Wen-Dar Chen, vice president and portfolio manager of the international debt team at Delaware Investments, sees positive changes happening in Mexico that could help the country’s economy compete with the developed world.
“Mexico is one of the few emerging economies that will grow faster than the BRIC countries in the next five to 10 years based on recent changes and reform,” said Chen.
Chen says a poor educational system, high crime levels, an ineffective criminal justice system and corruption are factors that have held back Mexico’s economy.
Mexican officials are addressing the country’s problems, explained Chen. The government's labor market reform approved in 2012 allows companies to hire employees and provide training to enhance their skill level to help with productivity. Also, wage adjustments are based more on productivity and less on seniority. “Those components will help this labor market reform a lot,” said Chen.
In addition, education reform seeks to have less union control over the process of hiring teachers. “In the past, a retiring teacher would consult with the union and pass the job on to a person they pick,” said Chen. “Education reform removed that loophole and seeks to keep the system more open, transparent and less controlled by the union.”
Chen notes other positive trends happening in Mexico, including local credit opening up, giving businesses and consumers better access to financing.
Also Chinese wages are rising, says Chen, making Mexican wages increasingly more competitive by comparison.
Mexico presents opportunities across a diverse collection of industries, says Chen. Major automobile makers such as Honda, Nissan, and Mazda are now running factories within Mexico’s borders. Also significant activity is happening in electronics, appliances and chemicals as well.
Based on Chen’s research, the Mexican economy appears poised for a period of strong performance. Mexican exporters are gaining market share in the U.S., which could result in billions of dollars' worth of additional trade in the coming years. Chen and his team believe Mexico shows a stable macroeconomic framework, solid financial institutions (including an autonomous central bank) that can support the needs of a dynamic economy, and a business culture that is highly compatible with those of developed countries.
“These reforms may help their average GDP grow 1.5 to 2 percent over the next 10 years, which is very positive,” said Chen.