Chapter 1. Context

This chapter introduces the context of the State of Morelos, concerning the economy, labour force and security. The state has kept pace with the trends observed in 2016. It presents the recommendations set in the Territorial Review of Morelos of 2017. The implementation of these recommendations is the basis for assessing progress and indicating areas for further change. Some challenges remain, such as low skill levels and informality of the economy. The methodology adopted to conduct the present Review is detailed in this chapter.

Methodology of the review

In 2016, the OECD conducted a Territorial Review of Morelos, Mexico, which was approved by the OECD Regional Development Policy Committee in the session of 7 November 2016 and published in 2017. Building on evidence-based analyses of regional policies, the report provides 12 main recommendations and 39 sub-recommendations (OECD, 2017[1]). The recommendations include:

Strengthening the role of the Council for Human Capital to ensure maximum impact over the medium- and long-term by promoting initiatives that will enhance innovation, a better match of education and training policies with labour market demand and that will foster inclusive growth.
Better leveraging urban and rural policies and programs to improve accessibility and connectivity in the state (including enhancing mobility inside its metropolitan areas, better linking rural areas to markets), to increase productivity in rural activities, and to better leverage the region's potential for tourism.
Ensuring that the region's development does not pose a threat to the preservation of its natural amenities by promoting sustainable and environmentally friendly activities.
Improving the co-ordination and implementation of national policy strategies in the state, and better connecting regional programs to local activities. The need to implement policies to raise fiscal revenues and increase capacity at the municipal and regional scale is equally important.

To follow-up on the recommendations, the OECD conducted the present Review of Morelos. The objectives of the Review are to (i) assess the main regional policy changes since 2016 and the extent to which the recommendations from the Territorial Review (TR) have been implemented, accounting for the impacts of the earthquake which occurred during this implementation period; (ii) focus on logistics and accessibility to ensure that the State of Morelos best takes advantage of its favourable geographic location; and (iii) support the implementation of the recommendations on the Council for Human Capital.

The OECD team, together with international experts as peer-reviewers, carried out an official mission in December 2017 to evaluate the progress that the state government of Morelos made in implementing the recommendations from the Territorial Review. The OECD held bilateral interviews with public officials from the state government as well as actors from the business community and public research institutions, to understand challenges and bottlenecks and to assess changes.

In addition, the OECD team focussed on the impacts of the earthquake that hit Mexico on 19 September 2017. Morelos being at the epicentre of the earthquake, significant damages and losses occurred. The team visited some of the places most affected by the earthquake and met with key people in charge of the reconstruction process (public and private), as well as civil society.

The structure of this review is organised as follows:

The present Chapter 1 introduces the methodology, context and main recommendations, based in the Territorial Review of Morelos conducted in 2016 and published in 2017.
Chapter 2 assesses the progress in each of the 12 recommendations. It offers a summary of progress and a detailed analysis of the changes promoted. It also indicates how the State of Morelos can continue making progress in these areas. It is complemented by the detailed table of Annex A, which tracks down progress in each of the 39 sub-recommendations.
Chapter 3 discusses the earthquake of 19 September 2017, notably: impacts and damages, policy responses from Mexico and from Morelos, suggestions about the reconstruction process, and indications to reduce disaster risks in the future.
Chapter 4 emphasises the issue of logistics, discussing the project of railroad rehabilitation and construction in Cuautla and proposing recommendations for the future, in order to enhance the accessibility and connectivity of Morelos.

Context of the State of Morelos and new challenges

The Territorial Review dedicated a chapter to the socioeconomic diagnostic of the State of Morelos. This section summarises this diagnostic and presents new challenges that have emerged since the TR. For a more complete analysis of the economy and governance structure of the state, reading the OECD Territorial Review of Morelos is recommended (OECD, 2017[1]).

Since the launch of the TR, the context of Morelos has kept similar trends. GDP per capita and population are growing, but the population is growing faster than GDP per capita. The population is still quite young: the median age was of 28 years old in 2015, according to data from INEGI. The issue of informality has remained pretty much stable since 2005, with a rate of 68%. The perception of security has remained low since 2011, having decreased from 18% to 13%. The challenges of promoting full, formal employment and ensuring public safety remain important, thus. A new challenge that has emerged is reconstruction after the earthquake and opportunities for urban development and local finances that come associated with it.

The State of Morelos is one of the 32 states and federal entities that constitute the United States of Mexico. It is located in the centre of the country, bordering the Federal District to the south (Figure 1.1). The state is one of the smallest in Mexico, with a population of 1.9 million in 2015 corresponding to 1.6% of the national population (INEGI, 2016[2]). It consists of 33 municipalities, with the smallest municipality counting 7 166 people and the largest municipality, Cuernavaca, with a population of 366 321 inhabitants (INEGI, 2016[2]).

The state has three metropolitan areas, two officially recognised by the federal INEGI (Cuernavaca and Cuautla), and one delimited by the state only (Jojutla). Metropolitan areas are defined as the conjunction of contiguous municipalities with a high population density and, for the periphery, municipalities with substantial commuting patterns towards the core of the ZM. Overall the 3 metropolitan areas account for more than 80% of the population in Morelos, encompassing 16 municipalities out of the 33 present in the State of Morelos. Even though these metropolitan areas can be classified as of medium and small size, agglomeration benefits and potential synergies are observed (OECD, 2017[1]). The OECD had suggested investing in more solid planning instruments and funding structures to manage metropolitan areas, and improved connections between the three metropolitan areas (OECD, 2017[1]).

The economy of Morelos is quite diversified. The most prominent sector is manufacturing, notably automotive and chemicals, with the presence of large multinational firms. The agricultural and service sectors are considerably large, and there are 43 research centres linked to technical universities. The territory has a year-round pleasant weather and is rich in natural amenities as well as traditional cultures, factors that have contributed to propel tourism. Most tourists come from other parts of Mexico and stay for the weekend or short holidays.

