The Good, The Bad and The Ugly

Excerpt from the 2010-2011 World Economic Forum Global Competitiveness Report

The World Economic Forum (WEF) has recently published the Global Competitiveness Report 2010-2011 including the performance analysis of 139 economies, contributing to the understanding of the key factors determining economic growth, explaining why some countries are more successful than others in raising income levels and opportunities for their respective populations, and offering policymakers and business leaders an important tool in the formulation of improved economic policies and institutional reforms.

Mr. Klaus Schwab, WEF’s Executive Chairman, mentions in his preface that the report “is being published amid uncertainty in the global economy and a continuing shift in the balance of economic activity away from advanced economies and toward developing ones… The International Monetary Fund (IMF) predicts growth of 6.25% for emerging markets, compared with 2.25% for advanced economies in 2010”.

According to the report, “developing economies such as Brazil, China, and India have for the most part fared comparatively well during the crisis… These countries are expected to grow at rates of between 5.5 and 10 percent in 2010, with growth holding up well over the next few years. Indeed, the world increasingly looks to the developing world as the major engine of the global economy”.

The report indicates that “in this context, policymakers are being confronted with difficult economic management challenges. Following their active stance in addressing the crisis and the ensuing recession, governments are struggling to unwind their deficit spending in an effort to control soaring debts. Yet without a clear commitment to getting spending under control in the medium term, countries will compromise their future ability to make pro-growth investments in areas such as infrastructure, health, and education, which are necessary for sustained development and competitiveness over the longer term”.

Among the 139 countries ranked in this year’s Global Competitiveness Index (GCI), “a highly comprehensive index for measuring national competitiveness, which captures the microeconomic and macroeconomic foundations of national competitiveness”, Mexico ranked in position number 66, dropping 6 places from position number 60 that was obtained in the 2009-2010 report.

This result “clearly demonstrates Mexico’s need for continuous improvement in order not to lose ground in competitiveness vis-à-vis the rest of the world. Mexico has been among the countries in the region worst hit by the global economic downturn, in large part attributable to its close association with the U.S. business cycle”.

The report says that “although Mexico’s GDP shrank significantly in 2009 (-6.5 %), it is estimated to grow by 4.2% in 2010.

Mexico also has a number of important competitive strengths, such as the large size of the market available for local companies and a sophisticated and innovative private sector with well-developed clusters and companies operating throughout the value chain”.

The WEF report points out that “notwithstanding these strong attributes and the liberalization and steps undertaken in recent years to improve the business climate and make the economy more efficient, Mexico’s factor markets remain rigid and represent a structural impediment for the country’s growth prospects over the long term. In particular, the labor market is ranked at a dismal 120th place, with burdensome regulations, high payroll taxes and social contributions, and a less than-efficient use of talent. The reliability and quality of institutions continue to receive a poor assessment, with increasing security concerns, likely related to recent spiraling drug-related violence and civil unrest”.

The report concludes saying that a “reform of the educational system to boost its quality is necessary to meet the needs of an economy moving toward the most advanced stage of development. In particular, the poorly rated higher education and training system does not seem to be producing a highly skilled labor force, notably scientists and engineers, and is not sufficiently conducive to technology adoption and innovation. Although the current administration has adopted, or plans to adopt, a number of competitivenessenhancing reforms addressing many of these shortcomings, further action is sorely required to reinforce Mexico’s competitiveness fundamentals”.

MEXICONOW has divided some of the sampled aspects of the report in three categories: the Good, the Bad and the Ugly.

Each of the above reflects a set of aspects in which Mexico performs among its competitors.