 years old or more, formal or informal, paid or unpaid, so we have very different levels of quality, safeness and productivity within this index (1 out of 4 persons in the economically active population is occupied in the informal sector, with all the social and economic implications it has).

Taking this into account, let’s see the positive and negative aspects of occupation in Mexico. We have two good news: according to INEGI, we had in March the lowest unemployment rate in the last 2 years; the second good new is that it has begun to be a trend for the last 4 months.

Now, the bad news: despite the reduction on unemployment rate, it is still 66% higher than the one we had in 2008. The second bad new is the underemployment rate, that refers to people with an occupation (and therefore they are not unemployed), but that are willing and have the need to work more hours; this rate is not stabilized yet, and it had in March its second highest level in the last 7 months.

This shows us we are following the same world dynamic of a slow recovery in employment. Now, let’s see this information taking demographic and geographic variables.

For example, unemployment affects strongly to people looking for their first job. This is particularly relevant since we are living our “demographic bonus”; that means that due to the changes in our population pyramid, we have now the biggest proportion of people in productive age (14 years and older); so, there are a lot of young people looking for their first jobs. Since there are no opportunities, or not growing at the same rate, it is becoming a very important social risk in the short and medium term.

If we review the States, those in the North are the ones with the highest unemployment rates (Baja California and Coahuila are the only two border States that are not in the top 10 of unemployment rates). This is correlated with the economic activities in each State and the employment conditions of each activity; for example, construction and industry, the main sectors in the northern States, are still falling behind the recovery of employment. The economic sectors that have created more jobs are commerce and services, and we see that since the States with the lowest unemployment levels are, mostly, important tourist centers, nationally and internationally.

Employment and income levels are the variables that allow to transfer macroeconomic results to the microeconomy, in the citizens’ pockets; therefore the need to convert the economic growth to a recovery in these variables is urgent. Besides the world dynamic we mentioned, we have different matters where to work: improve the quality of employment, the productivity of employees and workers (linked with the quality in education), the effectiveness of the labor market (linked to a labor reform), and create a bigger volume of jobs, mainly focused to those incorporating to the productive sector. It sometimes seems that these needs are considered distant, and subject to the political times; it will be the social reality that will show the opposite soon.

The Globalization Index of Mexico

Article published in Plaza de Armas (www.plazadearmas.com.mx), April 18th, 2011

The Economy Research Center of the Swiss Federal Institute of Technology in Zurich, the best university in Switzerland and the 23rd place in the world according to the 2010 Academic Ranking of World Universities (one of the most prestigious ranks), started in 2002 the publication of the Index of Globalization, with the purpose to evaluate the way in which each country creates connections and interdependence networks with other countries through the flow of people, information, ideas, capital and goods.

The Index is calculated from a model developed by economist Axel Dreher, through which he identified how globalization, particularly the one related with capitals, goods and services, influences in the economic growth of a country.

The Index evaluates 23 variables divided in three groups: economic, social and political globalizations. The first group evaluates the flows of money and the existing restrictions for commercial exchange with other countries. The second group considers the contact with people in other countries, as well as the easiness to be exposed to ideas, information and influences of foreign cultures. The third group evaluates the creation of political relationships with other countries and the participation in international organizations and agreements.

Although the Index began to be published in 2002, it evaluates information since 1970. The evaluation published this year is made with data from 2008.

The results indicate that Belgium is the most globalized country, and it has been for the last 5 years. Let’s remember that Brussels is the seat of the European Government, and Europe is the most globalized region, so the result sounds natural.

Mexico has improved its grade in a 50% from 1970 to 2008; however, we have done it slower than other countries. In 1970, we were on 43^rd place out of 172 countries, but in 2008 we were in the 75^th place out of 186, a loss of 32 places that made us go from the top 25% of the list to a place each time closer to half of the table.

To avoid an evaluation of almost 40 years, let’s center the analysis in the last 4 years. The country was in place 64 in 2005, but in the last 3 years we fell to place 75. This fall was caused by the loss of places in the three groups evaluated.

