Industrial policies to grow, include, and compete
The Council for the Promotion of Investment, Employment and Economic Growth (Cofinece) is an initiative of the current federal administration. Headed by Chief of Staff Alfonso Romo, it unites public, private and social sectors to drive—through numerous and productive projects and strategies—a more dynamic and inclusive economic growth. In this interview, Frédéric García, former CEO of Airbus Mexico and former president of the Executive Council of Global Enterprises (CEEG), addresses Mexico’s economic challenges from his previous experience and according to his current role as external advisor to Cofinece.
Por: Interview with Frédéric García, external advisor to the Council for the Promotion of Investment, Employment and Economic Growth

What is Cofinece’s goal? Why was it created?
None of the previous federal administrations had a body to specifically address economic growth. Cofinece seeks to fill that void. Its creation was announced on February 18, and on May 17 the Decree was published to establish it. A work plan is now being prepared in several industrial sectors to achieve greater economic growth and social welfare. This is objective is a big challenge, but it is feasible. My contributions will help define industrial policies for the aerospace industry and the digital economy, which will help reflect on boosting technological innovation in Mexico.


The goal is very clear: To grow by 4%, but what is the starting point, the diagnosis of the current situation?
In 2018, Apple and Amazon reached a market capitalization of one trillion dollars. This is a first in economic history, that the market value of two companies could exceed the GDP of an economy as important as that of Mexico. Both belong to the digital economy and will continue to grow. The great global challenge is to join the digital economy. Companies worldwide are modifying their business, production and market access models to adapt to this great transformation.

Mexico has to do the same: become aware that the economy in which everything happens exponentially is not that of the future, but of today. We have the challenge of strengthening the competitiveness of our manufacturing sector by incorporating processes based on digitalization and additive manufacturing. The United States and China are two very relevant actors in these activities and Mexico is in a situation—geographical, historical and economic—that is privileged by its proximity to the US market. The need to focus our efforts on talent development is equally important. We must adapt digital technology to promote a more balanced regional development, promote—this way—the southeast of the country because in a certain way, digital economy is a shortcut to development and social wellbeing.


Growing more, but also improving the distribution of benefits. Is that the plan?

There are many Mexicos: one from the center to the north that in recent years has evolved with companies that produce, export, and are immersed in the global economy; and a lagging one in the southeast that exports little. It is a paradox: there are more natural resources and also more poverty in the latter. That must be addressed; we can do that with industrial policies, with energy. El Bajío greatly increased its productive capacity after its energy capacities had access to gas.


In this inclusion effort, what is the role of knowledge economy and digitalization?

What differentiates countries is talent. In fact, there is a shortage of talent worldwide in digital economy. In the United States, for example, it is estimated that there is a deficit of 2.5 million people in activities linked to the development of artificial intelligence. And Mexico has the talent, but it is not necessarily prepared. That is the great challenge.

Access to technological investment is essential. However, it does not have sustenance if we do not place human beings at the center of the equation. Paradigms of the working world are shifting with digital economy. It is estimated that in 2025 half of the jobs in the United States will be remote, subcontracting or independent work. Based on these global trends, we must promote the incorporation of women and young people through training programs so that, from their homes, they can offer services linked to the digital economy. There are examples in Mexico. A company or NGO comes to mind that trains bilingual Mexican migrants coming back from the United States in programming. It changes their lives because after a six to seven-month course, they have increased their income tenfold.


Can experiences such as German Industry 4.0 be replicated in Mexico?

The digital trend is very strong, but Mexico must respond to a different problem than other countries. We have to be careful with references. Germany and Japan have made great progress in automation and robotization in response to lower population dynamics. 

Mexico has not yet finished its demographic bonus, and also has 53% women of working age who are not in the labor market, 40% of which have some sort of degree!

The manufacturing sector must adapt to new trends and the country must use digital economy to incorporate its southeast region to the dynamics of the world economy. That will require a lot of investment in staff training. The key to digital economy is talent and we need to train it for these new economic trends. That is the strategic outlook to keep in mind in Mexico.


Last year, as president of CEEG, you presented the “Mexico 2030 facing the Fourth Industrial Revolution, Version 2.0” initiative. Tell us about its goals.

The goal was to discuss the outlook of global companies in the wake of the fourth industrial revolution. It is a very strong global trend before which we thought it important to propose a strategic plan for Mexico to remain at the forefront of the economy by 2030.

This revolution changes our way of designing and conceiving products, of producing them, and of marketing them; but it also changes the social fabric and the way policies are done. The Secretary General of the OECD, through a letter, supported it saying that the vision of global companies is a fundamental contribution to the debate on the future of Mexico’s economy. That gave it a lot of credibility.

The initiative proposes three goals: that Mexico becomes the fifth largest exporter in the world, to double labor productivity and, also, social inclusion.

This third goal is very important because it is the current government’s main concern. To achieve it, the Council proposed to double the GDP per capita and do so more equally between the north and the south.


