MexECON Blog

Mexico Drops in WEF Competitiveness Ranking

In the "Global Competitiveness Index" for 2010-2011, released Thursday by the World Economic Forum (WEF), Mexico maintained its previous score of 4.19 on a scale of 1 to 7.  However, because several other countries improved their scores, Mexico's ranking fell six notches to 66th among the 139 countries in the sample.  Based on its score, Mexico's economic competitiveness is now just below that of Jordan and just above that of Romania.  The countries that leapfrogged Mexico in this year's index were Uruguay, Russia, Sri Lanka, Turkey, Vietnam, and Montenegro, with scores ranging from 4.23 to 4.36.  The United States posted the fourth-highest competitiveness score in the index, at 5.43, while Switzerland posted the top score, at 5.63.

The Global Competitiveness Index is designed to measure a country's economic competitiveness, defined as the institutions, policies, and factors that allow a country's people to become more productive, which in turn allows for higher incomes and increases the return on investment in the country.  Each country's index score is calculated as the weighted average of several subindexes, with the weighting adjusted to reflect the country's stage of development.  The subindexes, in turn, encompass a wide range of statistical data and survey responses.  For example, the base data for each country includes indicators such as the strength of its property rights, the country's public debt load, the rate of price inflation, and the ease of hiring and firing.  The full report can be found at www.weforum.org.

In the 2010-2011 index, Mexico's best performance came in the indicators designated by the WEF as "efficiency enhancers."  Because of its huge population of almost 110 million, Mexico ranked 11th out of the 139 countries in the size of its domestic market.  Reflecting its integration with the U.S. market via the North American Free Trade Agreement (NAFTA), as well as its free-trade agreements with other countries, Mexico ranked 15th in the size of its available foreign markets.  It also ranked 22nd in the prevalence of foreign ownership of its business firms.  Among the indicators designated as "basic requirements," Mexico had the 19th best public budget deficit, and it ranked 50th in the sustainability of its public debt.  (As regular readers of this blog know, Mexico's policymakers have done a great job of living within their means in recent years.  In the first half of 2010, Mexico's budget deficit was just 1.6% of gross domestic product, while its net public debt stood at just 30.1%.)

Despite these positives, however, Mexico's competitiveness is still held back by a range of challenges.  Among the "efficiency enhancers" that are so key for a country at Mexico's stage of development, Mexico scored 127th in the indicator designed to track whether a country's goods markets are free of monopolization and 116th in the effectiveness of its antitrust policies.  This apparently reflects how common it is for large firms to dominate key markets for goods and services in Mexico, stifling competition and hindering innovation.  Mexico also ranked a lowly 120th on the ease of hiring and firing workers, and 105th on the affordability of its financial services.  Among the "basic requirements," Mexico ranked virtually at the bottom of the list in terms of organized crime, the business cost of crime and violence, and the reliability of police services.  It ranked 116th in the reasonableness of government regulation.

Comment:  Mexico's middling ranking in the competitiveness index generally rings true, although it is important to note that such a ranking does not necessarily preclude good returns on investment.  Sometimes good investment returns come from the mere improvement in competitiveness over time, as opposed to a country's competitiveness relative to other countries at some given point.  Also, even in a country with only a modest level of overall competitiveness, some economic sectors and many individual firms may be well-positioned to take advantage of global opportunities and grow their profits.  Terra Nova believes that agriculture in Mexico is one such sector.  Looking forward, the current administration in Mexico shows every sign of continuing its openness to trade and international investment, maintaining fiscal discipline, and otherwise protecting economic stability.  If security and political challenges can be overcome, the next great challenge would be de-monopolization and deregulation of Mexico's domestic markets.  Until that step is taken, however, Terra Nova believes it can find many good opportunities in Mexico, and it is actively seeking new companies in which to invest.

Patrick Fearon, CFA
Vice President, Fund Management

Top-Ranked Countries in the 2010-2011
      Global Competitiveness Index

     Source:  World Economic Forum
WEF Competitiveness Index 2010-2011


 

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