The rewards of risk

Jacques Rogozinski is the General Manager of the Inter-American InvestmentCorporation (IIC). During his long career he has served as Director-in-Chief ofMexico’s Office of Privatization of State Industries, and CEO of FONATUR. Heshares his thoughts on NAFTA, Mexico’s real estate boom, and the culture ofrisk taking. 

INSIDE MÉXICO:  What does the Inter-American InvestmentCorporation (IIC) do?

JACQUES ROGOZINSKI:  The IIC is apart of the Inter-American DevelopmentGroup. We finance or invest in small- andmedium-sized enterprises (SMEs) allover Latin America. …We are the onlymultilateral in the world that has a mandatelike this.

IM: How has the environment forSMEs in Mexico changed over thelast 15 years?

JR:  Mexico has made some real progressfrom the point of view of business creation,but there are still too many stepsrequired to form a company. At the sametime, it’s too difficult and too expensiveto close a company if it doesn’t perform.If you create something and it fails, youwant to be able to start something else.There needs to be a way out if thingsdon’t turn out as planned.

IM: What percentage of the economicactivity in Mexico do SMEs represent?

JR:  If you consider both the formal andinformal sectors, it’s 80, 90%. Butthis is true of most countries; it’s true inthe US. Most businesses are small. Ifyou’re looking at GDP, the large companieshave greater representation, but ifyou’re talking about employment, it’s allabout the small businesses.

IM:  Fifteen years later, do you thinkthat NAFTA has delivered on itspromise?

JR:  NAFTA was designed to help eachcountry use its resources in a more competitiveway. Countries like Mexico, witha lower cost of labor, will be the mostefficient competitors in that area, andcountries like the US, with a technologyadvantage, will attract business there.What we saw was exactly that: Mexicowas able to grow certain industries,and the United States was able to growcertain industries, and trade betweenboth countries grew exponentially. Theamount that Mexico exported to the US,even though it was small as a percentageof the US’s GDP, was important for theMexican economy. The problem is, noteveryone was able to access the gains inthe same way.

IM: In a highly competitive worldwith free trade agreements and lowcostproducers like China and India,where should Mexico look to gain aneconomic advantage?

JR: I think Mexico is in a very good positionto benefit from the large numberof people in the US who are now comingto retirement age. Mexicans arefriendly and hospitable, and the countryhas good services. The problem is howto provide these visitors with medicalcare, not so much because of the qualityof the care -- because you can find verygood medical care here -- but because ofhow the American is going to pay for it.You can create very nice areas for retiredpeople in Sonora or Baja California andprovide state-of-the-art medical services,but clients also need to know that theycan get reimbursed through Medicareand private insurers.

IM: You spearheaded the privatizationof many of Mexico’s state-ownedindustries, including Telmex andMexicana de Aviación. Do you thinkthat Pemex should also be privatized?

JR: I don’t want to get into the details ofthat argument. What I will say is thatinstead of just focusing on the oil industrywe need to look at other options. Thereare many countries in the world withnot one drop of oil -- Korea, Japan, andIreland are good examples -- and theyhave been improving their standard ofliving far faster than the countries thathave oil.Mexico is growing -- more cars, moreindustry -- and Mexican energy is neededfor the Mexican economy. There are onlya certain number of years of proven reserves,and you can’t double your infrastructureand revenue overnight. TheAmericans who are coming will need gardeners,nurses, and businesses that canattend to their needs, and these are allopportunities for Mexico.

IM: What career advice would yougive to young Mexicans just out ofuniversity?

JR: My children have just graduatedfrom American colleges, so I see the differencebetween what kids learn in theUS versus Mexico. The US has an environmentof risk taking, and encouragesyou to start your own business. InMexico, many people expect to get a jobwith someone else. My advice to Mexicanstudents would be to start something,either by yourself or with some friends;take some risk.In the US, you can get capital and createa small company very quickly, but theenvironment in Mexico creates the wrongincentives. For example, Mexico doesn’trank very high in terms of patents andnew products. People aren’t encouragedto take risks and fail, but failure is important,because you also learn from it.

IM: Do you think the presence of moreAmericans in Mexico will help to fosterthat culture of entrepreneurialism?

JR: Without a doubt. Just as the Latinpopulation has contributed manythings to the United States, you haveAmericans going to Mexico and reshapingparts of the culture. At the end ofthe day, each country has something tobring to the table.

Jacques Rogozinski is the General Manager of the Inter-American InvestmentCorporation (IIC). Previously, he served as Special Advisor forPrivate Sector Issues at the Office of the Vice President of the Inter-American Development Bank (IDB). He has also been Director-in-Chiefof the Office of Privatization of State Industries in Mexico; CEO of Banco Nacional de Obras Públicas (BANOBRAS); and President and CEOof Mexico’s national trust fund for tourism development, Fondo Nacional de Turismo (FONATUR). In 1992, Mr. Rogozinski was named Global Leader of Tomorrow at the World Economic Forum in Davos, Switzerland.