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Mexico: The Cost of Crime

Mexico's economy is hit by the violence from organized crime, but foreign investors hope the government's anti-crime plan succeeds.


The U.S. economic slowdown isnt the only factor hitting Mexicos economy these days. The violence caused by the countrys organized crime has also negatively effected Mexicos GDP growth, shaving off one percentage point of growth, Finance Minister Agustin Carstens told local newspaper Reforma earlier this month. In addition to scaring off many foreign investors, the violence is forcing local companies to spend more on security and hurting domestic competition, he acknowledges.

Foreign investors already in Mexico agree.  "The cost of security (insurance, surveillance) is relatively high, reduces competitiveness, and creates uncertainty," says Nicole Reich de Polignac, president and CEO of Scotiabank Mexico. "It is difficult to know at this moment if this is having an impact on investment decisions, but it is presumed so, particularly on foreign investments, but perhaps on domestic as well."

And the total cost of insecurity in general may actually be higher than the one percentage point Carstens refers to.  Direct costs footed by the government, corporations and citizens alike in Mexico reach 8 percent of GDP or roughly $65 billion per year, according to John Price, managing director of business intelligence, Latin America, Kroll InfoAmericas. "That is equal to 75 percent of all income and sales taxes collected by government," he writes in the new book Can Latin America Compete? "It is two and a half times greater than the inflow of remittances, three and a half times greater than the inflow of foreign direct investment (FDI), and roughly twice as much as Mexico’s oil exports. It is a massive drain on the country."

The indirect costs of crime are even larger...

Keywords: APC, Brookings Institution, Colombia, Medellin, Tourism Receipts, UPS, Alvaro Uribe

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