www.pwc.com Megatrends Global perspective and insights on Mexico MITA TechTalks Summit 2016 Emmet Daly
Global Megatrends Highlights Demographic shifts Shift in global economic power Accelerating urbanization Many countries, including Mexico, are experiencing a massive demographic shift with a falling fertility rate and increasing life expectancy. The world s economic balance of power is shifting rapidly. Mexico is expected to be among top ten economies, ranked by Purchasing Power Parity (PPP) in 2030. The number of the Mexican population and urban agglomerations are growing year after year. The proportion of urban population in Mexico increased from 52% in 1962 to 78% in 2012, and keeps on growing, reaching 123.95 million by 2050. Resource scarcity and climate change Technological breakthroughs Between 2013 and 2030, average temperatures are expected to increase between 0.5 C and 1.5 C. Both human interventions and climate change will affect global resources globally and in Mexico. Technology advances are shaping the economies and societies of many countries, including Mexico, around the world. IT systems are affecting the healthcare industry in Mexico, overcoming geographic or income barriers and reaching a large audience. 2
Megatrends in detail Global perspective and insights on Mexico
Demographic shifts Global perspective and insights on Mexico In 2015, Mexico population was around 127 million, placing the country in the 10th place in the list of the most populous countries in the world. The population will reach around 138 million people by 2050 but after some growth will start to steadily decline, mainly due to drop in the fertility rate. 1 Graph 1: Total Mexican population in thousands, 1950, 2013F, 2025F and 2050F The elderly will account for an incresing share of the population. The median age in Mexico is expected to increase from 27.3 years in 2014 to 50.5 years by the end of 2100. By 2050, there will be four times more people above 80 years living in Mexico than today. A growing ageing population is putting pressure on pension and healthcare systems. On average, pension expenditure will grow from 9.3% of GDP in 2010 to 11.7% GDP in 2050. The aging population raises concerns about the affordability of pension and healthcare programs. 2 1 United Nations 2 CIA and UN data 4
Shift in global economic power Global perspective and insights on Mexico 8 Mexico appears on the 8th position among top 10 economies with GDP in PPP terms of 3,662 billion USD in 2030. 3 The expanding Mexican economically active population brings several risks that could determine the demographic driver, e.g. the quality of Mexico s human capital. In order to benefit from the demographic bonus instead of just adding to the ranks of the unemployed, the country will need to improve its educational policies and investment. The demographic changes make a significant contribution to growth in GDP per capita in several countries such as Mexico. In 2015, the GDP per capita in PPP (Purchasing Power Parity) was estimated to reach 18,714 International Dollars. 4 3 4 IMF 5
Accelerating urbanization Global perspective and insights on Mexico Did you know? The number of people living in urban slums since 1990 has increased by 33% 1.5 million people are added to the global urban population every week 8 50% of global GDP is generated by the 300 largest metropolitan areas 9 $8 trillion is the ammount we predict will need to be spent on infrastructure in New York, Beijing, Shanghai, London over the next 10 years 10 Since 1960, Mexican urban population was higher than rural population. 5 The proportion of urban population in Mexico increased from 52% in 1962 to 78% in 2012 and according the the UN, 123.95 million people are expected to live in the Mexican urban area in 2050. 6 It is important to mention that the metropolitan zone of Valle de México is by far the largest metropolitan area in Mexico: in 2015, it combined population of 16 municipalities from Distrito Federal, and 59 neigbor municipalities from Estado de México. 5 CONAPO 6 United Nations 7 SEMARNAT 8 UN Habitat, State of the worlds cities 9 Brookings institution 10 Cities of Opportunity 3DMexican cities grow with a model of territorial occupation in 3D Distant, Disperse and Disconnect the expansion of the urban areas are disproportionate, fragmented and unplanned. 7 6
Climate change and resource scarcity Global perspective and insights on Mexico Mexico is vulnerable to the impacts of climate change of many fronts. Potential threats of climate change for Mexico include higher temperatures; lower rainfall in the north and storms and heavy seasonal rainfall in the south; stronger hurricane activity and intensity; and sea level rise of 20 cm by 2050. 11 The green economy is slowly growing in Mexico with the sectors such as mass transit, clean industry, construction, agriculture, renewable energy and waste management providing most direct green jobs. The green sectors that provide most indirect jobs are manufacturing electricity, manufacturing and supply, waste management and temporary accommodation. 12 Mexico has good conditions for the development of renewable energy. 13 The capacity for electricity generation in renewable energy in Mexico is expected to increase substantially, with hydropower taking the lead, followed by wind and solar power. 14 4.8 C In 2080, the temperature in the north part of Mexico is projected to increase up to 4.8 C, while in the southern part of the country could rise up to 2.8 C. 15 11 OECD 12 Universopyme 13 ProMéxico Negocios 14 ProMéxico 15 SEMARNAT 7
Technological Breakthrough Global perspective and insights on Mexico
Technological breakthrough The venture capital and private equity country attractiveness index Emerging markets represent a territory with economic soundness with large populations and strong ecnomic catch-up potential. Corporate governance indicators including Mexico and investor protection still remain obstacles. Source: IESE Business School IESE Business School and EMLYON Business School have tracked the attractiveness of risk capital around the world with the Venture Capital & Private Equity Country Attractiveness Index. Mexico is on the 40th place in the ranking, the USA occupies the first place in ranking. Source: IESE Business School 9
Technological breakthrough Equity investments The venture capital ecosystem deployed $58.8 B USD across the United States Graph 2: Investment by industry Each quarter, Pricewaterhousecoopers and the National Venture Capital Association release the MoneyTree Report based upon data from Thomson Reuters. According to the MoneyTree Report for the fourth quarter of 2015, venture capitalists invested $11.3 billion USD into 962 deals. