Assessment and recommendations
The context of the Review
The Review is follow-up study to the OECD Territorial Review (TR) of Morelos, Mexico carried out in 2016 and approved by the OECD Regional Development Policy Committee on 7 November 2016 (OECD, 2017[1]). The TR identified 12 main recommendations and 39 sub-recommendations to the State of Morelos to improve the economic performance of the Region and well-being of its citizens.
The objectives of this follow-up Review are to assess the main regional policy changes since 2016 and the extent to which the recommendations from the TR have been implemented. This evaluation takes into account that the recommendations have different timeframes (short-, medium- and long-term). It also pays attention to the impacts of the earthquake which occurred in September 2017, during this implementation period. It provides new recommendations on logistics and accessibility to ensure that the State of Morelos takes full advantage of its favourable geographic location and supports the implementation of the recommendations to the Council for Human Capital.
Morelos has kept pace with previous trends
Since the launch of the TR, Morelos has kept pace with the existing trends. GDP per capita has maintained its growth trajectory, of USD 11 471 in 2015. It is based on a quite diversified economy, sustained mostly by the manufacturing sector (notably automotive and chemicals), a considerably large agricultural and service sectors (namely tourism) and 43 research centres. Tapping into this diversified economy with a strong research component, the state has the potential to become an innovation hub. The growth potential is backed up by the state’s central geographic location, in close proximity to Mexico City, and its youth premium, adding up to the workforce. Moreover, Morelos is rich in natural and cultural amenities and has favourable climate conditions, which are critical drivers for tourism.
Despite these positive aspects, Morelos still faces significant challenges to fully unleash its development potential. Productivity per capita remains relatively low for both OECD and Mexican standards, due to low levels of education in the workforce and the fragmented, inward-oriented character of its innovation ecosystem. Employment also remains precarious, in the face of the stubbornly high level of informality at 68% as of 2017. Accessibility and connectivity hamper Morelos’ potential to benefit from its natural geographic advantage. Perception of security, an essential element of well-being and instrumental for regional attractiveness, remains as low as 13% in 2017. This is so despite the state having reported lower rates of violent crime, in comparison to 2013. Rural areas tend to be significantly more affected by lower well-being outcomes, scarce economic opportunities and persistent informality. Finally, a new challenge has emerged with the reconstruction process in the aftermath of the earthquake of 19 September 2017.
Measuring progress in the recommendations
The 12 recommendations identified in the TR of Morelos are aimed at addressing these challenges, across different policy sectors, through an integrated strategy (table below):
The Review measures progress in each of the recommendations and sub-recommendations, according to four levels: 0, when no significant progress is made; 1, when limited progress is made and further implementation is needed; 2, referring to progress; and 3, which refers to significant progress. Even when significant progress is reached, the state has to deploy continued efforts to maintain the current situation. It takes into account the short timeframe since the publication of the TR. Small changes in the short-term can go in the right direction to build the foundation for long-term change, and in this sense are noted in the Review. It has to be highlighted that demanding efforts of reconstruction and recovery were required in the aftermath of the earthquake.
Overall, the State of Morelos has made progress in 43% of the sub-recommendations (17 out of 39), and modest progress in 49% of them (19 out of 39), whereby solid efforts to support implementation are further needed. For 3 sub-recommendations, Morelos made significant progress, meaning that actions are needed to maintain the current efforts, but no indications are provided in a different direction. See below.
When grouping by the 12 recommendations, 8 of them show progress (scale 2) and 4 of them have an average scale of 1, which indicates little progress, as the figure below indicates.
Considering the timeframe of each sub-recommendation, 15% are to be implemented over the short run (0 to 1 year), 51% over the medium term (1 to 3 years) and 33% over the long term (more than 3 years).
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Amongst the 6 recommendations to be implemented in the short term, Morelos has made progress in 33% (2 out of 6) of them and modest progress in the 66% (4 out of 6).
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Amongst the 20 recommendations over the medium term: Morelos has made significant progress in implementing 15% of them, progress in 40%, and modest progress in 45% of them.
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Amongst the 13 recommendations over the long term, Morelos made progress in 54% of them, and modest progress in the remaining 46%.
The sections below address progress in the recommendations and sub-recommendations. It also assesses the impacts of the earthquake of 19 September 2017 and dedicates a special focus on connectivity and accessibility, including new recommendations.
Improving the quality of education
The region has put emphasis on improving the quality of overall education in schools and investing in human capital. The first recommendation refers to improving the quality of basic education and increasing participation in upper secondary and tertiary education. Recommendations 2 and 4 refer to human capital under the dimension of skills training and upskilling of the labour force.
Given the short amount of time since the 2017 Territorial Review, limited progress could be observed on the specific measures indicated in the three sub-recommendations. A positive step was to request state funding (via the fideicomiso) to a software development project, to centralise data collection in schools (sub-recommendation 1). There are specialised programmes to support schools in lagging rural areas, but specific measures to identify low-performing students remain to be developed (sub-recommendation 2). Contrarily to what the OECD had recommended, the Beca Salario programme maintained its distributive character, whereas the objective of supporting students who may abandon school for financial reasons gets diluted in this universal design (sub-recommendation 3). However, an ongoing diagnostic study is assessing the effectiveness of the programme, which may motivate evidence-based policy change in the near future.
Skills training and entrepreneurship
The second recommendation instructs that training programs should be more responsive to the needs of the economy and target the informal sector. Solidifying vocational training in the secondary and tertiary levels can ensure better skills matching in the labour market. The transition of workers from the informal to the formal sector can be supported via skills certification programmes. The development of entrepreneurship skills from the early ages, as documented in many OECD studies, is key to stimulate business creation and the dynamism of the economy.
On this realm, the State of Morelos has made progress, with the creation of apprenticeship courses on tourism and gastronomy and a youth entrepreneurship centre, together with the organisation of youth business innovation camps (sub-recommendations 4 and 7). In other areas, however, the situation remains the same, as there are not sufficient programmes to support the self-employed and informal workers (sub-recommendations 5 and 6). The capacitation for self-employment is quite basic and not enough diversified across different stages of business development. The certification of skills via accredited CONOCER centres was not sufficiently solidified, and effective counselling services could be improved further.
Taking the high road to innovation
The third recommendation regards improving knowledge creation, diffusion and exploitation. Morelos has strong potential for innovation, given the significant number of research centres in the region. Nonetheless, this knowledge creation faces limited access to markets and does not percolate across firms in the state. In this sense, this recommendation proposes to develop a more outward-looking innovation system.
Driven by the Ministry for Innovation, Sciences and Technology, progress has been made on this realm. With new specialised staff, the ministry is in a better position to give business and legal advice to companies (sub-recommendation 8). The ministry offered capacitation for business owners and researchers to design joint innovative projects and apply for federal funds (sub-recommendation 10). Agreements with international start-up incubators have provided financial and product-development support to a few companies (sub-recommendation 9). The programmes InnovaTIC and Primer Impulso, which offer access to seed funding streams, are a good start but can be further developed (sub-recommendation 9).
Strengthening the role of the Human Capital Council
The fourth recommendation refers to strengthening the role of the Human Capital Council (HCC) in what regards upskilling the labour force and building an integrated vision of regional development. The Council is the first of its kind in Mexico and seeks to improve human capital development and innovation across the state in a holistic way. Beyond the current mandate of matching and networking, the Council can expand its role to undertake analyses of current and future skills required in the labour market.
Since the 2017 Territorial Review of Morelos, the Human Capital Council has made progress by better defining its structure, mission and objectives (sub-recommendation 11). It has also substantively taken up its role as co-ordinator and has strongly reached out for the different stakeholders, including government bodies, academia and business representatives, from each one of the sectors defined as strategic for the economy (sub-recommendations 12 and 14). Education was made a transversal sector, given its impact on the other economic sectors, as well as Innovation and Research (sub-recommendation 15). The Council co-ordinator has played a leading role in organising activities and reaching out to partners (sub-recommendation 13). In the field of policy monitoring and evaluation, the Council has set up 9 indicators to monitor progress, but they merit some reconsideration (sub-recommendation 16).
Spatial Planning
Recommendation 5 addresses the issue of better implementing spatial planning. The current system of land use planning lacks an integrated vision of the territory and of urban development policies. This can be partially attributed to the sectorial inclination of national urban policies and the fact that the state has to follow national regulations. Even so, little participation, accountability and enforcement are carried out. These elements require co-ordinated action with other levels of government and long-term efforts to make reforms effective. The two sub-recommendations focus on improvements in the spatial planning system and on the continuity and enforcement of adopted plans.
