Mexico Tomorrow: 2012, Ideas for the future

MEXICO TOMORROW: 2012, IDEAS FOR THE FUTUREERNESTO CORDERO-ARROYO

University of Chicago

April 21, 2012

2

Economic Stability Has Translated into Growth

4

5

6

7

8

9

10

11

12

ene

-07

may

-07

sep

-07

ene

-08

may

-08

sep

-08

ene

-09

may

-09

sep

-09

ene

-10

jun

-10

oct

-10

feb

-11

jun

-11

oct

-11

feb

-12

1 año

5 años

20 años

30 años

Government Bonds(%)

Source: SHCPSource: IMF.

• Mexico has enjoyed a solid economic growth since 2010. For 2012, the IMF growth forecasts has been revised upwards.

• Interest rates are close to historical minimums.

Belgium

United Kingdom

Norway

Canada

Turkey

South Africa

Australia

Mexico

Argentina

Colombia

India

0 1 2 3 4 5 6 7 8 9

0.010.5

0.80.9

1.82.02.12.1

2.32.3

2.73.03.0

3.53.6

4.04.24.3

4.75.5

6.98.2

Growth Forecast 2012 (Percent change of constant prices)

Percent

Average: 3.1

3

The Exchange Rate and Inflation have remained stable

Depreciation by Decade

221

31

0

50

100

150

200

250

300

350

400

450

'81-'90 '91-'00 '01-'10

12,50012,576

Inflation by Decade

401

55

0

200

400

600

800

1,000

1,200

'81-'90 '91-'00 '01-'10

15,00015,062

Source: Banco de México.

4

Responsible Public Finances

Total Deficit, 2010 (% of GDP)

International Reserves(billion dollars)

Source: S&P (December 2010), SHCP México.

Méx

ico

Pro

med

io B

BB

Lit

uan

ia

Hu

ng

ría

Tú

nez

Bu

lgar

ia

Per

ú

Pro

med

io o

tro

s

Esp

aña

Gre

cia

Ru

man

ia

0

2

4

6

8

10

12

14

32.0

707580859095

100105110115120125130135140145150

Ja

n-0

8A

pr-

08

Ju

l-0

8O

ct-

08

Ja

n-0

9A

pr-

09

Ju

l-0

9O

ct-

09

Ja

n-1

0A

pr-

10

Ju

l-1

0O

ct-

10

Ja

n-1

1A

pr-

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ul-

11O

ct-

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an

-12

5

Tax revenues have increased2

00

4

20

05

20

06

20

07

20

08

20

09

20

10

20

11

*

8.0

8.5

9.0

9.5

10.0

10.5

8.4

8.6

9.0

9.3

10.0

9.5

10.0

10.4

2003 2004 2005 2006 2007 2008 2009 2010 Dic 2011

0

5

10

15

20

25

30

35

40

9.412.3

20.5

23.9 24.525.9

28.3

33.5

36.9

Non-Oil Tax Revenues(% of GDP)

Active Tax Payers(Millions)

Source: SHCP. Source: SHCP-SAT.

• There has been an important effort to substitute oil revenues with tax revenues to strengthen public finances.

• In recent years, significant progress has been made in expanding the tax base.

6

Central Government Tax Revenues N

oru

eg

a

Din

.

N.Z

.

Isla

nd

ia

R. U

nid

o

Su

ec

ia

Irla

nd

a

Au

str

alia

Lu

x.

Hu

ng

ria

Ho

lan

da

Ita

lia

Fin

.

Au

str

ia

Po

rtu

ga

l

Bé

lgic

a

Gre

cia

Po

lon

ia

Tu

rqu

ía

Co

rea

Fra

nc

ia

Mé

xic

o

R. C

he

ca

Ca

na

dá

Es

lov

en

ia

Es

pa

ña

E.U

.A.

Ale

ma

nia

Ja

pó

n

Su

iza

0

10

20

30

40Tax Revenues of the Central Govern-

ment(% of GDP)

Source: Revenue Statistics 2009, OECD

Average: 21.2%

Tax revenues are close to the OECD average.

Social Security Contributions and Local Governments Revenues

When Mexico’s social security contributions and local governments revenues are added to the central government revenues, Mexico falls to the last place of the OECD international comparison.

