While there are a wide range of societal needs throughout the state of Baja California Sur, these cannot be adequately addressed without the creation of new and better jobs, as well as economic growth.  Nevertheless, these priorities need to be balanced with the environment, social justice, and community-building in mind.  Currently, 60% of the state’s territory is in protected areas, putting a great deal of pressure for development on the remaining 40% of land.

Baja California Sur has the seventh-largest state economy in the country.[1] The state GDP showed an annual average growth of 3.5% between 1993 and 1998. However, because of insufficient federal funds and the need to address the growing demand for public services and infrastructure, the state government needs to increase its own revenues to continue its impressive growth rates.  In addition, health and education issues must be addressed at the same time as job creation to ensure a well-trained and healthy workforce. 

Why has the state experienced economic growth without an equally impressive investment in economic development? The evolution and structure of the state’s GDP over the past several decades reflect natural, historic, economic, and land use conditions, as well as the main economic trends in Baja California Sur, which includes a growing tertiary sector (financial services, insurance, community, social and personal services, and trade, restaurants and hotels) that is linked to economic forces outside of the state’s economy.  The current pattern is characterized by a declining share of the primary (agriculture, livestock, fishing, and mining) and secondary (construction and manufacturing) sectors in the GDP, and growth in the tertiary sector.  By 2000, the majority of the state’s economically active population (EAP) was centered in the tertiary sector (68.32%), and the primary sector had declined to 14.94%.

The resulting social consequences of this trend have included increased participation in the labor market, particularly by women.[2] Accordingly, women’s increased participation in the workforce has brought social challenges, including a need for an increased number of day care centers.

During this same timeframe, Baja California Sur attempted to develop through the modernization of agriculture, growth in tourism, and the development of an extensive fishing and marine commerce sector.  Unfortunately, these efforts were not undertaken in a sustainable manner, and neither environmental nor regional social dynamics were taken into consideration. Modernized agriculture occupied and devastated the state’s valleys; tourism was associated with irreversible changes to the coastal landscape; and extensive fishing and marine commerce depleted resources and endangered local species.

Economic development in Baja California Sur continues to be dependent on availability of renewable natural resources, primarily water.  Tourism, agriculture, and fisheries are all affected by the diminishing groundwater resources in Baja California Sur.  Desalination is being considered as the next solution, but water distribution infrastructure must be repaired and upgraded to ensure that additional resources are not wasted. 

The availability of energy resources must also be considered if Baja California Sur is to grow sustainably.   First, natural energy sources, such as oil, natural gas and hydro, which are abundant in other parts of Mexico, are not found within the state.    Also, in the case of oil and natural gas, the state does not have an energy distribution system (i.e.pipelines), making production and distribution very expensive.  Second, the Baja California peninsula is the only part of the country that is not connected to the main electricity grid[3], which has forced reliance in Baja California Sur on local power stations at Punta Prieta in La Paz and Puerto San Carlos in Comondú, both of which are using oil as a primary fuel source.   As neither of these facilities currently has scrubbers installed, there are resulting environmental health impacts to those communities downwind.  Third, a geothermal electricity plant is planned for Santa Rosalía, but there is presently no estimated timeframe for its completion.    Fourth, because of its abundance of sun, Baja California Sur is ideally suited for concentrating solar power plants (CSP).  Solar has the potential to provide a vast, low-cost source of alternative energy but land use issues need to be considered given the given the large "footprint" that a CSP typically occupies.   On the other hand, CSP plants have one primary advantage, namely that they produce no environmental contaminants or greenhouse gases.

Clearly, Baja California Sur’s expected growth will fuel a dramatic increase in the demand for electricity from the state's industrial, commercial, and residential sectors.  A key driver in the state's energy demands will be its thirst for water.    Because depleting groundwater resources and expanded urban growth in Los Cabos, La Paz and Loreto, the state will ultimately need to turn to desalinization facilities as a primary source of potable water in the future.  Desalination facilities require substantial energy resources to operate.  Hence, failure to effectively identify sustainable renewable and nonrenewable energy resources for Baja California will seriously challenge the state's prospects for long-term economic development.