Globalization	2004 rank	2008 rank
Economic	76	89
Social	81	91
Political	74	87

It may sound weird that in the rankings of each group we are lower than in the general rank. This happens due to the behavior of other countries: there is a group of countries consistently in the first 20 places in each group, but there are a lot of countries that have a very good rank in one group, and bad rankings in the other two (for example, within the first 40 countries in one group, but below place 100 in the rest). The fact that Mexico has very similar rankings in the three groups makes us go up in the general rank, but that is not precisely a consolation.

In Latin America, there are 34 countries evaluated. Mexico is in place 11. The most globalized country in the region is Chile.

Something interesting to observe is that Latin America has its worst results in the social globalization, where the country with the best classification is in place 44. This indicates that we still have many connections to develop to facilitate cultural exchanges and personal contacts with other countries. In the case of Mexico, let’s remember a data I mentioned three weeks ago, when I mentioned that approximately 0.9% of the population that lives here was born in other country. OECD estimates this variable is 0.5%; in either case, we are the country with the lowest value in this indicator out of the 34 countries in OECD, and this surely creates our low socialization index.

Made by Atalaya with data from the KOF Index of Globalization

It is common to get lost in the daily discussions between the official figures that show progresses and the attacks, with reason or without it that discredits the progresses. However, a parameter we must never lose of sight is the magnitude of such progresses compared with those in other countries, since that will allow us to have a better understanding in a wider panorama. For the moment, it appears that we are not taking advantage of the trade agreements we have with more than 40 countries; we need to reduce the restrictions for international commerce and increase proportionally to our economy the international flows of money, goods and services. If we don’t do it, we will compromise the economic growth we need to revert the historical backward movements we have had.

Cautious optimism-Inflation perspectives in Mexico

Published in Plaza de Armas (www.plazadearmas.com.mx), April 11th 2011

The last week we had two encouraging news for the national economy. The first one was the increase in the economy growth estimates for 2011 from 4.0% to 4.3%, announced by Hacienda (the Treasury Department in Mexico). The other one was that the annual inflation in March was 3.04%, the lowest in the last 5 years.

However, we also had statements from the Head of the Mexican Central Bank, within the National Bank Convention, where he said that we must take the optimism with caution in the presence of “not comfortable” conditions in the external environment. Let’s review this information to understand its causes and its implications.

The increase in the growth perspective is based in internal and external results. The Global Economic Activity Index, which works as an early GDP index, has a growing trend. We have also growths in non-oil exports, in internal demand, and in the US economy, as I mentioned last week. It is true that growth will be less than the one we had last year, but last year’s growth was result of the dramatic fall we had in 2009. So far, optimism seems sustained in hard data.

News about inflation has different explanations. The data publicly announced is based in the National Consumer Prices Index, comparing it with the value it had 12 months earlier. Mexican Central Bank explains it is the result of a price decrease in some fruits and vegetables, mobile phones and cars, mixed with an increase in tortilla, gasoline, avocado and electricity. Here we begin to find some of the not comfortable circumstances referred by Dr. Agustin Carstens, which we will detail a little ahead. I just want to make two observations about national inflation: first, March 2011 had the lowest inflation rate in the last 9 months, and it matched with the fact that inflation in March 2010, the other reference point to estimate the most recent annual inflation value, was the 5th highest month in the last four and a half years; so, the fall in inflation is the result of a decrease in monthly inflation as well as a high reference point. The other observation I want to make is that the other component for inflation, the National Producer Prices Index, had in March a 4.11% annual inflation, the second highest level in the last year and a half. It is not sustainable in the medium term a situation where consumer prices go down while producer prices increase; this will bring inflationary pressures in the short term. Therefore, this other component of optimism has a lot of nuances, national and internationally.

