Exports and growth

In the April-June period, the economy grew by 1% compared to the first quarter (and by 1.9% compared to the same quarter last year; the economy grew by this same percentage during the first semester). It stands out that in the second quarter the three major sectors of economic activity grew practically at the same rate (primary and secondary at 0.9% and the tertiary at 1%). It should be noted that even with this growth, the level of GDP that it had in the third quarter of 2018 has not been recovered, let alone in terms of GDP per inhabitant.

There is no doubt that a significant part of the growth at the annual rate registered during the first semester (1.9%) is due to the expansion of production destined for the foreign market. Thus, in current dollars, during this period agricultural exports grew by 8% while manufacturing exports increased by 17.3% (automotive by 11.5% and non-automotive by 20.3%).

There are two other points worth highlighting from the information on exports made during the first half of this year. First, oil exports represented only 7.3% of total exports (this percentage would be lower were it not for the illegal Russian invasion of Ukraine). Second, 82% of total exports were destined for the United States, reflecting the fact that due to the geographical proximity reinforced by the free trade agreement, this is the natural destination for Mexican exports.

A digression on oil exports. It must be remembered that in the mid-eighties of the last century, exports of this good represented almost 80% of total exports, not because Mexico was an oil power, but because of the reflection, on the one hand, of the bias against of the exports of a protectionist trade policy and, on the other, of the displacement effect of non-oil exports as a result of the appreciation of the real exchange rate derived from the sudden increase in the volume and value of oil exports as of 1979, what is known as the “Dutch disease”. The fact that exports of this good currently represent only 7% of the total reflects the profound structural change that the Mexican economy has undergone as a result of the unilateral opening of the economy upon joining the GATT in 1986 and its subsequent consolidation with the entry into force of NAFTA in 1994 and other free trade agreements, thereby eliminating the bias against non-oil exports. To think, as President López does, that Mexico’s growth is sustained by oil does not make the slightest sense.

Returning to the issue of GDP growth and exports, it is clear that both could have been higher if the president had continued and even deepened the opening of the energy sector to the private sector, mainly in the electricity sector. Its decision to try to strengthen the CFE seeking to give it all the monopoly power with the reform of the Electricity Law as well as the decisions of the CRE to deny the entry into operation of private generators, mainly in renewable energies (the heart of the controversy with United States and Canada), has not only inhibited new investment in the electricity sector but also in other sectors of the economy, particularly in the manufacturing industry.

Investment, manufacturing exports and economic growth could have been much higher if there had been certainty that the plants would have a guaranteed supply of electricity at low cost and in many cases from renewable sources and even more, legal certainty about the rules of the game and the inviolability of contracts. They were not because of the decisions made by the president and, worse still, everything achieved so far in modernizing the economy and making non-oil exports a significant source of growth would be lost if the president carries out his threat. to denounce the T-MEC for having a notoriously wrong vision of what national sovereignty is, what it is based on and how it is strengthened.

Twitter: @econoclasta