Misreading Mexico
September 12th, 2012
08:08 AM ET

Misreading Mexico

By Ravi Agrawal, CNN

Ravi Agrawal is senior producer of Fareed Zakaria GPS. The views expressed are his own.

Here’s some trivia. Which of these countries has the highest average income: India, China, Brazil or Mexico? If you guessed Brazil, you’d be wrong. And if you guessed India or China, you’d be way off: even if you combine the incomes of the average Indian and Chinese you wouldn’t reach the $15,000 annual purchasing power of the average Mexican.

These numbers don’t fit with many people’s perception of America’s southern neighbor. Mexico, you see, has a PR problem. A quick Google search for news from Mexico throws up a set of results that usually includes the words violence, drugs, cartels, and migrants (or the 2010 oil spill in the Gulf of Mexico). But it’s not just the international media that seems to have it in for Mexico’s reputation. Mexicans themselves seem woebegone. A recent Pew survey found that only a third of Mexicans think they have a good national economic situation. Compare that with half of Indians, 65 percent of Brazilians, and 83 percent of Chinese. Or let’s go back to average citizens: 52 percent of Mexicans think they have a good personal economic situation, but for Indians, Chinese, and Brazilians, those numbers rise to 64 percent, 69 percent, and 75 percent respectively – and that’s despite the fact that in purchasing power terms, Mexicans actually earn more per capita than citizens of all three of those countries. And, unlike the others, Mexico’s growth rate is actually rising.

Indeed, Mexico’s economy has a number of strengths. It is the 14th largest in the world. If you take into account purchasing power, it is the 11th largest economy – larger than Canada, Turkey, and Indonesia. It is projected to grow 4 percent this year, and even faster in the coming decade, a rate that the financial services firm Nomura says will lead to Mexico overtaking Brazil as Latin America’s biggest economy within 10 years, despite the fact that Brazil’s economy is currently twice as large.

Still, there is a weakness in Mexico’s growth, as I saw for myself when I was there last month: the money hasn’t been trickling down. According to the Organization of Economic Cooperation and Development, Mexico has the highest rate of poverty among the group’s 34 member nations. If you consider inequality, the OECD ranks it the second most unequal, with only Chile more unequal.

So although the headline numbers might surprise, Mexico presents something of a mixed bag. Yet this hasn’t deterred investors taking a growing interest in this Latin-but-North American country. In a special report on investing in Mexico, the Financial Times went as far as to call its macroeconomy “virtually bulletproof.” Move over BRICs – Brazil, Russia, India, China – it’s time for the MISTs – Mexico, Indonesia, South Korea, Turkey.

Part of Mexico’s appeal to investors is tied into what I think may be the country’s key weakness: inequality. You see, at the lowest-end, labor remains cheap. The Economist points out that in 2003, Mexican pay was three times China’s rates; now it is only 20 percent higher. So Mexican manufacturing is poised for a boom. And while in the past few years Mexico banked on its proximity to the U.S. (lower transport costs) and trade deals like NAFTA to compete with China, it will now be able to manufacture and price products at an advantage.

The big question, of course, is whether the export dollars will trickle down. But making this happen will require significant market reforms. In his recent book Breakout Nations: In Pursuit of the Next Economic Miracles, Morgan Stanley’s Ruchir Sharma points out how the top 10 Mexican families account for more than a third of the country’s stock market value – an almost unheard of number. “Private cartels produce about 40 percent of the goods that Mexicans consume and charge prices that are 30 percent higher than international averages,” he writes. “Phones, services, soft drinks, and many foodstuffs cost more in Mexico than in the United States.”

One thing is clear – Mexico is not the war-torn wasteland it is often made out to be. Its people have a glorious history, and a hopeful future. This isn’t to say that Mexico is destined to be the next investment hotspot – that’s far too simplistic a way of looking at this. Instead, the numbers suggest the truth is somewhere in between. Mexico has enormous capacity to surprise on the economic stage. But to really shine, it needs to work on developing a vibrant – and bigger – middle class.

Post by:
Topics: Mexico

soundoff (168 Responses)
  1. Peter

    Well I've been to Mexico and do like its people but have to say the author is way off and those predictions are just Excel cheap graphs, meaning just as much. You have to be rather dumb or keep a hidden agenda to ignore Mexican realities. Here, let me edit this naive authors Pollyanna predictions:

    "One thing is clear – Mexico is a drug cartel war-torn wasteland. Its people have a glorious history, and a hopeful future, if they someday create an economy that is not addicted to easy oil money and cheap underpaid labor for American companies."

