Financial Transparency Coalition

Mexico has a problem.  I’m not referring to the criminal organizations seeking to topple the state or the growing numbers of violent deaths, kidnappings, and extortions.  Though those problems are obstructing development in Mexico, they are not problems which the Mexican government cannot overcome.  I’m referring to a shift in the Mexican age pyramid.

South Africa has a problem.  The country has one of the highest HIV/AIDS rates in the world and about 5.7 million people—approximately 11% of its population—is infected with the lethal virus.  In 2008 alone over 250,000 South Africans died of AIDS-related illnesses.

Source: U.S. Census Bureau, International Data Base

Unlike many other diseases which are most fatal for the young and elderly, AIDS disproportionately affects those between the ages of 15 and 49.  It is between these years that humans are most productive—earning incomes, supporting the previous and next generations, and providing the backbone of their country’s economy.  HIV destroys this structure, turning an “age pyramid” into an “age tower” and slowing down economic development and social progress.  The graph to the right shows South Africa’s population pyramid in 2000, when it was relatively healthy.

But if South Africa’s infection rate continues as predicted, the country will witness a dramatic shift in its age structure in the next ten years.

If trends continue on their current path, the transition will have dire consequences for the South African economy, which is already crippled by the direct costs associated with medical care, drugs, and funeral expenses.  The graph below shows the U.S. Census’ projection for population dynamics in South Africa.  The visual shift is noticeably unstable.

Source: U.S. Census Bureau, International Data Base

Mexico does not have South Africa’s HIV/AIDS problem; in fact it has one of the lowest HIV prevalence rates in Latin America.  But Mexico may soon face a similar demographic problem, if certain trends continue unabated.

Mexico faces significant human capital flight.  I do not use this term in the traditional sense, as it refers to skilled and educated workers, which is also called the “brain drain.” Rather I am referring to the exodus of skilled and unskilled able-bodied laborers who emigrate, either legally or illegally.

An average of 400,000 Mexicans emigrates each year, many to the United States.  Most are able-bodied men and women from the age of 18 to 49.  In response to uncertain economic conditions in the U.S., particularly in the housing and construction industries where Mexican migrants are employed, this flow has slowed nominally in the last two years.  But if the current trend of crime and drug violence continues, pressure will mount once again for Mexicans to find stability and better futures for their families.

Coupled with this problem are the deaths due to increasing crime-related violence as drug cartels battle for control of swaths of Mexican territory.  Last week Mexico’s head of the national intelligence service revealed that 28,000 people have died in drug- and crime-related violence in the last three years.  Taken with recent emigration figures, the country has lost 11% of its population to these factors since 2007.

The bright side for Mexico is that many of these workers send home remittances, which provides a capital inflow to fuel the economy.  Yet some argue labor emigration from Mexico does not contribute to its economic development as it has fostered a dependency on the United States’ economy.  Mexican workers may send home earnings which their families can use for consumption, but employers in the United States reap their labor, productivity, capital outlays, and contributions to infrastructure.

Even worse, Mexico is not just losing its strong able-bodied adults.  It’s losing its entrepreneurs.  This problem is impacted by drug traffickers—looking to finance their operations—who increasingly target businessmen and families for extortion.  These workers are not starting Mexican businesses or inventing Mexican technologies or laying Mexican roads.  Because these workers are in America.

The similarities to the changing demographics in South Africa are striking.  Both countries are facing significant losses of their populations, most of whom are working age.  In both countries a shifting age structure will have serious economic consequences.  There is no other way about it. It won’t be easy, but Mexican leaders must find a way to bring its criminals inside the law so that its citizens are more comfortable inside its boarders.