How Mexico Can Build Back Better

The pandemic has hit Latin America and the Caribbean hard, and Mexico is no exception. But if an opportunity can be found in every crisis, then this could be the moment for Mexico to make up for lost time. 

Over the last three decades, Mexico has underperformed in terms of growth, productivity, inclusion, and poverty reduction compared to similar countries. 

But now, at the World Bank, we see a clear opportunity for Mexico to embark on a dynamic economic recovery that is more inclusive and sustainable, with favorable international headwinds thanks to the growth of demand in the US. Three areas require special attention: unleashing productivity; increasing financial inclusion; and protecting the most vulnerable.

Most importantly, an agenda of inclusive growth must kickstart productivity and job creation. A recent report by the World Bank reveals a severe misallocation of resources in the Mexican economy due to a lack of competition and regulatory barriers. Too often, young firms cannot grow because of a lack of access to credit and market distortions, while underperforming firms suck up key resources that could be put to better use elsewhere.

There is great divergence in productivity across firms, sectors, and regions. Firms connected to global value chains deliver double the productivity of those that are not, so the challenge is for more companies to be better integrated. Similarly, well-managed firms are better at innovating and exporting. However, access to markets, competition and institutional obstacles reduce incentives to improve management practices, leaving large untapped opportunities. 

Financial inclusion in Mexico must also improve, given its importance in reducing poverty and driving prosperity. The government’s Mexico 2020-24 plan includes several policies to promote financial inclusion that the World Bank is supporting, such as developing the regulatory framework to strengthen the fintech sector and digitizing social programs to make it easier for Mexicans to open bank accounts, especially remotely. 

These policies will benefit two key groups that can do much to alleviate poverty and improve equality in Mexico: women and migrants. Regarding migrants, vulnerable Mexican families rely more heavily on remittances than those in higher-income strata, and access to bank accounts increases migrants’ savings, particularly those less well off. 

Financial inclusion of women is even more important if we are to achieve inclusive growth. Companies run by women typically have less access to credit, since women own fewer assets that can be used as collateral. Women are also often under more family pressure to use loans for purposes other than their businesses. Financial instruments specially adapted to women’s needs are required.

Women also need greater economic inclusion more broadly. Everywhere, female workers have been hit harder by the pandemic, just as their participation in economic activity is fundamental for economic growth. Even before the pandemic, just 45 percent of working-age women had jobs in Mexico, compared with 77 percent of men. In the OECD, only Turkey and Italy perform worse, in Latin America, only Guatemala. That represents a huge loss for the Mexican economy.

Finally, great strides can also be taken toward protecting the most vulnerable. One of the most important objectives in Mexico is to mitigate the impact of climate change and natural disasters. Notably, earthquakes and climate-induced hydro-meteorological events affect poorer states in the south disproportionately.

Mexico must seize this moment to redress these historic challenges. The pandemic may have left death and economic destruction in its wake, but the country can turn this to its advantage by building back better. Mexico can count on the World Bank’s whole-hearted support.

World Bank

Axel van Trotsenburg
Axel van Trotsenburg
Senior Managing Director, World Bank