OBG talks to Carlos Méndez, CEO, PwC México

Interview: Carlos Méndez

What is your view on the future of the economy?

CARLOS MÉNDEZ:Several sources indicate that Mexico’s growth in 2014 will be around 4% due to the increase in domestic demand. The percentage growth could be higher in 2015, these sources add, due to the reforms the government started to implement in 2013 and the improvement of the economic perspectives of the US, which could result in an improvement for Mexico due to higher external demand. Structural reforms will increase the growth rate of the Mexican economy to more than 6%, but not until after 2015. The effects of the reforms, such as the energy reform that could drive investments in the petrochemical sector during the fourth quarter of 2014, are expected to add whole percentage points to GDP; however, this will take a few years to materialise. The financial reform will be easier to implement.

These conditions generate a favourable environment in which to do business. According to the World Bank’s “Doing Business 2014” report, Mexico is among the top 50 countries in the world in terms of regulatory advances for simplifying business processes and it has been consistent in making improvements. Based on this ranking, Mexico is above the Latin American average in terms of regulatory reforms. Most of the changes evaluated by the World Bank happened in 2012, which implies the reforms of 2013 will have a stronger impact. The conditions generated have been positive for foreign firms operating in Mexico or willing to establish in the country, since there is greater legal certainty.

Which external elements influence the economy?

MÉNDEZ: Perspectives have changed in the region and Mexico has benefitted, although external factors can affect performance, as happened in the past. However, now there are elements that contribute to the maintenance or growth of confidence, depending on the point of view. For example, our 17th Annual Global CEO Survey, launched at the World Economic Forum, revealed that Mexico ranks second in possessing a high level of confidence, which means that the country’s CEOs are optimistic about the growth of their businesses in the medium- and long-term. As for investments, Mexico is considered by global CEOs as a good place to invest in the next three to five years, along with Indonesia, Turkey, Thailand and Vietnam.

Which are the main challenges for Mexico over the next few months?

MÉNDEZ: The review of the reforms package and definition of secondary legislation, which formulates the specific provisions that make a decree or constitutional reform applicable, will be very significant. Public and private entities have shown a lot of interest in having the secondary legislation process for economic capability, telecoms and energy completed as soon as possible, with the objective of bringing the benefits to the population quickly. In this process, the biggest challenge is not to get stuck by making specific promises, but to leave space for adapting the rules to the present moment. This way, Mexico will have a competitive telecoms industry, a solid energy sector, an innovative education system and effective social security, as well as viable rural development and a modern health care system. The energy reform is expected to generate new opportunities and investments, but it will require a careful transition and implementation process. The secondary legislation will state the basic principles of competition and transparency to protect energy resources and economic competitiveness.

Another challenge that the country faces is how to boost productivity levels, which have decreased over the past 30 years at an annual average rate of 0.7%, becoming an important obstacle for national development and affecting the country in terms of transparency, accountability and anti-corruption practices. Thus, Mexico now has the important task of enhancing and implementing legislation to provide certainty for contract compliance, public security and property rights protection, all of which will contribute to the generation of jobs, economic growth and development.