So, let’s talk about the other international factors. We have a world inflationary pressure due to two factors: the increase in food prices (especially grains) and the increase in oil. Food prices have had increases for the last 8 months, in some cases as steep as the increase of 65% in the last 4 months for corn. Rice and wheat have had also important increases. Fortunately, UN’s Food and Agriculture Organization announced a price decrease in March that they qualify as a “truce” since there are still many factors that keep uncertainty about future food prices. Cereal international stocks are in historical low levels, and although crops perspectives are positive for 2011, won’t be enough to replace stocks. That gives us expectations of high prices for 2011-2012. If we see the quotes for different grain futures, corn projections are an increase up to July with a later decrease, meanwhile wheat and rice keep their increasing perspectives up to May 2012. Evidently, besides inflationary prices we have very important social risks since we are talking about very basic food produces world wide, and a lack of them would have very strong consequences. In Mexico we have seen a notorious increase in tortilla price in the last months, with a 50% increase in December, and an increase of 6% during this year’s first quarter.  Although there are different support programs, it is difficult to foresee a price reduction in the short term. This is another inflationary pressure that began to reflect in March.

The oil price will keep its growing trend, particularly with all the political and social instability that we have had since January in North Africa and Middle East. All this has created a world scenario where many countries have begun to increase their interest rates to control their inflationary pressures. For example, the European Central Bank announced last Thursday an increase of a quarter of point to leave its rate at 1.25%, since they want to reduce their inflation from 2.5% to 2%. This is the first adjustment they make since 2008. China also made a 4th adjustment in 6 months since their inflation is 4.9%, while their goal is 4%. Other countries that have increased their interest rates in March are Chile, Brazil, Colombia, Uruguay, South Korea and India among others. This may accomplish its purpose to control inflation, but a “side effect” is to compromise the economic growth rate; so we are beginning to live a delicate balance in the world.

Mexico keeps estimating they will review next year its interest rate since authorities consider that the level of economic growth has not been enough to create an overheating; I estimate that all the external factors may lead to a review during the second semester of this year, and possibly a review in the inflation estimates that is 3% +/- 1%. It will also be necessary to monitor if there are changes in the current world economic growth dynamic produced by the increase in interest rates.

A view to the economic health of the United States

Published in Plaza de Armas (www.plazadearmas.com.mx), April 4th 2011.

Yes, we all know the saying “if US has cold, Mexico gets pneumonia”. In an economic dynamic where United States is the destiny for 80% of Mexico’s exports, the origin of 30% of Foreign Direct Investment in the last year, the main source of international tourism to our country (we are their main destiny abroad), as well as the main destination of Mexican human capital, legal and illegal, the dependence is unavoidable.

In the next graph we can see the relation between both economies in the last 3 years. To make both economies comparable, I converted them to an index where 2007 4^th Quarter’s GDP is equal to 100 (previous to the economic crisis). The Mexican GDP delayed its contraction compared with US, but the fall was harder and the recovery slower. That’s why we keep the continuous concern and interest on the situation and perspectives of United States’ economy.

Made by Atalaya, with data from Bureau of Economic Analysis and INEGI.

We can also see on the graph that the most recent 6 quarters of recovery in US have made it recover the GDP level previous to the crisis. This trend will always be good news, but we can’t say that the effects of the economic crisis have been a totally recovered.

In this period, US population grew more than 10 million people, and of those, 5.7 million is 16 years or older, and therefore, they are potential labor. In plain terms, they are producing the same amount of goods and services, but with more people. This has caused that some key indicators have not completely recovered yet, as employment and income levels.

Their unemployment rate reported in March is 8.8%. There are two good news: it is the lowest level of the last two years, and it had a strong recovery in 2011 1^st quarter; the bad one is that it is still very high compared with the levels previous to the crisis, that were in the range of 4.5% to 5%.

As a consequence, the average income level is not recovered yet. According to the US Bureau of Economic Analysis, this variable has been fluctuating in the last 2 years, and is still slightly below the highest level it had in 2008.

