It is necessary to continue to design and implement key reforms
By Bill Dahl
No nation has escaped the challenges of adapting to the global pandemic. These adaptations by nations have one thing in common: their differences. How these differences will determine the nature of the recovery from the pandemic remains to be seen. Yet, the strategic trajectory of many nations is being determined now. Beneath the prevailing nationwide priorities focused on coping with Covid-19, governments are making choices about the strategic direction of their respective countries, and the essential components of said strategy.
Within this context, this article explores the current reality, current challenges, and the current strategic components of a national strategy that will form the future for Mexico. As stated by many others, tomorrow is being formed today.
Covid-19 in Mexico. A current perspective
According to the U.S. Embassy in Mexico City, “The number of Covid-19 cases in Mexico decreased slightly after reaching a peak in the first week of January 2021. Mexican health authorities reiterated calls for people to stay home as much as possible and leave only for essential activities, following social distancing measures, frequent hand washing, and mask-wearing. Schools remained closed in nearly all states.”
According to the Centers for Disease Control and Prevention, the country of Mexico is designated at Level 4; the highest risk designation for countries confronting Covid. The CDC has also stated, “Travelers should avoid all travel to Mexico.” Mexico has recently passed 185,000 deaths, ranking fourth for the most Covid deaths in the world. (The US, Brazil, and India take the top 3 spots in terms of the most cases and deaths). However, numerous in-depth investigations indicate that the “official” death toll (and infections) from Covid in Mexico is vastly higher than reported by the Mexican federal government. According to one Mexican government official; “Many people aren’t dying in hospitals, they’re dying at home.” For far too many Mexicans, healthcare is a cost that may be delayed or avoided due to the practical economic realities that inspire people to maintain behaviors (contrary to pandemic infection prevention protocols) required for economic survival on a daily basis. Death by Covid in Mexico now ranks as the second leading cause of death behind heart disease. Even Mexico’s President Andres Manuel Lopez Obrador (aka AMLO) contracted and recovered from Covid in 2021.
In a nation of approximately 130 million people, (Q-4 2020), the monthly income of 41% of the working-age population was not enough to purchase a canasta básica: a basic food basket comprised of a selection of food products including sugar, beans, eggs, rice, and tuna. In Q-4 2020, the cost of a canasta was estimated to be approximately 1,700 pesos (US $84) in urban centers and 1,200 pesos in rural regions of the nation. The price of a canasta básica has increased between 6 and 7.5% in 2020, with an inflation rate of 3.5 percent. According to the OECD, (Organization for Economic Co-operation and Development): “Mexico continues to have still had the lowest per capita GDP per capita and the highest poverty levels in the OECD.”
It is important to note that Mexico has a significant segment of its population who work in the “informal economy.” Estimates suggest this figure includes 60% of Mexican citizens. Informal economy workers do not have any social security safety net, do not contribute to a pension and/or retirement plan, and are not entitled to other benefits those in the formal economy enjoy. Translation: The poor, economically and medically vulnerable, and the marginalized in Mexico have increased in numbers due to the impact of the pandemic. They are also grossly underrepresented in the official Mexican government Covid infection/fatality figures that are shared publicly.
Prior to the onset of the global Covid-19 pandemic, the OECD observed: “Major health challenges also represent an obstacle to the country’s development. Mexico is one of the worst performers in the OECD in terms of healthcare coverage, life expectancy, mortality from cardiovascular disease, obesity, and childhood diabetes. Low public spending on health and high out-of-pocket expenses for individuals generate inequality in access to quality services.” Needless to say, Covid-19 has exposed dramatic inequities in Mexico’s current healthcare infrastructure, including adequate facilities, qualified personnel, technology, adequate supplies of essential medicines, availability of Covid diagnostic testing, and the delivery of a comprehensive and effective Covid-19 vaccination strategy.
Mexico’s economy has contracted during eight consecutive quarters or two consecutive years (2019 and 2020). The country remains enmeshed in a destructive recessionary environment. GDP plunged 8.5% in 2020. This is the largest economic contraction for Mexico since 1932 (14%).
It is important to note that no nation has escaped unscathed from the multi-dimensional deleterious impacts of the Covid-19 pandemic. Mexico is no exception. However, as stated in the introduction to this article, national responses to the pandemic differ while the business of charting a course for the future of a nation takes place. Furthermore, nations have vulnerabilities to the negative impacts of the pandemic that vary markedly. The prevalence and severity of these vulnerabilities will affect the ability of nations to move forward – post-Covid -and the strategies they employ to create tomorrow today.
