Rule of law and public safety, huge challenges for next south-southeast governors: Alexa Castro

Alexa Castro, Mexico analyst, how are we doing?

lMexico’s growing involvement in international trade has increased economic disparities between the country’s regions, as exemplified by the south-southeast lag spanning Veracruz, Tabasco, Chiapas and Oaxaca. All regions are currently at a critical juncture due to nearshoring, which presents a unique opportunity to integrate states not connected to North American value chains that could significantly alter their growth, especially the south-southeast region, which has historically been marginalized.

The Interoceanic Corridor of the Isthmus of Tehuantepec (CIIT), a notable project of this six-year period, aims to integrate the region into North American value chains and the dynamism of the northern and central region. The success of CIIT depends on the extent to which economic improvements are translated into social progress while preserving cultural identity and natural resources. Factors such as the weak rule of law and the presence of organized crime need to be taken into account, especially in the context of the 2024 gubernatorial elections in Tabasco, Chiapas and Veracruz.

What factors are associated with economic lag?

Informality is a predominant factor in the region: in Oaxaca, 75.8% of the population is in such working conditions, and in all other states in the region the rate is higher than the national average (51.3%). Other factors associated with informality are labor poverty and low productivity. In addition, economic disparities are also observed in per capita GDP levels, which lag behind the national average in all states in the south-southeast region. The national level has increased since the pandemic, but is still lower than the pre-pandemic level of P193,984 in 2018.

The difference between the national average in 2022 and 2018 is about 6 thousand pesos, but in states such as Oaxaca and Chiapas the difference is more than 130 thousand pesos.

Recovery in the south-southeast continues to represent a setback in social progress…

Structural problems in the south-southeast region did not hinder the recovery in construction investment, which led to double-digit growth in Tabasco and Oaxaca in the second quarter of 2023, mainly driven by public infrastructure work such as an oil refinery. Bokas and other megaprojects of the current government. Translating economic benefits into social progress depends on structural disadvantages such as informality and labor poverty, which decline at the same rate as economic growth. Proof of the above is that the region’s states consistently rank last in Mexico’s Index of Social Progress (IPS). despite the highest growth rates in the country.

One of the IPS findings was the discovery of a link between investment announcements and the level of social progress, which is relevant in light of nearshoring. Proof of this is that states that reported the highest growth rates, such as Tabasco and Oaxaca, had the fewest applications in 2023 as they are in the low social progress quadrant.

A prerequisite for nearshore investment is social progress, so economic growth is not enough to guarantee the sustainability of investment, while conditions that cause social progress to lag, such as low levels of human capital, persist.

CIIT’s success is at risk without policies to improve public safety

(CIIT) is to create development poles that will become industrial parks in the states of Oaxaca and Veracruz, with the aim of turning them into attractive centers for foreign companies and industrial investments based on the characteristics of the south-south-east region.

It is vital for the future rulers of Veracruz, Tabasco and Chiapas to strengthen the rule of law to guarantee the protection of investments and create mechanisms that provide legal certainty to contracts.

The perception of public safety is the key to greater social progress; To the extent that the local population perceives that the administration of justice is imperfect, the ability of organized crime to absorb benefits to the population without consequences increases.

Integralia Consultores, in a publication titled “Ten Political Risks for 2024,” warned of the possibility that criminal gangs will take advantage of the elections to increase their presence in local governments and markets. The risk varies by state and by southern resident. The Southeast has a very high level of gang control.

According to IPS 2022, the states of Tabasco and Veracruz are among the 10 states with the highest levels of insecurity, which is a risk that should be considered for CIIT or any other project proposed in the region. The CIIT guidelines call for the deployment of Marines to protect roads and railways between development poles. However, blockades by organized crime have already caused significant delays due to extortion of personnel and resulted in the purchase of construction materials at inflated prices set by the cartels.

Nearshoring, CIIT and local gubernatorial elections in the south-southeast mark an opportunistic moment that will determine the success of regional integration into global commercial dynamics and the opportunity to close economic and social gaps. It is a fact that when new nearshoring investments reach places with greater social progress, they are sustainable to the extent that the rule of law exists to protect them from organized crime interference in negotiations, which remains a fundamental challenge for the future. rulers.