The rewards of risk

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

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

JACQUES ROGOZINSKI:  The IIC is a part of the Inter-American Development Group. We finance or invest in small- and medium-sized enterprises (SMEs) all over Latin America. …We are the only multilateral in the world that has a mandate like this.

IM: How has the environment for SMEs in Mexico changed over the last 15 years?

JR:  Mexico has made some real progress from the point of view of business creation, but there are still too many steps required to form a company. At the same time, it’s too difficult and too expensive to close a company if it doesn’t perform. If you create something and it fails, you want to be able to start something else. There needs to be a way out if things don’t turn out as planned.

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

JR:  If you consider both the formal and informal sectors, it’s 80, 90%. But this is true of most countries; it’s true in the US. Most businesses are small. If you’re looking at GDP, the large companies have greater representation, but if you’re talking about employment, it’s all about the small businesses.

IM:  Fifteen years later, do you think that NAFTA has delivered on its promise?

JR:  NAFTA was designed to help each country use its resources in a more competitive way. Countries like Mexico, with a lower cost of labor, will be the most efficient competitors in that area, and countries like the US, with a technology advantage, will attract business there. What we saw was exactly that: Mexico was able to grow certain industries, and the United States was able to grow certain industries, and trade between both countries grew exponentially. The amount that Mexico exported to the US, even though it was small as a percentage of the US’s GDP, was important for the Mexican economy. The problem is, not everyone was able to access the gains in the same way.

IM: In a highly competitive world with free trade agreements and lowcost producers like China and India, where should Mexico look to gain an economic advantage?

JR: I think Mexico is in a very good position to benefit from the large number of people in the US who are now coming to retirement age. Mexicans are friendly and hospitable, and the country has good services. The problem is how to provide these visitors with medical care, not so much because of the quality of the care -- because you can find very good medical care here -- but because of how the American is going to pay for it. You can create very nice areas for retired people in Sonora or Baja California and provide state-of-the-art medical services, but clients also need to know that they can get reimbursed through Medicare and private insurers.

IM: You spearheaded the privatization of many of Mexico’s state-owned industries, including Telmex and Mexicana de Aviación. Do you think that Pemex should also be privatized?

JR: I don’t want to get into the details of that argument. What I will say is that instead of just focusing on the oil industry we need to look at other options. There are many countries in the world with not one drop of oil -- Korea, Japan, and Ireland are good examples -- and they have been improving their standard of living far faster than the countries that have oil. Mexico is growing -- more cars, more industry -- and Mexican energy is needed for the Mexican economy. There are only a certain number of years of proven reserves, and you can’t double your infrastructure and revenue overnight. The Americans who are coming will need gardeners, nurses, and businesses that can attend to their needs, and these are all opportunities for Mexico.

IM: What career advice would you give to young Mexicans just out of university?

JR: My children have just graduated from American colleges, so I see the difference between what kids learn in the US versus Mexico. The US has an environment of risk taking, and encourages you to start your own business. In Mexico, many people expect to get a job with someone else. My advice to Mexican students would be to start something, either by yourself or with some friends; take some risk. In the US, you can get capital and create a small company very quickly, but the environment in Mexico creates the wrong incentives. For example, Mexico doesn’t rank very high in terms of patents and new products. People aren’t encouraged to take risks and fail, but failure is important, because you also learn from it.

IM: Do you think the presence of more Americans in Mexico will help to foster that culture of entrepreneurialism?

JR: Without a doubt. Just as the Latin population has contributed many things to the United States, you have Americans going to Mexico and reshaping parts of the culture. At the end of the day, each country has something to bring to the table.

Jacques Rogozinski is the General Manager of the Inter-American Investment Corporation (IIC). Previously, he served as Special Advisor for Private Sector Issues at the Office of the Vice President of the Inter-American Development Bank (IDB). He has also been Director-in-Chief of the Office of Privatization of State Industries in Mexico; CEO of Banco Nacional de Obras Públicas (BANOBRAS); and President and CEO of 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.