Strategic economic challenges
Travel and tourism account for a reported 15% of Mexico’s GDP. From a standpoint of the world’s largest economies, Mexico ranks #1 in terms of travel and tourism’s contribution to GDP. It represents employment opportunities for over 10 million Mexicans. Mexico is reportedly the 7th most popular destination in the world for tourists. The tourism sector in Mexico, as in other countries, has been traumatically impacted during the global pandemic. Mexico has become dependent on (2019) $25 billion in income from almost 50 million international visitors. In 2020, those figures plummeted by over 50%. Tourism industry councils indicate 2021 is likely to contain the same metrics as 2020. Most arrive by air (22mm) followed by land (19.4mm) and sea (8.3mm). The vast majority of tourists arriving in Mexico come from the U.S. and Canada.
The southern U.S. border with Mexico is closed to any “non-essential travel.” Canada recently prohibited air travel between Canada and Mexico until April 2021 – effectively decimating the spring break high season. Finally, the U.S. recently imposed requirements for international travelers to obtain a negative Covid test certificate prior to boarding aircraft destined for the U.S. along with the necessity to quarantine for 7 days after arrival. Since the implementation of these policies, cancellations of planned vacations in Mexico have skyrocketed.
Several sources indicate it may take an additional five years beyond 2021 to restore tourism revenues to pre-pandemic levels in Mexico. That’s a long time for a country that depends upon tourism to the extent that Mexico has. This is particularly poignant for a country where tourism is an important source of employment, foreign exchange, and social stability.
Globally, an estimated 330 million jobs are supported by the travel and tourism industry. It contributes an estimated $8.9 trillion (10%) to global GDP annually. In Mexico, the world-leading rank for dependence upon travel and tourism has been brutal for the country – and is likely to remain as such throughout 2021.
Mexico’s national petroleum company Pemex reported a loss of almost half a trillion pesos in 2020 (US $23 billion), a whopping 38.2% increase in the annual operating loss in 2019.
According to The Economist, 2021 represents “The end of a golden age for oil producers. The search for other types of revenue will accelerate. Global demand is collapsing. If oil states do not wean their economies off the black stuff, they will suffer a similar fate.”
AMLO, Mexico’s president, has doubled down on fossil fuels as the future for his country, as other nations sprint toward renewables. The problem is that Pemex is the most indebted and inefficient producer of petroleum products on the planet. Decades of mismanagement, corruption, and the absence of essential investments in maintenance and repairs have left Pemex in its current state. AMLO’s penchant for militantly ignoring world trends in energy development and staunch support for a revival of Pemex, along with the promise of energy independence for Mexico, has resulted in a chorus of harsh criticisms from across the globe. Bill Gates recently stated Mexico needs to focus on improving education rather than doubling down on fossil fuel.
Furthermore, AMLO’s strategy for the generation of electricity in Mexico has become a lightning rod for ongoing global criticism. AMLO has decided to favor Mexico’s state-owned Federal Electricity Commission (CFE) over private companies. Most of the private renewable energy investments in Mexico have come from foreign investment. This arbitrary and unexpected “changing of the rules in the midst of the game” has shocked the global foreign investment community and has put Mexico in jeopardy of violating the framework of the relatively new USMCA agreement.
Once again, Mexico’s leadership has doubled down on existing state-controlled energy producers. While the world is focused on energy innovation, Mexico remains strategically mired in a museum of mirrors – staring at itself and imagining a strategic future through the reflections from the fractured glass of a bygone past.
According to the OECD; “Mexico is facing major structural challenges. To solve them, it will be necessary to continue to design and implement key reforms, to continue to confront the de facto powers, to continue to improve and strengthen the quality of public administration, to intensify efforts to combat corruption, and to promote the rule of law. The OECD is ready to help Mexico design, promote and implement better policies for better lives.”
Will Mexico become a museum of memories for future tourists to enjoy? Will its future be determined by the government’s current obsession with the maligned desire to embrace impaired economic engines of the past? Has Mexico lost its luster?
Perhaps “better policies for better lives” require a reconsideration of the present strategy to somehow return to the distant past by resurrecting and refurbishing rusted relics like Pemex and CFE. Mexico is a nation of proud people… a people inhabited by faith and hope. This nation and these people deserve better than what they are currently receiving.
Losing luster is a process. So is overcoming the Covid-19 pandemic and all the negative impacts it has wrought on every nation. However, the recovery from this pandemic is not a level playing field. Every nation will design and implement its own road to recovery. However, the resources, imagination, leadership, and innovation required to do so successfully varies widely. Beneath the overwhelming shadow of the cloud of Covid, nations are plotting their tomorrow today.
Pray for Mexico – and the other similarly situated nations who are unable to print or borrow money to ease the ongoing pain their citizens continue to endure. Pray for a better life for future generations – informed by a reasoned strategic pathway ahead – that does not include the lingering illusion to return to a bygone past. Pray for the emergence of political leadership equipped with the vision and capacity to create better lives tomorrow – today.