Mexico’s social security contributions represent a third of the OECD average. Mexico’s local governments revenues represent one sixth of the OECD average.

Din

.S

ueci

aB

élgi

caN

orue

gaF

ranc

iaIt

alia

Fin

.A

ustr

iaIs

land

iaH

ungr

iaH

olan

daR

. C

heca

Esp

aña

Lux.

Por

tuga

lA

lem

ania

R.

Uni

doN

.Z.

Pol

onia

Can

adá

Gre

cia

Irla

nda

Aus

tral

iaE

slov

enia

Sui

zaE

.U.A

.Ja

pón

Cor

eaT

urqu

íaM

éxic

o -

10

20

30

40

50

60

16

1 2.8

Seguridad Social Impuestos locales Tributarios

Average OCDE: 35.8%

Source: Revenue Statistics 2009, OECD

Tax Revenues: Local Government and Social Secu-

rity(% GDP)

19.5

7

Series1

8.4

6.2

2.8

1

Average OECD Mexico

Social Security Contributions(%GDP)

Local Govern-ment Revenues

(%GDP)

Source: OECD

8

Property Taxes

Mexico’s property tax collection is done by local governments. These receipts are low compared to other countries.

Source: Revenue Statistics 2009, OECD

0.2 0.30.7

0.91.3

1.7

3.1

3.5

4.6

0

1

2

3

4

5

Méx

ico

Ecu

ado

r

Ho

ndu

ras

Bo

livia

Per

ú

R. C

hec

a

Bra

sil

Ale

man

ia

Ven

ezue

la

Po

rtug

al

R. D

om

.

Co

lom

bia

Gre

cia

Arg

entin

a

Italia

Irla

nd

a

E.U

.

Esp

aña

Can

ada

Fra

nci

a

Co

rea

R. U

nid

o

% GDPProperty Tax Collection, 2009.

México:

9

Expenditure Policy

Programmed expenditure increased 55% between 2006 and 2012, which means that more money has been assigned to priority programs.

2006 2012

1,846,375

2,869,583

Programmed Expenditure(Million pesos, 2012)

55%

Source: SHCP

2006-2012

Education 21.6

Health and other social issues 38.4

Justice, National Security and Public Order Issues

93.0

Poverty* 76.6

Investment 133.7

Programmed Expenditure Increase

(real %)

*Includes 3 social development subfunctions: social protection, recreation, culture & environmental protection

Expenditure Policy

2006 2012

84.9%76.6%

15%23%

Programmed Expenditure(Billion pesos, 2012)

Current Expediture Public Investment

2,869.6

Source: SHCP

1,864.9

Investment has increased as a share of programmed expenditure.

Current Expenditure Composition

5.2%

20.5%

29.5%

44.8%

22.7%

21.1%

24.8%

31.4% Social Programs (subsidy)

Pensions and re-tirement

Operational Expendi-ture

Personal Services

Social programs expenditure has increased as a share of current expenditure.

Source: SHCP

Current Expenditure Composition(%)

12

Deregulation and Simplification

México is ranked along with Chile, Perú and Colombia as best countries to do business in Latin America.

Mexico ranks 1st place in Latin America in the Economic Complexity Index.

Brasil

Argentina

Uruguay

México

Colombia

Perú

Chile

Singapur

126

113

90

53

42

41

39

1

Ranking 2012 Doing Business

Ja

pó

n

Ale

ma

nia

EE

UU

Mé

xic

o

Pa

na

ma

Bra

sil

Arg

en

tin

a

Ch

ile

1 2

13

20

30

5257

78

The Atlas of Economic Complexity

Source: Harvard, MITSource: Doing Business.

13

Exports

Argentina Brazil Chile Colombia Mexico Peru0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

5% 1% 2%8%

3%

25%

45%47%

36%

60%

16%

45%

50% 52%62%

33%

81%

30%

Total Goods Exports for Selected Latin American Countries in 2010

(Percentage)

Other Transactions Primary Products Manufactures

Source: Economic Commission for Latin America.

Argentina Brazil Chile Colombia Mexico Peru0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

21% 21%

55%

15%

9%

24%

4% 6%

2%

7%

9%

6%

22% 19%

5%

10%

37%

3%5%

26%

Manufactured Goods Exports for Selec-ted Latin American Countries in 2010

(Percentage)

Natural Resource-Based Low-Tech Medium-Tech High-Tech

Source: Economic Commission for Latin America.

