Mexico at emerging markets’ frontier

Mexico at emerging markets’ frontier

Mexico is undergoing dramatic changes with long term benefits for its citizens and the global community; placing Mexico as a leader among emerging markets.

Kidnappings. Heinous torture and brutal beheadings. Endemic corruption. A failed state. If many in the United States were asked to compile a list of common perceptions regarding their neighbor to the south, these concerns would undoubtedly be at or near the top. Indeed, relations between the two countries have become increasingly complicated and at times tense in recent years owing to economic crises, immigration concerns, and the brutal drug-related violence that has killed as many as 60,000 (a figure some experts believe to be much higher).

It is little surprise then, with President Obama’s recent trip to Mexico and Costa Rica, that headlines in the U.S. and elsewhere have focused on how domestic U.S. legislation on immigration reform and gun control would affect relations between the two countries. Mexican President Enrique Peña Nieto may push for changes regarding the levels of cooperation and interaction between U.S. and Mexican security forces allied on the violence plagued war on criminal drug syndicates. Yet, these headlines fail to tell a story just as meaningful and perhaps with greater long term importance: the story of a Mexico in transition, of a growing player in the G-20 whose global role and resultant prospects for investment are changing considerably.

The economy has shifted away from an oil dominated economy that characterized previous decades and into an economy more diversified with rapidly growing service and manufacturing sectors. Indeed, in 1981 oil represented nearly 20 percent of GDP, whereas it only represents 6 percent today. Given some of the long standing problems of governments and economies, which are predominantly oil reliant, this trend bodes well Mexico’s ability to develop as a more diversified and stable economy.

Trade as a percentage of GDP is 65 percent, which, when compared with Brazil at 25 percent and China at 59 percent, seems to point towards Mexico as being front and center of emerging markets. Equally important is the development of Mexico’s middle class. Following the economic upheavals that characterized much of 1980s and the peso crisis of 1994, Mexico has seen a period of comparative economic stability without the sort of crises that previously prevented the fostering of a middle class. This growing middle class is also decidedly more urban, with the World Bank estimating that three quarters of Mexicans reside in city areas. Further speaking to stability, the middle class in Mexico is comprised of far less public sector employment than it was in previous decades and includes far better opportunities for females, another positive sign of economic development. Additionally, consumer consumption displays the signs of a buoyant emerging market with 80 percent of Mexicans owning a cell phone, 50 percent owning at least one car, and about 1/3 owning a computer. Economic fundamentals are not the only thing changing in Mexico.

Mexico has undergone significant political reform that points towards a strengthening of democracy and institutions essential for stability. The election of Vincente Fox of National Action Party (PAN) in 2000 brought a new political party to the Presidency, which had been held by the Institutional Revolutionary Party (PRI) for seven decades. Many observers at the time heralded Mexico’s democratic transition only to feel such claims were overstated. The rule of Fox, disputed election results in 2006, and the persistent disappointment, which characterized the latter years of Felipe Calderons administration as it became consumed with drug related violence and the persistent allegations of rampant corruption, to many seemed hard to differentiate from the rule of the PRI.

The return of the PRI under Peña Nieto in 2012 was not welcomed by many within various segments of Mexican society. Yet, in important respects, the political system in Mexico is different from what it once was. Formerly, the PRI held tremendous influence and sway over the judicial and legislative branches and the Presidency was handed off to a party stalwart every six years. However, Peña Nieto is operating within a vastly different framework today. With the growing emergence of independent political parties in the last several decades and judiciary reforms enacted in the 1990’s, the President of Mexico today will find himself having to compromise to a far greater extent than some of his predecessors could have possibly imagined. Peña Nieto has in some respects done just that with his ‘Pact for Mexico’, where he has sought and in some respects achieved cooperation from all three major political parties in Mexico for key reforms in banking, education and energy. A more independent judiciary and a trend towards greater political representation mean that economic gains have a better chance of being felt in more aspects of Mexican society.

The positive outlook for Mexico is not without its critics. Peña Nieto’s approval rating of 50 percent so early in his term is in fact lower than any of his predecessors in the last twenty years. Ackerman further articulates that opposition to the PRI and Peña Nieto is in fact rather considerable in various areas of Mexican society, including teachers who are striking throughout Mexico’s considerably poorer southern states such as Oaxaca, Chiapas, Michoacan, amongst many college campuses, and through other segments of society.

Crime and corruption remain key problems. Violence, while showing improvement in border cities, has comparatively grown in some coastal cities such as Acapulco.  Economic concerns are also present amidst the optimism. Mexico’s past-due consumer debts are at the highest levels since the 2008-9 economic crises. Moreover, much of the recent international investment and interest is spurred on by comparatively low interest rates, which will be unsustainable in the long run. It seems that the largest problems facing Mexico lay not with prospects for stability, but rather with the consistent inequalities, economic, political, and otherwise that have long inhabited the country. While there are truths to the concerns of crime, corruption, economic inequality, such concerns need to be properly positioned and contextualized. The greater outlook for Mexico seems to be overwhelmingly positive over the long term as the country continues to diversify economically, expand its middle class, and attract foreign investment.

Categories: Economics, North America

About Author

Sean Durns

Sean Durns worked as a research assistant to a former high ranking Pentagon official and the Director of National Security Strategies at a DC based think tank. His analysis has been referenced by a variety of media outlets including The Wall Street Journal, Roubini's EconoMonitor, OilPrice, and many more. He holds a M.Sc. in History of International Relations from the London School of Economics where he focused on US foreign policy, security studies, and energy security.