Restoring Mexico s International Reputation Roberto Newell G. WWICS-Comexi May, 2011
Today s presentation 1 2 3 4 5 Perceptions are negative All not well with Mexico Truth and perceptions misaligned High costs of bad reputation Time to fix this
1 Perceptions are negative Country Brand Index: 2010 Mentions (K) Grade Rank China 146 59 7 Brazil 105 65 14 India 922 56 39 Russia 297 40 171 Mexico 113 21 196 Source: East-West Communications, 2010
1 Perceptions are negative Wasn t always so The men running Mexico are probably the most economically literate group that has ever governed any country anywhere. also great salesmen. They have convinced the world that Mexico is on the verge of an economic miracle The Economist December 14, 1991
1 Perceptions are negative NY Times less interested in Mexico Topic frequency NYT: 1987 2010 300 250 Economics 200 Politics 150 Crimen y temas fronterizos 100 50 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Restoring Mexico s International Reputation, Newell, 2011 Source: Newell, 2011
1 Perceptions are negative focused on reputation damaging news Source: Newell, 2011rce: Newell, 2011
1 Perceptions are negative Same with WSJ Topic frequency NYT: 1987 2010 200 180 160 140 120 100 80 60 40 20 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Newell, 2011 Source: Newell, 2011 Economics Politics Crimen y temas fronterizos
1 Perceptions are negative whose focus has also changed to crime and migration Share of mind: WSJ 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Share of mind Source: Newell, 2011
1 Perceptions are negative Reforma headlines also focused on crime Reforma's headlines April 12-May 11, 2011 43% Crime All else 57% Source: Newell, 2011
1 Perceptions are negative Gary Larson foresaw this; we have become Tyrannousaurus Mex
Today s presentation 1 2 3 4 5 Perceptions are negative All not well with Mexico Truth and perceptions misaligned High costs of bad reputation Time to fix this
2 All not well with Mexico Labor productivity stagnant Source: Peña, Pablo A. Aggregate Shocks and Investment in Human Capital: Evidence on Postsecondary Source: Peña, Schooling Pablo, during Las décadas the Lost perdidas Decade in y Mexico. el futuro 2011. económico, Febrero, 2011
2 All not well with Mexico Factionalism explains low productivity growth Reform PAN PRD PRI Electricity (1997) x x Fobaproa (1996) x x Fiscal (2002) x x Petroleum (2008) x x Fiscal (2009) x x Security (2011) Reforma del Estado (2011)? x x &
2 All not well with Mexico After a period of improvement, violent crime has risen Index of Murders per 100 K 100% : 14 murders per 100K 120 100 80 60 40 20 0 Source: U.N., PGR, estimates by author
2 All not well with Mexico But, Mexico not homogeneous 16 14 12 Murders per 100 K population in 2010 Frequency of States 10 8 6 4 2 National Average 0 0 to 5 5 to 10 10 to 15 15 to 20 20 to 25 25 to 30 30 to 35 35 to 40 40 to 45 45 to 50 50 to 55 55 to 60 60 to 65 65 to 70 70 to 75 75 to 80 Source: U.N., with data from PGR
2 All not well with Mexico Nor is it the worst Intentional homicides por 100K population Mexico China India Other countries: Salvador 71 Jamaica 60 Guatemala 52 Venezuela 49 Trinidad 43 Colombia 35 Russia Brazil 0 5 10 15 20 25 30 Source: U.N., Interpol, various national agencies, most recent statistic, compiled in Wikipedia Source: U.N., with data from PGR
Today s presentation 1 2 3 4 5 Perceptions are negative All not well with Mexico Truth and perceptions misaligned High costs of bad reputation Time to fix this
3 Truth and perceptions are misaligned BRICS growing more rapidly 14% 12% 10% 8% 6% 4% 2% 0% -2% GDP growth (annual rate in current $US) 2000 2001 2002 2003 2004 2005 2006 2007 2008 Brazil Russian Federation India China Mexico Source: World Bank. World Development Indicators
3 Truth and perceptions are misaligned China and India won t catch up to Mexico soon Source: IMCO using IMF World Economic Outlook data base
3 Truth and perceptions are misaligned Mexican households consume much more $6,000 $5,000 BRA RUS IND CHI MEX $4,000 $3,000 $2,000 $1,000 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 World Bank. World Development Indicators