This panorama, linked to other external and internal factors, produces a mix of encountered signals about their economy that we receive daily.

On one hand, there are positive perspectives in some parameters, as the increase in factory orders that are in the highest level since September 2006 or the increase in the credit for consumption that allows more loans for important expenses (purchases of cars, boats, college education, etc.) with a fall in credit card balances. But on the other hand, people has still different uncertainties about the future (the confidence index fell in March after it had reached its highest level in the last 3 years), inflation is having its highest level in the last year and a half, and the real state market has different big issues ahead (house prices is still falling, and many families still have mortgage problems that may lead to different foreclosures). In addition, the US Government is negotiating strong cuts to the public expenses, which can be positive in the long term due to the high deficit levels they have, but in the short term may strongly compromise the growing rate.

It is normal to be nervous after all the things we’ve been through in the last 3 years. As soon as we hear about a risk in the economic environment, we fear its consequences in a delicate state of recovery. But let’s not forget that in any moment, we may have risks but we also have opportunities. Reality shows us that although we have been hearing about a double-dip risk for the last year, US has concatenated 6 quarters of growth and keeps positive perspectives for 2011. Therefore, we must always keep visible the positive and negative forces we must monitor, evaluate and analyze; I list here those I consider the most relevant for the moment.

2010 Population census: demographic changes in Mexico

Published in Plaza de Armas (www.plazadearmas.com.mx), March 28^th 2011.

In November last year, INEGI published the preliminary results of the 2010 Population and Housing Census. In the beginning of this month, they published the definitive results, and we have known a huge amount of information about our population, educational, economic and housing profiles.

From this huge amount of data, that will need a lot of study and analysis, I extracted some pieces that help us to identify interesting social trends and groups with specific needs.

We are more than 112 million Mexicans (11^th place in the world). The population growth kept its decreasing rate that started in 1980. This trend has already changed our population pyramid profile, since we are reducing the base and slightly widening the top:

	1990 Census	2010 Census
0-14 years population	38.6%	29.3%
More than 65 years population	4.2%	6.3%

However, Mexico is still a country of young people. Half of the population has 26 years or less, and we are living what is known as the “demographic bonus”; it means the period in which the change in the population pyramid creates the biggest working force (people from 14 to 64 years). This period is supposed to be a historic opportunity in terms of productivity, but the slow rate of employment recovery we are having is turning it into an important social risk due to the amount of young people without labor opportunities.

Half of our population concentrates in 7 States out of 32: Mexico, Distrito Federal, Veracruz, Jalisco, Puebla, Guanajuato and Chiapas. In the country, one of five Mexicans live in a State different to the one they were born, with such different behaviors as Quintana Roo (the state where Cancun is), where half of its inhabitants was born in other states, or Chiapas, where more than 96% of its inhabitants was born there.

This result is explained by our internal migratory movements. In the last 5 years, the 5 states that have proportionally received more people from other states are: Baja California Sur, Quintana Roo evidently, Colima, Nayarit and Querétaro. In the opposite situation is Distrito Federal (Mexico City), since it is the state from which more Mexicans emigrate, mainly to neighbor states, and within them, especially to the state of Mexico.

This produces very different population dynamics in our states. On one side, the states that have the biggest growth rate in the last 10 years are Baja California Sur, Quintana Roo and Querétaro. This implies big challenges in the creation of housing, infrastructure and employment; but it also creates opportunities in the growth of local markets for goods and services.

In the opposite situation we have Distrito Federal, Guerrero, Sinaloa, Zacatecas and Michoacán, since they have the slowest growth rate in the same period. This is a consequence of different structural situations in infrastructure, quality of life and economic perspectives, and their challenge is to break these dynamics that are not healthy in the long term.

In 20 years, the population in urban zones (more than 100,000 inhabitants) went from 44.4% to 47.8%. This is consistent with the world dynamic, where 51% of the population lives in urban environments. This has advantages considering the cost for developing the required infrastructure, but represents huge challenges regarding quality of life.