Morelos has made progress by creating the State Council for Spatial Planning (Consejo Estatal de Ordenamiento Territorial – CEOT) in 2017. This council replaces the former CEDU, with a leaner composition and stronger technical competencies (sub-recommendation 18). Nonetheless, accountability and continuity to territorial and urban development plans merit stronger attention (sub-recommendation 17). The Ministry for Sustainable Development does not have sufficient staff and capacity to update, co-ordinate, enact and implement plans. Municipalities do not receive sufficient training to perform their functions, and when plans are designed, they are often not enacted. This hampers co-ordination between state and municipal levels.
Metropolitan policy-making and implementation
As for recommendation 6, urban policies should be designed at the metropolitan scale. Morelos has two metropolitan areas (Cuernavaca and Cuautla) recognised by the national statistics office (INEGI). Both receive resources from the Federal Metropolitan Fund, which are managed by the two correspondent Councils for Metropolitan Development. These councils tend to have too many actors and lack the active involvement of the Ministry for Mobility and Transport, an essential actor to ensure coherence in urban planning and to reap the benefits of agglomeration. Also, the use of the funds tends to finance small municipal projects rather than comprehensive metropolitan initiatives.
The state has made progress in this area by including the State Ministry for Mobility and Transport as a permanent member of the Council for Metropolitan Development of Cuernavaca (sub-recommendation 19). It is yet to be seen how the state ministry will be able to make their voice heard in the Council. The Councils of Cuernavaca and Cuautla have not as of yet adopted long-term, integrated strategies for metropolitan development, and ongoing projects lack a clear metropolitan dimension (sub-recommendation 20). This complex task requires competent personnel, time to engage with the citizenry, diagnostic studies to support changes, and long-term commitment to enact and implement them.
Rural policy and tourism
Recommendation 7 instructs that Rural Policy must go beyond agriculture and develop further synergies with the tourism sector. Following the OECD’s Rural Policy 3.0 findings, this recommendation invites Morelos to take a multi-dimensional approach to rural development, going beyond agriculture and leveraging synergies with other sectors such as tourism. This policy entails a bottom-up approach to development and investment in productive regional assets and in well-being, rather than compensatory measures based on subsidies. Such approach also requires maintaining rural amenities and biodiversity, with the aim of supporting Morelos’ tourism industry.
The State of Morelos has made progress on sub-recommendations 21 and 22, and significant progress on sub-recommendation 23. New routes of rural tourism are being developed around premium products such as rice and avocado. Training courses in the fields of tourism and agriculture are being offered, and certificates of quality are being awarded. The eco-tourism programme called Pueblos Mágicos (Magical Towns) is getting international recognition and attracting visitors to the area. The regional brand Orgullo Morelos has been expanding and consolidating.
Connectivity and mobility
Recommendation 8 states that accessibility of the region should strengthen both internal and external connectivity. Morelos’ geographic position represents an asset to the state, located close to Mexico City and on the routes to the Atlantic and Pacific Coasts. Investments in infrastructure which favour connectivity within urban areas, across the state and with other States can help bring opportunities to other areas of the state and advance inclusive growth. Such investments should integrate a broader, comprehensive policy package that seeks to leverage regional assets and avoid “leaking by linking”.
Morelos has made progress in improving its connectivity with Mexico City and to the coasts, with the construction of the Highway XXI Century and the project of the railroad station in Cuautla (sub-recommendation 24). The goal of sustainable urban mobility received considerable attention from the government in the past year (sub-recommendation 25). Several different items were advanced, notably: organisational change with the creation of the State Council for Spatial Planning (CEOT) and the update of the Air Quality Programme (PROAIRE); creation of a green zone of Cuernavaca; downtown Cuernavaca was made exclusive for pedestrian traffic; and conversion of 3 000 taxis to natural gas. The internal connectivity of the state, including rural areas and marginalised municipalities, has not advanced sufficiently. Roads affected by the earthquake, however, are being reconstructed under the Fonden Road Plan, and dirt roads are being paved under the State Road Plan (sub-recommendation 26),
Sustainable development
Finally, recommendation 9 concerns preserving the environment by co-ordinating and implementing policies to mitigate climate change. It addresses the issue of sustainable development under three aspects: comprehensive planning; co-ordination at national and international levels; and non-fossil fuelled transportation. Tackling the environmental challenges requires policy co-ordination across a wide range of relevant sectors including transportation, housing, environmental preservation, tourism, agriculture and renewable energy.