14

External Driver Non-oil exports have increased since 1993. Non-oil exports have recovered from the recent crisis and in 2011 registered 14.2%

annual growth.

Ene 93Abr 95 Jul 97 Oct 99Ene 02Abr 04 Jul 06 Oct 08Ene 110

5,000

10,000

15,000

20,000

25,000

30,000

Non-Oil Exports(monthly, adjusted, million dollars)  

México is the most competitive country in auto parts manufacturing (KPMG).

One out of 7 cars circulating in the US is manufactured in México

The Mexican aerospace industry occupies the first place in

manufacturing investment in the world (Deloitte).

México is the biggest producer of television sets (International Trade Center) and the third biggest producer of smart phones (Global Trade Atlas).

Source: INEGI

15

Domestic Driver

The Mexican banking system is solid and there has been positive monthly growth in credit since the second quarter of 2010.

Commercial and Development Bank Credit to the Private Sector(Annual change, %)

-30

-20

-10

0

10

20

30

40

en

e-08

jun-0

8

no

v-08

ab

r-09

oc

t-09

ma

r-10

ag

o-10

en

e-11

jul-1

1

dic-11

Total Vivienda Consumo Empresas

Source: Banxico

Development Bank Development banks have increased credit to Small and Medium Enterprises (SMEs)

and rural producers. Nafin guarantees have contributed to increase by 89% (real terms) commercial banks

loans to SMEs during President Calderon's Administration.

89%

16

1/ Nafin and Bancomext with credit and guarantees (considers microcredits).

Development Banks (Jan-Dec 07 vs Jan-Dec 11)

During 2011, 1.5 million SMEs were supported by development banks, 85% more than in 2007.1

FIRA and Financiera Rural have increased their loans to rural producers by 58%.

80% of home mortgages were awarded to poor families (earning less than 6 minimum wages), compared to 53% in 2007

2006 4069514,152

73,666

59,421

135,491

Banking Credit to SMEs(Million Pesos)

Loan with guarantees NAFIN Loan to SME

Source: NAFIN

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

a

2012

a

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

3.1

3.5 3.5

3.9 4.0 4.1

4.3

4.8 5

.0

4.8

4.5

From 2002 to 2006, the annual average of budget investment in infrastructure was 3.6% of GDP, while from 2007 to 2012 it will be 4.6%.

Infrastructure Investment 2002 – 2012

(% GDP)

Source: SHCP Source: SHCP

OCDE Average (2011) 3.3%

Infrastructure

17

Average 2001 - 2006 Average 2007 - 2012

440.7

651.1

Infrastructure Invest-ment 2000 – 2012

(Thousands of Millions of pesos, 2012)

47.7%

18

Esp

añ

a

EE

UU

Ca

na

dá

Arg

en

tina

Ch

ile

Bra

sil

Ale

ma

nia

Mé

xico

0

5

10

15

20

25

20.7

9.17.6 7.3 7.2 6.7 6.0

4.5

jul-

08

oct

-08

en

e-0

9

ab

r-0

9

jul-

09

oct

-09

en

e-1

0

ab

r-1

0

jul-

10

oct

-10

en

e-1

1

ab

r-1

1

jul-

11

oct

-11

en

e-1

2

13,500

13,700

13,900

14,100

14,300

14,500

14,700

14,900

15,100

15,300

15,500

Unemployment Rate, 2011(%)

Workers registered at IMSS(Thousands, 3-month moving average)

Source: IMF, estimates. Source: IMSS

• The unemployment rate in Mexico is lower than Spain, US and Canada. In Latin America is lower than Argentina, Chile and Brazil.

• Expansion in employment has continued at a fast pace.

19

Income and Equality

GINI COEFFICIENT GDP per Capita PPP 2012*

Source: IMF “World Economic Outlook - September 2011”, *Adjusted to purchasing power, IMF estimates.

India China Brasil México Rusia0

2

4

6

8

10

12

14

16

18

20

3.97

9.20

12.30

15.68

17.61

20

Reduction in Extreme Poverty

• Between 1996 and 2010, the percentage of the population living in extreme poverty was reduced from 37.4% to 18.8%.