In a different perspective, another group that had an intensive growth in the last 10 years is the population born in another country, which duplicated and is currently close to one million inhabitants. This shows important changes in economic, social and cultural dynamics, and represents a social group that is growing at an unprecedented pace.

Another social group important to watch and to pay attention to is the handicapped population. It is true that in recent years we have gained a lot of consciousness and sensitivity about their conditions and needs, but we still have a lot of work to do referring to respect and equality. There are 5.8 million people in the country, where the most common disability is for moving or walking (58%), followed by seeing (27%) and hearing (12%). Obviously, each group has different needs.

Finally, there are 28.6 million homes in the country. Two important changes are the increase of homes with computers (went from 9.3% to 29.4% in the last 10 years), and in the ownership of cars (from 32.5% to 44.2%). This shows needs that people will keep satisfying and the creation of new opportunities.

Censuses definitely have valuable information, but it is our responsibility to analyze them, not only as a “still frame”, but as a movie when we compare different years. This will help us to understand the different dynamics and therefore identify risks and opportunities for business development.

Data for Querétaro
Variable	Value
Population	1,830,000 people (2.6% annual growth in 10 years)
Population born in other state or country	23.8%
Population that lived in another state 5 years ago	5.9%
Handicapped population	67,000 people
Homes	450,000 (4.2% annual growth in 10 years)
Homes with Computers	34% (above national average)

Economic impact of Japan tragedies in Mexico

Published in Plaza de Armas (www.plazadearmas.com.mx), March 21^st 2011.

A lot has been said and written about the different misfortunes that Japan has been living in the last week. There is still a lot of uncertainty and nervousness about the economic implications of these tragedies, particularly regarding the nuclear crisis they are facing (at the closing of this column, authorities continued their efforts to control Fukushima nuclear plant).

In such an interconnected planet, and considering we are talking about the 3^rd economy in the world, it is impossible to think these events won’t have an impact in other countries, although it is still difficult to have a clear assessment of its magnitude. However, let’s analyze certain data that will let us identify the kind of consequences on different time horizons.

The immediate days after the earthquake, the investors in several countries showed distrust and fears, and this caused falls in different stock markets; however, by Thursday (a week later), Japan, United States, South Korea and China had their first day of profits. We can’t say that we already have a world stock-market stability, but investors in some countries begin to have an initial confidence in the containment efforts of the nuclear leak, in the actions of the Japanese Central Bank with the great money injection they made to the financial system, and they begin to identify certain “bargains” in some stocks due to the recent falls, and they have reactivated stock markets. In short, we can still expect several volatility days in the short term.

In a larger horizon, there are some events that will have repercussions in the following weeks and months. In the world, Japan is a key actor for the automotive, high-technology and precision-machinery industries; therefore, the temporary stops or production decreases that several plants have made (Sanyo, Toshiba, Toyota, Honda, Canon, Panasonic, etc.) due to energy shortages or other circumstances have already had effects in the international prices for some raw materials and components. Also, in a few weeks, there may be shortages in plants around the world, affecting the productive chains in these industries. For now, Mexico already began to have shortages in some components and some plants have announced a two-day closing. The biggest effects will begin to appear mainly in the following weeks, as these companies’ current inventories begin to run out.

On the longest horizon, for the following years, implications of this incident will be in the world strategies for energy generation.  The World Nuclear Association estimates that 14% of world energy is produced by nuclear reactors, and several countries see the nuclear path as a way to reduce carbon emissions. However, the discussion started in different countries about the continuity of these programs, as in Germany, Switzerland and Israel just to mention a few. Although there will be debate in many countries, the current declarations of the two main producers of electricity by nuclear reactors, United States and France, are in the sense of continuity. For Japan, the third producer, it is a theme with profound strategic implications. According to the intelligence firm Stratfor, Japan imports practically 100% of its oil, and that’s why nuclear energy gives them a source they can control internally for energy generation; if Japan decides to reduce or stop its nuclear energy program as a consequence of the different political and technical evaluations, this could limit the growth pace of the world’s third largest economic engine.