In the coming years, Baja California Sur faces a number of unique challenges as it confronts the need to diversify its economy to adjust to new economic realities and changing market conditions.  Avoidance of “Cabosanlucazation” is a major concern among some residents to alleviate the possibility of overcrowding and the creation of new slums, the destruction of natural habitat, and shortages in natural resources.  Migration issues are also of particular concern to the region, as over 30% of the population is migrants, with an additional 5% of the population consisting of transitory migrant labor during the high season. ^[4]  Promoting small- to mid-sized enterprises (SMEs) would allow the state to make the most of its human and natural capital, including better distribution of wealth among diverse sectors in the local population.

Foreign direct investment (FDI) has become an important part of the state’s economy, most notably for the tourism sector.  From 1994-2001, Baja California Sur received approximately 0.4% (US$262.5 million) of Mexico’s total FDI. Of the 987 enterprises that invest in the state, 74.3% are from the US.  Most of this foreign investment is in the service sector, which represents 75.4% of FDI, the majority of which is directed toward tourism-related accommodations and services.  Not surprisingly, foreign investment is focused primarily in the municipalities of La Paz (34%) and Los Cabos (63%)[5], although Loreto is a future target for foreign investment.  Recent articles in the USA Today, Christian Science Monitor, San Diego Union-Tribune, Arizona Republic, and in Canadian news publications  acknowledge a “Baja housing rush” focused on Loreto.[6] 

Although Baja California Sur has a booming tourism sector, as long as the state continues to have a steady inflow of migrant labor willing to work for extremely low wages, employment opportunities will continue to be scarce and poorly paid.  Statewide, 54.9% of the population over the age of twelve is economically active, and the unemployment rate is just 2.3% on average. 

Wages in Baja California Sur are higher than the national average.  There are three tiers of minimum wages for Mexico, and areas are placed into one of the tiers based upon the cost of living in that area.  Baja California Sur is in the top tier, along with Mexico City and other large cities, where the average wage is $48.67 pesos per day (US$4.59), as opposed to $47.16 (US $4.44) or $45.81 (US$4.32)  per day in other geographic zones, as of January 1, 2006.  Most people in the state earn between one and two times the minimum wage.[7]  [8]

The cost of living in Baja California Sur is significantly higher than in many parts of Mexico.  The fact that the area depends highly on the supply of goods and inputs from the rest of the country and from the United States results in higher market prices.[9] Additionally, the insufficient and high cost of infrastructure, basic services, and utilities (water, electric power, and roads) as well as high transportation, freight, and fuel costs affect individual consumers as much as businesses.[10]

Baja California Sur ranks low in access to financial services, especially banking in rural areas.  The state has the third fewest number of bank branches in Mexico and only 0.31% of all credit card accounts.[11]  Volatile interest rates, bank consolidations, and peso devaluations have caused instability in Mexico’s banking sector, yet there is still a high degree of confidence in banks.  Mexico has improved its financial infrastructure since the 1980s crises by revising its bank investment and ownership regulations, creating a federal deposit insurance program, and revising regulations on credit union and savings cooperatives.[12]  Yet, banks have not invested in Baja California Sur for reasons of cost ($400-600,000 to open a bank branch), transportation (bringing currency to the region by armored car, ferry, or plane), and lack of population (returns on investment are not high enough to justify opening a branch).[13]  This lack of investment has caused economic losses for the state’s residents and businesses, as they experience missed sales, transportation cost and lost time, and missed money transfers.

Remittances are one of the largest sources of foreign income into Mexico – after petroleum and before tourism.  Approximately US$14.5 billion was sent by Mexican family members living in the U.S. to communities in Mexico.  These transfers can be up to 30-50% of household income in many cases.  Innovative financial transfer mechanisms are emerging, such as debit cards, phone transfers, and cross-border mortgages to help facilitate remittances, far beyond the expensive wire transfers that have dominated the market in the past.  In the case of Baja California Sur, only 1.7-2% of the households in the state received remittances in 2000. This may, in fact, be due to lack of access to banking services, rather than lack of family members working in the U.S.  This also affects emergency funding during natural disasters (such as Hurricane Marty in 2003), when family members were not able to send money locally, and roads to banking centers were damaged and unpassable.[14]