There is no doubt that the Mexican drug cartels are hurting the Mexican economy. Cartel violence and notoriety have hindered tourism, foreign direct investment and global reputation of Mexico.
With its manufacturing might and numbers, a GDP of 4% in 2011, low inflation (3%) and developing middle class Mexico seems to resemble the US in the 1950s. However, with so much potential, the drug problem has severely cast a shadow over Mexico’s economy. Mexico’s fourth biggest source of revenue and approximately 8% of its GDP, is tourism. The problem is, popular destinations for tourists such as Acapulco have been huge sources of cartel violence. Although not the most violent area, Acapulco has been the home of some very horrific violence. One instance was in August of 2011 where officials found two decapitated corpses, dismembered into 20 pieces in a parking lot of a Sam’s Club wholesale store. The two body’s scalps and facial skin were later found in a patron’s purse. Violent stories vary from mass kidnappings, shootouts with Mexican federal agents and extortion. This violence does not discriminate either. From the U.S. alone, 100 U.S. touring citizens were murdered in Mexico in 2010. (IBTimes) In April of 2011 the U.S. State Department actually issued a long-term travel warning to U.S. Citizens in regards to travels in Mexico. Similar warnings in the past by the U.S. State Department have put Mexico on a list with dangerous destinations such as North Korea, Yemen, The Democratic Republic of Congo and Afghanistan.
Factors like this severely influence tourism in Mexico and are detrimental to its progress as a developing economy. After having to deploy thousands of additional military police to patrol cartel hotbeds in the wake of heightened violence, Mexican Finance Minister Agustin Carstens said in a recent press release that, “The issue of security has effected economic growth in Mexico,” and later added that “If we could resolve this issue it could give the economy an extra shine of at least 1 percent.” Local businesses are also directly being financially burdened by the cartels because in addition to the loss in business they are forced to pay protection money to the gangs. To many small business owners, among the everyday fear of violence, paying the gangs is like paying taxes twice. Reuters estimated that at least “4,500 businesses closed down in Mexico’s Chihuahua state last year as a result of drug cartel extortions pushing them into bankruptcy” (Reuters) The businesses ranged from law firms to pharmaceutical chains. Aside from this, foreign investors are being almost literally scared away. Investors now fear the countries instability after anti criminal forces had to be reinforced by military personnel. To many investors, between the red tape, average infrastructure and normal risks in entering a new country, the fear of violence and gangs is just a risk they do not see worth taking. In cities closer to the U.S. – Mexico border, the tourism has been harshly impacted as hotel occupancies are below 50 percent (Reuters).
Are Mexican drug cartels hurting the Mexican economy? Absolutely; violence, extortion and high-risk, are all words that are used to explain what is going between Mexico and its drug problem. None of these words are words investors or tourists want to hear. Will that completely stop gambling investors or well-versed tourists? No, there are always exceptions but has it potentially hurt and hindered Mexico’s potential thus far as an emerging economy, there is no doubt.
Emmott, Robin. “Drug War Hits Mexican Economy in Crisis.” Reuters. Thomson Reuters, 03 Apr. 2009. Web. 11 Feb. 2013.
Forbes, Miguel. “For Mexican Economy, Drugs Not The Whole Story.” Forbes. Forbes Magazine, 04 Oct. 2012. Web. 11 Feb. 2013.
Tovrov, Daniel. “Is Mexico’s Drug War Hurting Tourism?” International Business Times. The International Business Times Inc., 20 Jan. 2012. Web. 11 Feb. 2013.