    There, more like it.

    September 15, 2012 at 8:07 pm | Reply
  2. Dr. V. Renugopalakrishnan, Boston, Massachusetts

    Mexico is viewed through a prism that throws a negative pereception across the border and in this process its inherent strengths are seldom portrayed. Its potential is much larger than generally perceived. .

    September 15, 2012 at 8:54 pm | Reply
  3. hmh26

    Reblogged this on disfrutando la vida and commented:
    Something to reflect on...

    September 16, 2012 at 2:43 am | Reply
  4. urallcrzy

    Well one thing's for sure: people who claim Mexico to be a "cesspool" and a "failed state" have never been there. Its not paradise either, but it does have tremendous potential. I assume that many people here writing negative comments about Mexico or Mexicans are in border states who have at one time or another blamed them for rising prices (inflation) or higher taxes (caused by inflation) or a lack of jobs (where are all the Americans lining up for farm jobs?). The day I see anglo-german descended people as the majority of a team of fruit pickers, I'll eat my words. Untill then, maybe you laid-off industrial workers should look for a job in Mexico.

    September 16, 2012 at 9:03 pm | Reply
  5. JR

    will I see a white illegal crossing south of the border soon my friends? I will be happy to treat them with the same dignity they treated us.

    September 16, 2012 at 9:31 pm | Reply
  6. Tex71

    Mexico is the perfect example of trickle-down economics at work. Republicans want the USA to end up like Mexico: they and their cronies will own everything, and everybody else will be wage slaves or subsistence farmers.

    September 16, 2012 at 9:33 pm | Reply
  7. Edgar

    LOL $15,000 annual purchasing power of the average Mexican. Yeah right, maybe in a parallel universe! LOL

    September 16, 2012 at 10:17 pm | Reply
  8. figs

    Net immigration from Mexico to the U.S is now 0; Violence is restricted to a few areas, and in per-capita terms, deaths are not particularly high. The Mexico-bashing by some can only be described as ignorant-bigotry.

    September 17, 2012 at 9:51 am | Reply
  9. cerrolinacole

    As per my thoughts, decreasing the greed to narrow the gap is actually in everyone's interest. Why? Because we can't have an ever-expanding gap between rich and poor. Otherwise the 1% will be forced to spend that wealth – either in building more prisons and hiring more cops to keep them safe in their mansions or letting go of some of their grip on wealth so we can all have a world where everyone can coexist. It's a choice.

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    September 21, 2012 at 6:17 am | Reply
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  14. Alex

    Imagine a place full of chinese where there are no cement roads and the people are buying or selling in a rural area where there is sand flowing by, now imagine that instead of chinese, they are brown mexicans with greasy skin (no matter how rich they get that will never change) but the salary and the poverty is the same, if you thought you saw an economic difference, then you ARE a racist. Everything bad about Mexico is bigger in China (except for inequality and few other things), take for example the drug cartels, the salary and the system of education (which in China is even worse than Thailand), in fact, there are eleven african countries richer than china, and several african countries are richer than several eastern european countries (like South Africa vs. Ukraine) in GDP ppp per capita . Nothing stays the same my friend, africa was once rich (according to ancient greeks) and so was Arabia, India and china in different times, even if you look at Europe, 500 years ago southern Europe was richer and more developed than northern Europe (500 years ago, spain could colonize almost an entire continent, whereas 100 years ago, they had trouble invading the weakest areas of Morroco that were basically given to them by France (France invaded the toughest area of Morroco including its capital without breaking a sweat) and Italy couldnt defeat a France that was already beaten by Germany),and in the era of the Roman Empire, the Romans (mediterranean race) thought they were superior to the blonde barbarians of northern Europe (Nordic race) and the arabs (also part of the mediterranian race). Many "European" inventions were not inventions but rather, innovations that used previous inventions in order to maximize profits (for example, the first gun was invented in China and were introduced in Europe by the mongols and arabs, and the guitar,was influenced from the oud which was introduce in spain when arabs invaded it for 800 years).Also, read about "white slavery" in the arab slave trade, which existed when the arabs where the most civilized race in the world (the word slave comes from the word slav, which are a race whiter than the spanish and italians, now known as eastern europeans), and also read the article about the United States becoming Argentina and maybe youll see that nothing stays the same, and even IF you believe in a superior race, there is no need for hatred towards others, peace out.

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