The State of Morelos has made progress in this recommendation. The state is revising and promoting different planning instruments, such as the PEGROTM, the PEOTyDUSEM and the PROAIRE (sub-recommendation 27). Logically enough, these plans have not been implemented yet, and municipalities still need to harmonise their own plans and programmes with those ones. On non-fossil fuelled transportation, the state supported the conversion of 3 000 taxis to natural gas, but the transition to natural gas in public transportation modes such as buses is missing, especially since the Morebus project was cancelled (sub-recommendation 29). Lastly, the engagement in outreach and partnerships can become more strategic in the future, in liaison with national authorities (sub-recommendation 28).
Vertical and horizontal government co-ordination
Recommendation 10 refers to fostering co-ordination across levels of government, both vertically and horizontally. Improving co-ordination with other regions can bring benefits in terms of public service provision, economic growth, administrative capacity and reinforced bargaining power vis-a-vis the central government. Key institutions such as the COPLADES can help better aligning strategic planning objectives between the state and municipal levels while providing enough room to adapt policies to the local context.
There has been modest progress for the two elements of this recommendation, although the potential for improvement remains high. Indeed, the co-ordinating role of the CONAGO has been maintained, but not strengthened (sub-recommendation 30). In enhancing relationships with neighbouring states, some co-operation agreements in the relevant areas of research and tourism have been signed. Co-ordination meetings between ministers of economic development have continued taking place. Co-ordination between the state and municipal levels shows some evolution (sub-recommendation 31). Relationships have been strengthened via an enhanced presence of representatives of the state to the meetings at COPLADEMUN. The state has also subscribed an agreement with some municipalities to channel resources from PRODEMIN to improve territorial planning and build an atlas of risks.
Governance and business environment
Recommendation 11 addresses the need to improve governance mechanisms and business climate. Restoring trust in the public administration, simplifying administrative procedures and providing the tools for enhanced accountability remains one the most pressing issues in Morelos, as it is the case in Mexico at large. Addressing these issues requires a long-term perspective.
Progress on these three fronts has been overall significant. A legal reform requires the administration to develop medium- and long-term planning strategies, but little or no evolution has been made on the development of a more stable civil service in the public administration (sub-recommendation 32). Reforms have also been undertaken to adapt the national anti-corruption regulation to state law, but some political frictions and legal suits are still preventing the approval of the law; and no advancement has been made to provide a single-stop shop allowing citizens to navigate the myriad of available funds (sub-recommendation 33). Finally, the evaluation mechanisms for social policies have been strengthened with the provision of further funds and human resources to the COEVAL (sub-recommendation 34).
Regional and local finances and investments
Lastly, recommendation 12 concerns the management of state funds, including transfers to municipalities, in order to improve the state’s capacity to raise revenue and spend it efficiently.
Progress has been positive but modest. Some steps have been taken to increase the tax base at the regional level (sub-recommendation 35). Agreements have also been signed between regional and some municipal tax administrations to transfer coercive power to the regional tax administration in an effort to pull resources and increase administrative capacities (sub-recommendation 36). Training of municipal public servants specialised on fiscal matter is also being undertaken (sub-recommendation 37). Measures have also been taken to improve the quality of public expenditure (sub-recommendation 39). These efforts go in the right direction. For changes to be promoted in the medium- and long-term, a more complex set of answers is required, as well as stronger political buy-in from the different stakeholders.
Reconstruction and recovery efforts after the 19S earthquake
On 19 September 2017, an earthquake of 7.1 magnitude hit Morelos, Puebla and the Greater Mexico City area. This earthquake was the deadliest one of the past 32 years in the country. In Morelos, it caused 74 casualties and 1 944 physical injuries. According to official statistics, 22.5% of commercial establishments shut down, 7 410 homes suffered total loss, and 16 386 were partially affected. Medical centres, schools, public offices, historic and cultural buildings, hydraulic infrastructure and roads were also damaged.
