(Expansion) – Investment is the component of spending that enables higher levels of growth to be achieved. It is the sum of the resources that are used to acquire fixed capital, with which the population can be more productive. Thus, in the following years higher levels of production and, therefore, of economic growth can be achieved. For this reason, the role of investment is crucial for Mexico to recover from the crisis caused by the COVID-19 pandemic and there may be economic development in the country.
Last Friday the INEGI published the results of the global supply and demand of goods and services for the first quarter of 2021. With the investment data, we were able to observe that, since its abrupt fall in the second quarter of 2020, investment has shown positive quarterly growth rates.
In the first three months of 2021, it grew 5.3% compared to the end of 2020. This growth is mainly due to the economic reactivation, particularly that of the productive chains with the United States.
Although investment growth compared to December 2020 sounds like good news, there are the following factors to consider. On the one hand, the ravages of the COVID-19 pandemic in the Mexican economy affected investment more than other engines of the economy, such as employment or exports.
In addition, investment in Mexico carries the damage that began before the crisis; Since the last quarter of 2018, investment in Mexico has not seen annual growth and to reach its highest historical level, which occurred in 2015, it would still have to grow 21%.
On the other hand, the current recovery is being based on external factors such as global economic growth and the rapid recovery of the United States. The domestic market remains weak. A national response is needed to improve the quality of jobs and the competitiveness of the Mexican economy in the medium and long term to really speak of a recovery. Currently investment is only equivalent to 19.4% of GDP, when it would need to represent at least 24% to trigger significant economic growth.
In Mexico, private investment is the main driver of capital formation. However, it has weakened since the end of 2018, mainly due to greater uncertainty and risk perception in the country. For its part, not only has the government not invested to counteract the crisis, but public investment has contracted more than 6% in the last year. Its share as a percentage of GDP has remained stagnant since 2018 at less than 3%.
Investment is the main engine for economic growth and it has not been detonated in Mexico. It is necessary to promote certainty and security to encourage the participation of private investment in the Mexican economy; a strong rule of law. Likewise, the country needs more public investment, but also to ensure that it is focused on productive projects with high social profitability.
Greater investment, well focused and profitable, represents the best — if not the only — opportunity for Mexico to create jobs and improve the income and quality of life of its inhabitants in a sustained manner. This makes it so necessary and important in the current context of the country. Mexico has the great challenge of creating conditions that generate long-term social development.
In the new post-pandemic landscape, governments must rethink their development plans. They require laying the foundations for private investment to be triggered through legal certainty, in addition to investing and promoting profitable investment projects consistent with the economy of the 21st century, which require generating more energy and being clean. But their task does not end there.
To achieve true development, they must work to redistribute the country’s income and provide social infrastructure so that citizens have access to health and education services.
Editor’s note: Brenda Flores is a researcher from Mexico, how are we doing ?, a think tank that offers economic information available to everyone. Follow her on. The opinions published in this column belong exclusively to the author.
