Remarks by Ángel Gurría
12 March 2018, Mexico City, Mexico
(As prepared for delivery)
It is a great pleasure for me to open this first session on the topic "Competitive Mexico: Challenges and Opportunities".
Strengthening a country's competitiveness is always a work in progress, one that is permanent and cannot be postponed. In turn, competition is essential if markets are to function properly. It fosters innovation, productivity and growth, but it also generates opportunities for entrepreneurship, and it helps to limit and reduce inequalities. Experience in many OECD countries shows that competition is essential not only for creating wealth but also for ensuring a better distribution of that wealth, and for promoting more inclusive growth. The intensity of competition reflects an economy's state of health. More competition means more productivity, greater competitiveness and hence greater well-being.
Sectors where there is no strong competition lose their international competitiveness. Sectors where there is no strong competition encourage collusion and the lack of transparency. Sectors where there is no strong competition will be marked by the concentration of incomes, and they will discourage investment, SME participation, research and development. Low levels of competition translate into higher prices for consumers, and it is the poorest families that end up paying for this shortcoming so less competition means less productivity and lower well-being.
In recent decades, Mexico has taken some very important steps to promote economic competition. These include the entry into force of the North America Free Trade Agreement (NAFTA); the opening of the Mexican market to imports and firms from dozens of countries with which similar trade agreements have been signed; and the transition from a foreign investment regime regarded as "closed with exceptions" to one that is "open with exceptions". Those have all had a significant impact in terms of boosting economic competition and strengthening productivity, competitiveness and well-being in Mexico.
The 2013 Constitutional Reform on Economic Competition established and reinforced two economic competition authorities, COFECE (the Federal Commission on Economic Competition) and the IFT (Federal Telecommunications Institute), together with tribunals and courts specialised in competition cases: their judges now receive training from the OECD and the Ministry of Economy, and the average time taken to resolve cases has been reduced from 18 to 8.7 months. In May 2014, the new Federal Law on Economic Competition was instituted, introducing surprise inspections and thus increasing the possibility of finding useful evidence. Criminal penalties against economic cartels have been reinforced, along with new penalties for persons who obstruct the investigations.
There has also been major progress in sectors that are strategic for Mexico's competitiveness and development. The Telecommunications Reform, for example, has promoted the opening of this strategic sector, with impressive results: prices for broadband mobile Internet service have fallen by up to 75%, and the number of subscribers rose by 50 million between 2012 and 2016.
At the same time, the Government of Mexico has redoubled its efforts at regulatory improvement and has developed one of the most sophisticated systems in the OECD for conducting regulatory impact analyses (RIA). It also launched an ambitious programme (completed in 2016) that succeeded in cutting the administrative burdens on businesses by 36%.
The Energy Reform has opened the energy sector to foreign investment in the prospecting, exploitation and transportation of natural gas and petroleum, where investments have already surpassed US$ 175 billion. Energy regulators have also been strengthened in line with best international practices, with the active support of the OECD.
The Financial Reform has helped to intensify competition and transparency in the financial sector, introducing new measures to discourage anticompetitive practices, to promote the expansion of credit and to establish mechanisms of co-ordination among the financial authorities.
Reforms of this kind are helping to boost the competitiveness of the Mexican economy. They allow firms to operate with greater certainty, with more service options, and for a lower cost. However, much more remains to be done.
Mexico has improved its competitiveness, stepping up competition and improving the regulatory framework in some key sectors, but the pace of progress has been slow. As a result, its ranking against international competitiveness indices has stagnated: for example, in 2017 the World Economic Forum's Global Competitiveness Index placed Mexico in 51st position among 137 countries, and Mexico stood 36th out of 43 countries evaluated for the 2017 International Competitiveness Index of the Mexican Institute for Competitiveness (IMCO).
Moreover, the Mexican economy still falls short in terms of eliminating bottlenecks and harmful practices in areas that are highly important for competitiveness, productivity, economic activity and inclusive growth. Let me highlight five of these areas that we consider to be crucial.
First, the productivity of our economy is low. Mexico is experiencing an upturn in the productivity of the energy, finance and telecommunications sectors. Yet many other sectors are still lagging behind under the weight of cumbersome local regulations, weak legal institutions, deep-rooted informality, lack of human capital, the prevalence of corruption, and insufficient financial development. Labour productivity in Mexico, compared to that of the United States, fell from 40% in 1991 to 29% in 2016. The labour productivity of Mexico's SMEs is especially weak: it is in fact the lowest in the OECD, and the productivity gaps between SMEs and large firms are the widest.
Secondly, the degree of our country’s digitalisation is still limited. You will be discussing this issue shortly. The decades-long lack of competition in telecommunications has held back Mexico's entry into the digital age. Despite some progress, at the present time only 52% of Mexican businesses have a broadband Internet connection, one of the lowest proportions in the OECD. Moreover, the Internet economy in Mexico is very small: in 2016, only 7% of adult Mexicans purchased products or services via the Internet, compared to 52% across the OECD. Mexico's information and communication technologies (ICT) sector is also very modest: its contribution to value added in the economy is the lowest among OECD countries, and it accounts for only around 1% of employment.