What do you think would be the most significant contribution of foreign investment to Mexico’s productive dynamics?
We cannot explain or see Mexico’s contemporary economy without the presence of foreign companies. They are part of Mexico’s economic heritage. Some of them have been here more than 100 years and their biggest contribution is technological innovation. The Executive Council of Global Enterprises carried out a study on investment in technological innovation in Mexico, and although we have not reached a good-enough level, 70% of investments made by the private sector comes from foreign companies. It is also common to see the integration of Mexican SMEs into global value chains achieved with the support of global companies based in the country. They become their suppliers to grow, internationalize, and acquire best practices.


With your experience in Airbus Mexico, how do you explain the successful performance of the aerospace industry in Mexico?
US and LATAM markets are very important for world aeronautics, and Mexico has attracted this industry leveraging its competency and competitive capabilities. The first impulse came from signing NAFTA. Many suppliers of the United States aviation industry—but not only from that country—settled near the border in Mexico to carry out highly labor-intensive activities. A new impulse, the second one, occurred in 2005 when the Canadian company Bombardier decided to settle in the country. Its plant in Querétaro attracted numerous suppliers. The third one took place in 2007, when Airbus settled in Mexico, in the dollar zone, as part of its strategy to overcome currency exchange problems; at that time, Airbus lost a billion dollars in EBIT when the dollar lost 10 cents against the euro. This measure led its suppliers to settle in the United States, but also in Mexico. These three impulses summarize the growth of an industry that in 2018 contributed with 55 thousand jobs, exports amounting to 8.5 billion dollars, and 355 companies, of which more than 90% are foreign.


Although the aerospace sector has consolidated in several regions of the country, only 30 of the almost 400 companies part of it are Mexican. Why do you think that is?
Long-term industrial vision and strategic planning of the country are needed. That is what has been missing so far. If we want to compete, we have to know who we are competing against, what their strengths are, and how to bolster ours.

In no country in the world does the aeronautical industry grow without industrial policy. Strong countries have based their development on three pillars. First, a defense sector that is very involved in the field, because at a national level, it is the one that can invest very long term and in a very risky way in aerospace research and development. The second is to have a local champion, and there are very few: Airbus in Europe, Boeing in the United States, Embraer in Brazil, and Bombardier in Canada. The third pillar is a structuring program. In Europe, it has been the Airbus A380 for the past 20 years. Mexico has none of this. Aeronautics has developed due to exogenous factors rather than internal factors and—consequently—very few Mexicans have invested in this industry, which does not yet have state policy with future vision. That is why efforts are made to establish long-term industrial policies for aerospace activity and other industries, and productive branches of the country.


How do you think the success of the aerospace industry can be replicated in other activities?
In the last 20 years, Mexico has built a reputation as a major supplier of the automotive industry and—in a shorter period—of the aerospace industry. In the future, it has many possibilities of being seen as a great supplier of the American digital industry, as long as the relevant public policies are adopted. The current government has decided to undertake various industrial policies in various sectors, including aeronautics. But digital economy and artificial intelligence can bring much added value to the field or to urban mobility. All these new industries can develop and grow a lot in Mexico if there is a true industrial policy.


What should be done to develop local suppliers and integrate them to global value chains?
We have to increase the capacity of design engineering, which is quite low in general, particularly in the aeronautics arena. We have to go from manufacturing to mindfacturing. There is room for Mexican companies to invest in design engineering laboratories; there is also room so that those companies that have entered the global automotive sector chain over the past 20 years now participate in this industry. There is a high cost attached to learning and quality certification, but it can be done.


What investment do you expect in Mexico? How do you think it will behave in the next few years?
Mexico’s industrial heritage and know-how have demonstrated their ability to adapt in an extremely efficient manner. However, we cannot promote confidence in investment—whether national or foreign—with the country’s current levels of corruption, insecurity, and impunity. Facing these scourges is what the current government proposes to work on. Corruption is a serious distortion to free competition and if it affects even those who have the best technology, competitiveness or product, it reduces the country’s competitiveness. Solving these issues is the basis for promoting confidence and certainty about the country's direction. According to several organizations, the cost of corruption can represent up to 10% of GDP. If we get rid of it, we will grow more.


From these efforts and this perspective, how do you imagine Mexico five years down the line?
Mexico is the only country in Latin America that has no unicorns, these emerging companies in the digital world that exceed one billion dollars. When we talk about the digital outlook for Mexico, there are several questions that we must answer. Is digitalization supposed to make government administration more efficient, and allow reducing corruption and increasing the efficiency of public expenditure? Do we want to leverage this talent deficit in artificial intelligence and digital economy to prepare young people and give them opportunities? Or do we want to minimize the use of cash to limit corruption with digital tools? I think the obvious answer is: Yes, of course.

Based on these approaches, we have to work toward building a country perspective, and I am convinced that there is no other path to get there. Let's use digital technologies to grow with equality, to take the southeast out of poverty, and keep Mexico in the productive foreground. We must have a collective aspiration.