The Economist - UK (2022-03-19)

TheEconomistMarch19th 2022 TheAmericas 41

ketsasa wholeroseby2.8%,butinMexico
gdpcontractedby5.3%.
YetevenhadMexicobeenmorefortu­
nate,internaleconomicproblemswould
probablyhaveweighedongrowth.Crimi­
nalgroupscanobstructbusinessesorforce
themtopayfor“security”,asRamón’sex­
perienceshows.Moremundanedifficul­
tiesabound.Mexicoranked60thof 190
countriesintheWorldBank’sease­of­do­
ing­businessindex(whichceasedpublica­
tionafter2020).Itcanbea struggletoget
electricity.Payingtaxestakesa whopping
241 hoursperyearonaverageforfirmsin
theformalsector.Moreandbetterinfra­
structureisneeded,especiallyinthepoor­
ersouthernstatesthataredisconnected
fromtheglobaleconomy,saysValeriaMoy,
aneconomistwho headsimco, athink­
tankinMexicoCity.
Formal businessesface redtape and
hightaxesinexchangeforpoorpublicser­
vices.Thatiswhysomanyfirmsandem­
ployeesstayinformal.Almost60%ofthe
labourforceandanevengreaterpropor­
tionofbusinessesdonotpaytherequired
taxesandsocial­insurancecontributions.
Ofteninformalenterprisesdonotobeyla­
bourrules.Despitethelargenumberwho
toilinit,theinformaleconomyaccounts
foronlyabouta quarterofMexicangdp.
Thatisbecauseproductivityininformal
firmsiswellbelowthatintheformalsec­
tor,andit maywellbefalling.“Itislikethe
MiddleAges withno technicalchange,”
says Santiago Levy,a former deputy fi­
nanceministernowattheBrookingsInsti­
tution,a think­tankinWashington.
Lifeforworkerswithinformaljobsis
noteasy.InNápoles,a neighbourhoodof
thecapital,IvánJiménezrunsa fruit­and­
vegetablestand. The hoursare long. To
openthestallfortenhoursa dayheworks
for 17 hoursfrom4am,whenhebuysstock.
(Mexicansworkmorehoursperyearthan
citizensofanyothermemberoftheoecd, a
clubmainlyofrichnations,barColombia.)
MrJiménezsaysthebuyingpowerofhis
earningshasnotriseninrecentyears.
Yetworkintheformalsectorisnotnec­

essarily more attractive. Salvador Trejo,

whorunsa producestallinanotherpartof

thecity,sayshecan’taffordthetaxesthat

hewouldhavetopayif hemovedtothefor­

malsector.Formalemploymentcanmean

gaininghealthinsurance,butitsbenefits

areoftenlittlebetterthanthoseprovided

by health carethatcan be obtainedfor

nothing. Public pensions donot always

sweetenthedeal,either.Toearnone,until

recentlya labourerhadtoworkinthefor­

malsectorfor 25 years,anunachievable

featforanyoneovera certainage.Thecur­

rent administrationhasreducedthatre­

quirementtoaround 15 years,butithas

dulledtheincentivebyintroducinggrants

forolderpeopleregardlessoftheirincome

oremploymentstatus.

Althoughpastreformshaveimproved

thegrowthclimateinmanyrespects,few

administrationshavedonemuchtoshrink

theinformalsector,despitepotentialgains

intheformofhigherproductivityandtax

revenue.Evenso,theeconomyhasa strong

foundationonwhichtobuild.

Mexicohaslongbeenanattractivedes­

tinationforforeigndirectinvestment.Al­

though recent supply­chain problems

haveaffectedimportantindustries,such

ascar­making,theeconomycouldbenefit

overthelongrunfroma lackofconfidence

inglobalsupplychains,asAmericanfirms

moveproductionclosertohome.Indeed,

inthenorthernstates,whichareclosely

integratedwiththeUnitedStates,indus­

tries like aerospace manufacturing are

booming. Mexico could enjoy annual

growthofaround4%,reckonsMrLevy,if it

became more business­friendly and in­

vestedininfrastructure.PartsofMexicodo

growatgoodrates.In 2018 and2019,forex­

ample,thenorthernstateofBajaCalifornia

Surgrewatanaverageannualrateof3.5%.

Opportunityknockedback

ButthegovernmentofAndrésManuelLó­

pezObradorissquanderingtheopportuni­

ty.Insomewaysitismakingthingsworse

thantheywerebeforethepandemic.Are­

centmovetohandcontrolofthecountry’s

electricitymarkettotheComisiónFederal

deElectricidad,a state­ownedutility,has

discouragedforeigninvestment.Thepres­

identhasportrayedtheprivatesectoras

greedyandrattledbusinesspeoplebycan­

cellingconstructionofanairport(seenext

story).“Currently,itispredominantlydo­

mesticissues holdingbackinvestment,”

saysJonathanHeath,a deputygovernorof

Mexico’scentralbank.

Thatisa shame.“Mexicoisa countryof

opportunities,whetheryousell tacosor

somethingelse,”reckonsJosé,whorunsa

carpet­cleaningbusiness.Thebiggestop­

portunitywouldcomefromboostingthe

highly productive formal sector. Unless

the government does that, Mexico’s

growthwillremainmediocre.n

Tortilla flat

GDP per person at PPP*, $’000

Source:IMF *Purchasing-power parity

Panama

Latin America

andthe Caribbean

Brazil

Chile

Argentina

Mexico

403020100

199 2019

Mexico’smegaprojects

Planes, a train and

automobile fuel

M

exico’s armed forcesare  proud  of

the toilets at the Felipe Ángeles Inter­

national Airport. The army built the airport

near Mexico City, which is due to open on

March 21st, and will run it, but it is a com­

mercial  facility.  Each  bathroom  has  a

theme,  explains  a  sergeant  providing  a

tour.  Among  them  are  lucha libre(wres­

tling) and the Day of the Dead. From loos to

lounges  the  terminal  sparkles—but  that

does not make it a good investment.

The  airport  is  one  of  President  Andrés

Manuel  López  Obrador’s  three  signature

infrastructure  projects.  The  others  are  an

oil refinery in Tabasco, his home state, and

a train around the Yucatán peninsula. The

trio have provoked even more controversy

than most big public works. No one doubts

that  Mexico  needs  more  investment.  At

1.3% of gdp, government investment is the

lowest  in  the  oecd,  a  club  mainly  of  rich

countries. But Mexico “needs projects with

a high return, whether social or economic”,

says  Sofía  Ramírez  of  México,  ¿Cómo  Va­

mos?, a think­tank. 

It is hard to say whether Mr López Obra­

dor’s  projects  will  deliver  that,  since  the

planning  documents  give  no  analysis  of

costs and benefits. In November the presi­

dent decreed that the projects were a mat­

ter of national security, ostensibly to speed

up permits. But the decision also made re­

lated documents secret (and is being chal­

lenged in the courts).

The  capital  needs  a  new  airport.  But

does it need Felipe Ángeles? In 2018 Mr Ló­

pez Obrador cancelled construction of an­

F ELIPE ÁNGELES INTERNATIONAL AIRPORT

The president’s infrastructure plans

may do more harm than good