|
The following OECD assessment and recommendations summarise Chapter 3 of the Economic Survey of Mexico 2005 published on 12 September 2005.
Labour market reforms have stalled
A well-functioning labour market is needed to translate human capital improvement into higher productivity and wages. The Mexican labour market is characterised by the coexistence of a large, and largely tolerated, informal sector where workers have only rudimentary social protection and do not pay taxes and a formal sector where jobs are generally more skilled and protected by a strict legislation. Stronger enforcement of tax and social security obligations is part of the solution. More importantly, a labour market reform is needed to enhance the adaptability of the workforce and reduce obstacles to job creation in the formal sector. The reform proposal sent to Congress in 2002 has been removed from the policy agenda in 2005. This is regrettable, especially as the proposal was not particularly far-reaching but included several commendable measures. Easing employment protection legislation and regulation on atypical forms of employment would allow firms to respond more flexibly to changing technology and fiercer competition from other low-wage economies.
Rigidities in network industries hold back development
Although the large-scale reduction in trade barriers and various privatization programmes have strengthened competitive forces in some sectors, there remains unfinished business elsewhere. The reform proposal to open the electricity sector to private investment and supply has stalled. Given the importance of the sector for future growth, and to reap the full benefit of other reforms, legal obstacles to private investment in the electricity sector should be removed, a necessary condition for business and households to have access to a low-cost and reliable energy source. In other network sectors, the incumbent still dominates. Firms too easily take advantage of dilatory and cumbersome judicial proceedings ("amparos") to block the implementation of decisions by regulators and the Federal Competition Commission. Although telecom tariffs have fallen, they remain significantly higher than in most OECD countries, probably reflecting weak competitive forces. In airlines, the terms of the ongoing privatisation project need to be carefully specified so as to ensure adequate competition. The Mexican government is currently working on a strategy, building on the issues identified by the OECD peer review of competition law and policy, to enhance the effectiveness of competition policy and extend its reach to those areas where competition is still incipient.
Energy infrastructure indicators
1. Ranking for 29 OECD countries excluding Canada, Island and Sweden. Countries in the shaded area have below average progress. Although comparable data are not yet available, several OECD countries have recorded substantial declines in electricity prices since 2003, the latest decline in Mexico occurring in January 2005 for both industry and household use.
2. ''Is the energy infrastructure adequate and efficient? '' The highest value indicates the most positive perception.
Source: IEA, Energy Prices & Taxes database; IMD World competitiveness Yearbook 2004.
The business environment is irksome, but entrepreneurship is widespread
Setting up and running a business in the formal sector still entails time-consuming, ongoing and costly attention to a plethora of regulations in particular at state and municipal levels. Hence, more needs to be done to modernise the bureaucratic structures across the country. Positive experiences, such as the fast-track system for start-ups (Sistema de Apertura Rapida de Empresas), carried out in some states to enhance transparency should be replicated nationwide. More generally, improvements in the rule of law would lower transaction costs for individuals and business alike. Banks have only recently started to lend again to the private formal sector. The new legal framework for bank guarantees should help to reduce the cost of financing, but because of the difficulties that still persist in recovering assets from bad debtors, banks are reluctant to lend to small firms, even those with a promising business plan. New innovative firms using higher technology are thus discriminated against. Nevertheless, the rate of firm creation is high, although many of them are one-person businesses, often operating in the informal sector. There has been a welcome and so far successful effort to create better access to micro-credit for very small-scale firms, one goal being to encourage such firms to expand if they have opportunities to do so. In this respect a prompt approval of the New Securities Law would be desirable to further improve access of medium-size firms to the growing domestic capital market. Measures such as these, and further scrapping of dead-weight regulations that hinder normal business operations, should be given priority, not least because they do not all require prior approval from the legislature and are less likely to fall foul of political infighting.
Barriers to entrepreneurship
Source: OECD, Economic Policy Reforms, Going for Growth, Structural Policy Indicators and Priorities in OECD Countries (2005).
________________
Return to Economic Survey of Mexico 2005 homepage
A printer-friendly Policy Brief (pdf format) can also be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
To access the full version of the OECD Economic Survey of Mexico:
-
Readers at subscribing institutions can go to SourceOECD, our online library.
-
Non-subscribers can purchase the PDF e-book and/or printed book at our Online Bookshop.Government officials can go to OLISnet's Publication Locator
-
For further information please contact the Mexico Desk at the OECD Economics Department at webmaster@oecd.org. The OECD Secretariat's report was prepared by Bénédicte Larre, Stéphanie Guichard and Isabelle Joumard under the supervision of Nicholas Vanston.
_______________________
|