• Between 2000 and 2010, 47% of municipalities classified as “very highly poor” and 40% of municipalities classified as “highly poor”, left these classifications.

1992 1996 2000 20100

5

10

15

20

25

30

35

40

21.4

37.4

24.1

18.8

Population living in extreme (food) poverty(Percentage)

Source: CONEVAL.

21

Multi Factorial Poverty in Mexico

2008 2010

10.60% 10.40%

33.90% 35.80%

33.00% 28.70%

4.50% 5.80%

18.00% 19.30%

Extreme poverty Moderate poverty Vulnerable by social need

Vulnerable by income No poors No vulnerable

Source: CONEVAL, 2010

22

Education

• Universal enrollment has been achieved in basic education.• Scholarships and investment in educational infrastructure have contributed to

increase the enrollment in secondary and tertiary education.

Enrollment in Secondary Education

(%)

Enrollment in Basic Education

(%)

88.9

97.9100

85

90

95

100

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

/e

48.4

60.9

66.3

45

50

55

60

65

7020

00

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

/e

Source: SEP.

Enrollment in Tertiary Education

(%)

21.6

26.7

30.1

20

25

30

35

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

/e

66.7

58.6

94.1

25.2

30.9

23

Health

• In 2011, Mexico reached universal health coverage. - Seguro Popular affiliated more than 51 million Mexican with low incomes and

who did not have access to health services provided through social security.• From to 2007 up to now, 2,874 new health units were constructed.

0.7 3.3 4.3

12.1 12.7

31.1

0

5

10

15

20

25

30

35

ISS

ST

E

IMS

S

Sa

lud

ISS

ST

E

IMS

S

Sa

lud

'01-'04 '07-'10 p/

Accumulated Investment in Hospital Infrastructure(Billion pesos)

8.3

55.9

6.7 times

p/ Proyected.

Seguro Popular Affiliation(Millon people)

2004 2005 2006 2007 2008 2009 2010 Nov 2011

0

5

10

15

20

25

30

35

40

45

50

55

5

11

15

21

27

31

43

51.5

Source: Secretary of Health.

• Between 2007 and 2010, 3.3 million home mortgages were assigned, of which 60% were given to low income families (earning below 4 minimum wages).

Assigned to low income families

Mortgages(Millions)

0.51.2

2.1

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

95 - '98 01 - '04 07 - '10*

0.8

1.7

3.3

Source: Conavi.

24

Housing

25

Quality of housing

• The percentage of homes without a cement floor was reduced from 13% to 6.2% between 2000 and 2010.

• More than 90% of homes have access to: Running Water, Sewage, Electricity, Cement Floor, and Appliances.

Source: INEGI.

Homes without a cement floor(%)

2000 20100

4

8

12

16

13.2

6.2

Source: INEGI.

Agua entubada Drenaje 70

75

80

85

90

95

88.8

78.1

91.590.3

2000 2010

Homes with Running Water and Sewage(%)

Running water Sewage

26

Human Development Index

• Better social and economic conditions have improved Mexico’s quality of life.

0.30

0.40

0.50

0.60

0.70

0.80

1990 2000 2005 2009 2010 2011

Índice de Desarrollo HumanoHuman Development Index 2011

Chile, 0.80Mexico, 0.77Russia, 0.76Brazil, 0.72China, 0.69

India, 0.55

Source: UNDP.

27

Sustainability and Inclusive Growth

Global Deceleration

US Exports Markets Diversification and Domestic Market

Europe Banking Supervision

Structural Transformation

Competitiveness Labor, Energy, Telecomm, Consumers …

Political Reform Reelection, Legislative Reduction, Ratification, Second Round, ...

Federalism Revenues, Health, Education, Security, Accountability, …

Rule of Law Legal Certainty, Justice Procurement, Corruption, Enforcement, …

28

Sustainability and Inclusive Growth

Structural TransformationsMore Revenues used Effectively, Efficiently, and Transparently

Poverty and Inequality Reduction

Cash Conditional

Transfer Programs

Social Safety Net

Education

Broader Coverage

Improve Quality

Productivity

Infrastructure

Transport

Energy

Telecomm

Innovation

Tech Intensive

R&D

Agencies andFunds

MEXICO TOMORROW: 2012, IDEAS FOR THE FUTUREERNESTO CORDERO-ARROYO

University of Chicago

April 21, 2012