Davos 2010: Mexico Vs. South Africa

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On June 11, 2010, Mexico’s national soccer team, El Tricolores (literally, The Three Colored) will take on South Africa’s Bafana Bafana (The Boys) in the opening match of the 2010 World Cup in Johannesburg. That’ll mark the second time this year that the two nations have faced off. The first match-up took place earlier this week at the WEF’s Annual Meeting in Davos, where the leaders of the two emerging markets vied for the attention of the world’s biggest businesspeople and investors.

With the global recession (and the Copenhagen talks) almost behind them, most developing countries are, again, making the transition from cooperating against the West to competing for capital. South Africa isn’t in the same league as Mexico — the latter’s economy is four times the size of the former’s — but investment decisions are often guided by perceptions. And South Africa’s president, Jacob G. Zuma, made an eloquent case at Davos for more investments in his commodity-driven economy by summarizing the rapid actions taken by his government to avoid the worst of the global crisis. He also spoke frankly about having three wives who he treats with equal importance, adding that he respects other cultures and expects others to respect South Africa’s.

Mexican President Felipe Calderón’s task doesn’t look easy. Mexico hasn’t hosted a major sports event for decades; hasn’t done anything significant from a competitive perspective after entering NAFTA in 1992; and Calderon has just one formidable wife, who is with him at Davos. To grab the world’s attention here — when people can choose between sessions and skiing — a leader must create the feeling that investors simply can’t miss what’s going on in his or her country.

Mexico, sadly, can’t do that.

That became painfully evident on Wednesday, when we were discussing how the global economy might evolve in 2010. In that session, called “What is the New Normal for Global Growth?” experts emphatically stated that in the future, growth will come more from emerging markets than from developed nations. The likely growth engines are Brazil, Russia, India, and China, of course, but others, including Turkey and South Africa, also figured in the discussions. Mexico was not among them.

That isn’t surprising. The Mexican economy shrunk by between 6% and 7% in early 2009, and has rebounded only in the last three months. It may grow by between 3% and 4% in 2010 without urgently needed reforms. A policy stimulus must include taxing food and drugs with a 16% VAT, just as all other goods are taxed; labor reforms that will enable companies to flexibly hire skilled and non-skilled labor; union reforms aimed at democratizing their leadership and use of public money; and energy reforms that allow for foreign investments in oil and gas. These measures will ensure that the Mexican government’s budget isn’t dependent only on oil prices and Pemex’s revenues; simplify the way companies deal with tax obligations; and generate many more jobs.

2010’s first quarter might be the last chance for Calderon, who will step down in two years’ time, to create a legacy as a growth-oriented leader — not just as a prosecutor of drug traffickers. He must pursue urgent reforms and deliver prosperity, or Mexico will lose the more important of its matches with South Africa.

Carlos Mota is a business writer and anchor based in Mexico City.