3 Truth and perceptions are misaligned Easier to do business in Mexico of Ranking Doing (out 183) Business Brazil Russia India China Mexico Ease of doing business Source: Doing Business Report, World Bank, 2010 129 120 133 89 51 Starting a business 126 106 169 151 90 Dealing with construction permits 113 82 175 180 37 Employing workers 138 109 104 140 136 Registering 120 45 93 32 99 property Getting credit 87 87 30 61 61 Protecting investors 73 93 41 93 41 Paying taxes 150 103 169 130 106 Trading across 100 162 94 44 74 borders Enforcing contracts 100 19 182 18 81 Closing a business 131 92 138 65 24
3 Truth and perceptions are misaligned Population projections favorable Accumulated population growth: 2050 Mexico China India Russia Brazil Source: Census Bureau, International Statistics, 2011* -20% -10% 0% 10% 20% 30% 40% 50%
3 Truth and perceptions are misaligned Life expectancy also better Mexico China India Russia Life Expectancy HALE Brazil 0 20 40 60 80 Source: Nationmaster, Statistics, 2011, HALE taken from OECD
3 Truth and perceptions are misaligned As are schooling levels, compared to most BRICs Mexico China India Russia Brazil 0 2 4 6 8 10 12 14 Source: Nationmaster.com, Statistics, 2011 N.A.
3 Truth and perceptions are misaligned In sum, this is best Mexico ever In this context
3 Truth and perceptions are misaligned Subs of multinationals are doing well Kimberly Clark Operating profits* from Mexican subsidiaries: 2010 BBVA Procter & Gamble AMEX Walmart/Walmex Citigroup 0% 5% 10% 15% 20% 25% 30% 35% 40% *Operating profit used to eliminate effects of debt and taxes Source: corporate 10Ks, author s estimates
3 Truth and perceptions are misaligned as are domestic corporations 35% Operating profits / Total assets: 2010 30% 25% 20% 15% 10% 5% 0% Bimbo Telmex America Movil Cervecería Modelo Source: company annual reports, author s estimates FEMSA Coca cola
Today s presentation 1 2 3 4 5 Perceptions are negative All not well with Mexico Truth and perceptions misaligned High costs of bad reputation Time to fix this
4 Costs of bad reputation are high FDI not growing as expected $600 FDI inflows per capita $500 $400 U$S $300 $200 $100 $0 Mexico Brazil China India Russia 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year Source: IMF, International Financial Statistics, author s estimates
4 Costs of bad reputation are high Investment flows possibly affected by rising crime rates 250 225 200 175 150 125 100 75 50 25 0 Tasa de homicidios* Formación Bruta de Capital 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Serra Puche, 2011
4 Costs of bad reputation are high Triple whammy to tourism 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Incoming tourism revenues (Million U$S) Great recession Swine flu Risk perceptions (Mexico brand drops 11 places)* 0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 15 % revenue drop in 2009 Source: INEGI, BOP statistics
4 Costs of bad reputation are high Bad luck contributed to this outcome
4 Costs of bad reputation are high Other significant effects Loss of confidence in democracy (Latinbarometro, 2011) Loss of political support to current administration (Mitofski, 2011) Politization of war on crime (May protest marches) Loss of talent
Today s presentation 1 2 3 4 5 Perceptions are negative All not well with Mexico Truth and perceptions misaligned High costs of bad reputation Time to fix this
5 Time to fix this Need to act on two fronts simultaneously Future reputation 1. Real measures Reforms Execution Resources Continuity Committed leadership 2. Influence strategy Clear mission Targeted messages Institutional skills Quality staff Metrics Follow-up
5 Time to fix this Experiences to draw on Lobbying policy decision makers Israel Canada Korea Mexico (1992-1994) Communication strategies Brazil China Soft power deployment Chile Singapore
5 Time to fix this Stakes are enormous Present value of perpetuity without growth 10% more FDI +/- 2.5 % GDP 10% higher tourism revenues +/-.3 % GDP Source: INEGI, author s estimates, discounted at 8%
Summary Mexico s reputation seriously damaged Failure to act would be costly Perceptions will shape reality Lose critical strategic options (i.e migration reform, next phase of NAFTA) Destroy valuable intangible asset Huge opportunity cost Imperative to act now