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Mexico Rises to 53rd in WEF Competitiveness Index

In its "Global Competitiveness Index" for 2012-2013, the World Economic Forum (WEF) says Mexico rose to a ranking of 53rd out of the 144 countries in its sample.  Mexico's economic competitiveness is now ranked just below that of countries such as Brazil, Kazakhstan, and South Africa, but just above Mauritius, Latvia, and Slovenia.  In this year's ranking, Switzerland maintained its position as the most competitive country, followed by Singapore and Finland.  The United States was ranked 7th.

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 an increased return on investment.  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 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, its public debt load, its rate of price inflation, and the ease of hiring and firing in the country.  The full report can be found at

In the 2012-2013 index, Mexico's best performance came in the indicators designated by the WEF as "innovation and sophistication factors."  The country jumped to a rank of 49th in this subindex, largely because of an improvement and expansion in its base of local suppliers.  On a measure of the quality of its local suppliers, for example, Mexico climbed 16 places to a rank of 37th.  On a measure of the quantity of its local suppliers, it jumped 21 places to a rank of 42nd.  The country rose to a rank of 34th in the breadth of its value chain, while it rose to 35th in the development of its "clusters," i.e., geographic concentrations of a particular industry's companies and their suppliers, which economists believe can enhance efficiency, reduce barriers to entry, boost knowledge transfer, and otherwise encourage innovation.  These improvements are especially important because some economists consider a weak base of local suppliers to be one of Mexico's key structural shortcomings.  Many observers look favorably on the country's "maquiladoras," which assemble and manufacture products for export, but because those plants rely heavily on imported components and raw materials, they have been criticized for not fostering the development of smaller, entrepreneurial suppliers within Mexico itself.

Mexico also performed reasonably well in the subindex on "efficiency enhancers," where it matched last year's ranking of 53rd.  With its huge population of 110 million and its integration with foreign markets via the North American Free Trade Agreement (NAFTA) and other free-trade agreements, Mexico ranked 12th in the size of its available market.  However, its biggest improvement among efficiency enhancers was in financial market development, where it jumped 22 places to a rank of 61st.  Within this subcategory, the country jumped to 33rd place in the soundness of its banks and 60th in the extent of financing through the local equity market.  Among other notable efficiency enhancers, Mexico jumped to 15th in its rate of foreign direct investment and technology transfer.  Mexico also made strides in many aspects of labor market efficiency this year, jumping to 47th in the cooperativeness of its management-labor relations.  However, Mexico's overall labor market remains rigid.  For example, the country ranked 113th in its hiring and firing practices.

Mexico's performance among the indicators designated as "basic requirements" continued to be mixed.  Its strongest performance among the categories in this subindex was in the quality of its macroeconomic environment, where it ranked 40th.  Mexico's high score in this area came mostly from its good credit rating, high national savings rate, and modest consumer price inflation.  Among other basic requirements, it ranked 21st in availability of airline seats and 39th in the strength of its investor protections.  On other criteria, however, Mexico continued to score poorly.  The country ranked 100th in the efficiency of its court system in settling disputes, 135th in the business cost of crime and violence, and 139th in the prevalence of organized crime.  While Mexico ranked a relatively high 29th for the share of its children enrolled in public education, it ranked 118th in the quality of primary education.

Comment:  Mexico's continued climb in the WEF's competitiveness rankings comes in part from its relative stability while many other countries are undergoing financial upheaval.  This can be seen most readily in the way it leapfrogged many other countries this year in terms of the soundness of its banks.  Mexico's increased competitiveness also reflects continued high levels of foreign investment, as international producers work to "near-source" manufacturing away from Asia.  This process has helped expand technology transfer and broaden the country's supplier base.  Mexico is also making some important strides on its own account.  If the labor reform bill currently in Mexico's Congress is passed into law as expected, and if President-Elect Enrique Peña Nieto follows through with his reform promises, the country will probably continue to make gains.  To make further progress and ensure good economic growth and strong investor returns in the future, Peña Nieto's government especially needs to reduce crime, deregulate and de-monopolize the economy, and improve educational institutions.

Patrick Fearon, CFA
Vice President, Fund Management

Special - WEF Competitiveness 2012-2013

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