In the aftermath of the disaster, the state put together a well-co-ordinated emergency response, together with municipal civil protection authorities. Rescue actions included creating Emergency Operations centres, installing shelters, isolating risk sites, transferring the wounded to hospitals and registering casualties. In each of the 33 municipalities, a civil servant from the state government cabinet was appointed as liaison staff to co-ordinate the disaster response, including reconstruction and recovery efforts.
So far, the State of Morelos has delivered a broad and well-organised reconstruction process, co-ordinated by the decentralised agency Unidos por Morelos. This agency is responsible for co-ordinating efforts across levels of government, managing public funds with transparency and keeping an open communication channel with civil society. The strategy led by Unidos por Morelos consists of direct reconstruction of infrastructure, financial assistance to housing reconstruction, which is led by private foundations, and financial support to entrepreneurs and firms to recover their businesses. The commission COEVAL is monitoring this process and will assist the agency in evaluating its policies.
Such comprehensive reconstruction efforts have therefore diverted significant state resources from previously agreed actions and programmes. To illustrate, the liaison staff could not dedicate to regular functions; the public transportation project Morebus was cancelled; state funds had to be reoriented. With less financial resources, less personnel and an altered course of action, the State of Morelos has understandably invested less in the policy areas that are not directly concerned by reconstruction and recovery. In this sense, the impacts of the earthquake affect the progress of the OECD recommendations made in the Territorial Review, which was taken into account in the Review.
Recommendations for reconstruction and way forward
The State of Morelos can further leverage their policy response, along the following lines. The reconstruction process should, beyond returning to the previous situation, improve infrastructure conditions and quality of life of residents. Ensuring safety in reconstructing schools, hospitals, fire stations and public buildings must be a priority. It is also an opportunity to rethink spatial planning and urban development. Housing resettlement should prioritise the needs of the most vulnerable population and be connected with public transportation networks. Technical assistance should be provided for those who opt for housing self-construction, and for those who opted for the private foundations, the quality of constructions should be closely monitored. In the property registry process, the state should beware of pre-existing rights, and promote women’s tenure security. Morelos should invest more strongly in disaster reduction management planning, data collection, and transparent risk governance.
Towards a comprehensive approach to logistics and transport in Morelos
The report brings a special focus on connectivity and logistics, considered as key structural enabling factors for inclusive growth and well-being. Policies to improve connectivity must be analysed within the framework of policies addressing the other enabling factors (education, innovation and business environment), which were developed in the TR of Morelos. Improved connectivity will reduce transport costs for businesses based in Morelos, expand the market for local producers and achieve better integration with centres of production and consumption across Mexico.
In co-ordination with the federal government, important investments were made on road connectivity, namely in the Autopista del Sol running through the capital Cuernavaca, which is a key north-south federal highway connecting Mexico City to Acapulco and the south border. Investments were also made to strengthen east-west road connections, particularly the link with Puebla, and in regional airports.
In the freight rail sector, Morelos has 259 km of rail alignments but currently no operational railway line. The state is rehabilitating a 103 km link from the Cuautla industrial park north to the municipality of La Paz, in the southeast of the Mexico City conurbation. So far only seven kilometres of line in Cuautla have been rebuilt. Together with the industrial park, the rail line will serve agricultural businesses in the region and a new intermodal container depot aimed at developing a more diversified economic pole in Cuautla. Shifting freight from road to rail in the interests of road safety is an important secondary objective.
Recommendations for the logistics and transport in Morelos
Given that resources are limited, planning and prioritisation are essential to best address Morelos’ infrastructure needs and build consensus around investments made. A high hurdle rate of return on investment can be used to select projects and establish priorities. Cost-benefit assessments can help identify promising projects. However, allocating public resources between dissimilar projects – highways versus rail or highways versus rural roads – can only be done on the basis of a broader strategy. Strategic, medium-term planning can foster a more balanced vision of development, overcoming short-termism.
The productivity and connectivity strategy developed by Morelos appears appropriate to allocating the relatively modest sums of state (as opposed to federal) budget for roads and rail. In future elaborations, it would nevertheless benefit from examination of data on traffic and modelling of freight flows, available from the Federal Government’s Transport Institute. Current policy documents focus on the details of individual investments but lack an explanation of the approach to project prioritisation and value for money. Morelos should seek to develop public policy statements on strategic infrastructure planning for connectivity. Working hand in hand with national regulators such as the rail regulator would also allow Morelos to benefit from their capacity in analysing particularly complex processes and projects.