In general terms, the direct impact for Mexico would be relatively low due to the small participation Japan has in different economic fronts (Japan was the 0.9% of foreign direct investment in 2010, the 0.6% of exports and approximately the 0.3% of international tourism); evidently these parameters have a multiplying effect, but it is hard to estimate the its size. Japan has more influence on Mexico’s imports (5%). Surely the biggest impact will be in those economic sectors that have productive chains from and toward United States in the automotive and high-technology sectors, due to the intense commercial activity between Japan and United States and our strong industrial activity with the latest. Can there be any benefits? In the supply of all the materials and products needed for the reconstruction tasks the region will have.

It is important to monitor the development of these sectors; you should identify the way your organization participates within those productive chains, directly or indirectly, to prepare contingency plans. The next couple of months will be key ones to have a better estimate of the size of the impact of these events.

Competitiveness in Queretaro

Published in Plaza de Armas (www.plazadearmas.com.mx), March 14^th 2011.

During CANACINTRA’s National Convention, developed in Querétaro last week, there were different references about the competitiveness of the State, including a statement of the  organization’s national president during the closing ceremony.

What does being competitive mean? World Economic Forum defines it as the set of institutions, policies and factors that define a country’s productivity level. The Mexican Institute of Competitiveness (IMCO) defines it as the ability to attract and retain investments and talent. These elements create conditions to have a faster growth in a region in the long term, and therefore, it improves income levels and the well-being of a society.

According to World Economic Forum’s Report, that evaluates more than 130 countries, Mexico has kept the same grade since 2006. This stagnation in the grade has caused the loss of 14 places in the ranking, since Mexico has gone from place 52 to 66. It is true that each year, the Report considers more countries, but the reason of the fall is that other countries are having important improvements and increases on their grades, leaving Mexico behind.

The area where Mexico has had its main improvement is in macroeconomic stability (due mainly to a healthy government budget balance, problem that has affected recently different economies), and the area where the country has lost more places is in the financial market development (since it is not easy to raise money by issuing shares on the national stock market and we have a rather ineffective regulation and supervision of securities exchanges).

Now, within the country, two studies were published the last year: one from IMCO and the other from Instituto Tecnológico de Monterrey (ITESM), one of the most important private education systems in Mexico. Both evaluate over 100 variables in different areas: economic, legal, political, infrastructure, environment, education, health, international relations, labor market, etc. In both studies, Querétaro ranks on 3^rd place, behind Distrito Federal and Nuevo León. These are the strengths and weaknesses of this state according to both studies (there are other identified features, but I will only list those that appear on both evaluations):

Strengths	Weaknesses
·         GDP growth, particularly in services ·         Reliability and citizen’s participation in public elections ·         Good debt grade ·         Safety ·         Increase in fixed and mobile telephone lines	·         Unemployment ·         Income inequality ·         Roads ·         Bad use of water ·         Foreign direct investment

The studies were made mainly with information from 2008, but we see that some of the weaknesses persist, like unemployment, since the State is above the national average. The challenge is important, since 2010 Population Census showed that Querétaro is the sixth State with the biggest immigration in the country. Although it may have a positive effect in the potential of economic growth, it also implies the development of infrastructure and the creation of jobs. We will see how this balance is developed in the future, but so far, the State’s good competitiveness condition allows us to foresee positive perspectives.

Evolution of competitiveness for Queretaro:

	2001	2002	2003	2004	2005	2006	2007	2008
IMCO	5	4	4	6	4	3	3	3

Source: 2010 Competitiveness Index, IMCO

	1995	1997	1999	2001	2003	2007	2010
ITESM	8	4	8	8	10	12	3

Source: 2010 Mexican States competitiveness, EGAP, ITESM