Third, our SMEs are insufficiently global. Mexican firms have very little profile internationally. According to data from PROMEXICO, around 83% of Mexican SMEs make no effort whatsoever to consolidate their presence abroad. They are not plugged into global value chains.
Fourth, research and development (R&D) levels are low. This poor performance does us great harm. Mexican firms invest very little in R&D – in fact, they invest the least among OECD countries. Paradoxically, this observation includes the large Mexican firms that invest abroad. According to the 2016 Global Innovation Index, Mexico's biggest transnational firms invest 124 times less in R&D than firms that are the world leaders in this area. And to make matters worse, these shortfalls are accumulating from year to year.
Lastly, the country suffers from high levels of corruption, insecurity and impunity. One of the heaviest burdens weighing upon our country's economic competitiveness is the combined effect of corruption, organised crime (and the crippling of Mexican SMEs through extortion) and the inefficiency of the judicial system. According to the 2017-2018 Global Competitiveness Report of the World Economic Forum, corruption and insecurity are the two main problems in doing business in Mexico. The National Institute of Statistics and Geography (INEGI) reports that in 2016 the total cost to households of insecurity and crime amounted to 229 billion pesos, or 1.1% of GDP.
All of this must change, and reforms are the key!
If it is to promote more inclusive and sustainable growth and greater well-being, Mexico must continue to promote and implement structural reforms and innovative policies to enhance its productivity, and hence its competitiveness.
We must do more to strengthen competition, especially in the network sectors, which serve as the catalysts of economic activity and productivity. To this end, it is important to reduce obstacles to trade in services, identify and eliminate regulatory constraints, impose meaningful financial penalties for monopolistic practices, and strengthen regulations still further.
We must intensify competition and combat collusion in government contracting and procurement. To this end, the country needs to minimise the use of direct contracting, increase the use of online procurement, reinforce co-operation with the competition authorities, and open government procurement markets further to foreign bidders.
We must redouble our commitment to digitalisation. Our economy and our society will have to prosper in a world that is increasingly digital. To this end we must identify, develop and activate the mix of skills needed for effective participation in that increasingly digital economy, we must promote digital innovation and we must strengthen our efforts to ensure digital security and privacy.
We must improve the quality of our education system. This means placing students and schools at the centre of the education system; attracting, retaining and training the best teachers; offering more relevant and accessible development opportunities for teachers; strengthening evaluations as a central tool for improving the system and involving all stakeholders in formulating education policies.
We must boost the skills of our work force. To do so will require better coordination between government ministries and other relevant stakeholders. We must strengthen the role of the National Productivity Committee; develop and disseminate up-to-date and useful information on needed workforce skills; provide ongoing high-quality training and boost the incentives for pursuing studies in science, technology, engineering and mathematics (STEM).
We must reduce inequalities. This means increasing social spending; improving and deepening programmes to combat poverty while avoiding paternalistic approaches and promoting entrepreneurship; adopting "bottom-up" development policies targeted at specific states and municipalities; designing a strategy for productivity with inclusion; stepping up efforts to combat informality and improving the redistributive capacity of the tax system.
Finally, we must reinforce the campaign against corruption. This will require better implementation of the measures introduced by the National Anti-corruption System. In particular, we must confirm the appointments of the Anti-corruption Prosecutor (Fiscal Anti-Corrupción), the judges of the Third Section and the 15 magistrates of the Federal Court of Administrative Justice (TFJA). We must also move ahead with the appointment of the Supreme Auditor of the Federation; define more clearly the functions of the Citizen Participation Committee and take further steps to strengthen the integrity and procurement systems of governments, enterprises and state agencies.
Ladies and Gentlemen,
Mexico will have to improve its competitiveness if it is to promote stronger, more inclusive and more sustainable growth. The reforms undertaken over the last five years are crucial for achieving this goal, but we must do more. If the reforms are really to bear fruit and have a positive impact on the well-being of Mexico's citizens, we are going to have to undertake a new wave of reforms to address the three most important challenges affecting Mexico: inequality, corruption, and insecurity. These are the real obstacles that are undermining Mexico's competitiveness. The OECD is ready to work with the next Federal Government and with the new local governments to overcome these burdens, and to work together to build a Mexico that is more equal; a Mexico that is full of opportunities; a Mexico that is confident, safe, inclusive and sustainable. Together we can transform our cultural strength into economic strength; our work effort into prosperity and our ingenuity into scientific leadership. Mexico has everything it takes to achieve this, including the enthusiastic support of the OECD.
Thank you very much. May you have an excellent and productive discussion.