The State of Morelos is recovering from the 2009 crisis (Figure 1.2). Since 2014, a steeper recovery can be noticed, even more than the Mexico average. Still, the state had, as of 2015, a GDP per capita of USD 11 471, whereas the Mexican average is of USD 15 482. More worrisome, between 2003 and 2015 population growth outpaced GDP growth in Morelos (Figure 1.3).

The Territorial Review summarised the key assets that Morelos has (OECD, 2017[1]):

Geographic location: Morelos is a small state with a favourable geographical location, in close proximity to Mexico City.
Youth premium: The share of the population under 15 over the total working age population is considerably higher (41.2%) than the OECD average (27.5%). This youth premium represents a workforce potential that can be tapped into.
Diversified economy: While the economy of Morelos is specialised in the manufacturing sector, the services, agricultural and public sectors also make important contributions to employment.
Innovation hub: The state has the potential to become an innovation hub. To date, it contains 44 prominent research institutes and a Science and Technology Park that have contributed to more patents per capita than the Mexican average.
Amenities for tourism: Morelos is rich in natural and cultural amenities and has favourable climate conditions, which are critical drivers for tourism.

Alongside these assets, the Territorial Review had signalled the main bottlenecks and challenges faced by the State of Morelos (OECD, 2017[1]). Given that the bottlenecks reflect structural conditions, medium- and long-term actions will be necessary to address them. Considering the short time period since the Territorial Review was elaborated, it is only logical that these challenges still remain to be addressed. These are:

A low-skilled labour force and poorly trained entrants to the labour market drags down productivity and innovation.
A large informal economy and resulting insecurity represent additional bottlenecks to growth.
Improving accessibility to external markets and creating better internal connectivity will help leverage Morelos’ geographic advantage.
Overcoming the fragmented and inward-oriented innovation ecosystem.
Ensuring that regions realise their agglomeration benefits while promoting environmental sustainability.
Unleashing the growth potential of rural areas.
Limited capacity at, and co-ordination with sub-national governments and neighbouring regions.

The informality of the economy, for example, changed very little in the past ten years (Figure 1.4). Between 2005 and 2017, informality in Morelos decreased slightly from 68% to 67%. It remains above the national average, which was 57% in 2017. This shows how much informality is an entrenched problem of the Mexican economy as a whole, and that most states did not succeed in modifying the trend of the last ten years.

In other areas, such as public safety, it is more complex to assess changes. On the one hand, in 2016 the State of Morelos assumed the central command on matters of public safety (Mando Único). It created a security centre to centralise police actions and systematically collect data. Several security cameras were installed in different parts of the state, which are constantly monitored in the control centre. The state reports lower criminality rates since the creation of this model. On the other hand, for being quite recent, these structural changes did little to alter the perception of criminality and security among residents. The perception of security remains quite low in the State of Morelos (Figure 1.5). It even declined from 18% in 2011 to 13% in 2017. Furthermore, it is difficult to assess which numbers of lower criminality can be attributed to the new structure and which ones are incidental.

Main recommendations

Based on the identified assets and bottlenecks, in the Territorial Review, the OECD provided 12 main recommendations and 39 sub-recommendations for the State of Morelos (see Annex A for sub-recommendations). These recommendations indicate changes in policy approaches that may take some time to be fully implemented and require continuous efforts for several years.

Based on the 12 recommendations, a Framework of Action was designed to guide sustainable regional development in the State of Morelos (Figure 1.6). This Framework is grounded in inclusive and environmentally-friendly policies that can support the transition toward higher value-added activities and more inclusive and sustainable growth. In short, the Framework for Action signals pathways to start promoting change.

Table 1.1. Main recommendations
1	Improve the quality of basic education, especially in peri-urban areas and lagging rural communities, and increase participation in upper secondary and tertiary education
2	Ensure training programmes are more responsive to the needs of the economy and target the informal sector too
3	Improve knowledge creation, diffusion and exploitation
4	Strengthen the role of the Council for Human Capital to promote the upskilling of the labour force and an integrated vision
5	Spatial planning requires a better implementation strategy
6	Urban policies should design and implement policies at the metropolitan scale
7	Rural policy must go beyond agriculture and develop further synergies with the tourism sector
8	Accessibility of the region should strengthen both a. connections to external markets in neighbouring states and export and b. internal connectivity
9	Preserving the environment by co-ordinating and implementing policies to mitigate climate change
10	Foster co-ordination of the state administration with municipalities, and with neighbouring states
11	Improve governance mechanisms and the business climate
12	Morelos should improve the management of its own funds, including transfers to municipalities
Source: OECD (2017), OECD Territorial Reviews: Morelos, Mexico, https://doi.org/10.1787/9789264267817-en.

References

[5] INEGI (2018), INEGI Database, http://inegi.org.mx.

[2] INEGI (2016), Panorama Sociodemográfico de Morelos 2015, INEGI, Mexico, http://internet.contenidos.inegi.org.mx/contenidos/Productos/prod_serv/contenidos/espanol/bvinegi/productos/nueva_estruc/inter_censal/panorama/702825082277.pdf (accessed on 18 February 2018)

[3] INEGI (2010), Marco Geoestadístico 2010 versión 5.0 (Geostatistician Model), Instituto Nacional de Estadística y Geografía, Mexico.

[1] OECD (2017), OECD Territorial Reviews: Morelos, Mexico, OECD Territorial Reviews, OECD Publishing, Paris, https://doi.org/10.1787/9789264267817-en.

[4] OECD (2016), Regional Database, https://stats.oecd.org/Index.aspx?DataSetCode=REGION_DEMOGR.

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