Remarks by Ángel Gurría
3 May 2019 - Mexico City, Mexico
(as prepared for delivery)
Governor of the State of Hidalgo, Ladies and Gentlemen,
I am delighted to present the OECD Territorial Review of Hidalgo. I would like to thank Governor Omar Fayad and his Minister for Economic Development, José Luis Romo, for the conviction they showed in requesting and supporting the preparation of this report. It sends a clear signal about Hidalgo's commitment to inclusive and sustainable growth.
Also present today is the author of the review, Enrique Garcilazo, our expert on territorial development at the OECD for Entrepreneurship, SMEs, Regions and Cities, whom I would also like to congratulate on this important work.
The review comes at a good time for Hidalgo. After a long period of economic stagnation, the state is regaining its dynamism, and closing the gap with other states in Mexico.
In recent years, Hidalgo's economy has grown faster than the national average. Between 2009 and 2017, Hidalgo's annual GDP per capita growth rate was 3.9%, twice the national average (1.9%). In addition, the increase in productivity in the state between 2010 and 2016 was the fifth highest of all Mexican states.
Foreign direct investment has also grown significantly. In 2017, the flow of productive investments into the state from abroad amounted to 357 million dollars, much higher than the average annual flow between 2000 and 2015 of 195 million dollars. In addition, the origin of these investments has been significantly diversified, with only 23% coming from the U.S. market, compared to 43% for the country as a whole.
Hidalgo also stands out for its low production costs compared to other states. This is due, among other things, to the abundant supply of labour, the extensive space available in brownfield sites and industrial parks, and its proximity to large cities such as Mexico City.
It also has a substantial demographic advantage. 65% of its workforce is of working age and young people represent 28% of the population, much higher than the average of 18% among OECD regions. The state boasts high standards of environmental quality and is among the safest in the country.
These are very important achievements and strengths, for which we extend our appreciation to the Governor and his team. However, we agree that much remains to be done.
Despite progress, more than 50% of Hidalguense still live in poverty, compared to a national average of 43%. GDP per capita has improved, but remains the eighth lowest of all Mexican states. In this context, the state's level of productivity also remains low. In fact, it amounts to only 65% of the average for Mexico and 40% of the median among OECD regions.
In addition, 74% of workers in the state are employed in the informal sector. This is the fourth highest level of informality in the country. And the proportion of low-skilled jobs is high, with nearly 60% of the labour force having completed only primary education.
Against this backdrop, the review recommends developing a state strategy to improve workers' competencies, skills and abilities through new vocational, language and information technology (IT) training programmes. We also recommend improving instruments for linking SMEs more efficiently to global value chains, through an alliance with the National Entrepreneur Fund (Fondo Nacional del Emprendedor) aimed at developing support for obtaining international quality certificates, technological upgrading and the organisation of business fairs, and the creation of closer connections with international companies.
Another fundamental challenge facing the state of Hidalgo is that it lacks a comprehensive innovation policy. In fact, innovation performance has decreased in recent years, from 0.8 patents per one million inhabitants in 2002 to 0.5 in 2015, in contrast to the growing trend in the other Mexican states. In the era of the knowledge-based economy, there is a high price to pay for this shortcoming. And we are pleased that it is one of the reform priorities of this government.
To meet this challenge, the review recommends establishing a comprehensive innovation strategy that goes beyond promoting science and technology to strengthening the link between academia, the private sector and government. This strategy should foster an open innovation ecosystem that would facilitate the creation, dissemination and use of knowledge in the state. The Triple Helix programme by the Brainport region in the Netherlands, based on this concept and spearheaded by the private sector, is a project that can provide useful experience for Hidalgo.
Another major challenge is the low level of tax collection, with the state having the fourth lowest level of tax revenue collection of all Mexican states. This seriously limits its fiscal autonomy and investment capacity. It is therefore crucial to expand the state tax base through measures such as the simplification of the tax payment system, including economic incentives to file tax returns, the publication of information on the municipalities with the highest and lowest levels of tax collection and investment, and the reduction of levels of informal labour, starting with the public sector.
We also recommend increasing audits of income tax and car ownership, and reviewing water rates to ensure that they correspond to the quality of the public service provided. It is also necessary to help municipalities with less institutional capacity in their efforts to collect property taxes, by encouraging the digitalisation and updating of land registers and the public property register at municipal level.
Lastly, our review highlights the persistence of significant socio-economic disparities between the southern part of the state, where the three metropolitan areas are located and most economic activity is concentrated, and the northern municipalities, which are poorly connected to external markets and have lower welfare standards and less access to public services. This has a negative impact on the development of the entire state.
To close this north-south divide, the review recommends developing a long-term strategy towards business development in rural areas, by promoting the use of new agricultural technologies capable of increasing productivity, and diversifying the rural economy, by further boosting the tourism sector for example. This strategy should focus on building capacities and improving support programmes for entrepreneurs in rural areas, increasing access to public services through the use of ICT, and boosting connectivity in the North of the state by improving the infrastructure and building on partnerships with other states.
Ladies and Gentlemen,
In order to build a more balanced, more inclusive, more competitive country, the territorial development of Mexico is essential. State governments are the ones facing the most pressing challenges, the ones with the knowledge of the local complexities, the ones who can make the biggest contribution to economic development and inclusive growth. That is why they must be supported. That is why we at the OECD are increasingly working with Mexico's state governments. And we must work even more with municipal governments. Development is always a bottom-up process.
Let us continue to broaden and deepen our collaboration.
Governor, consider us part of your team. Thank you.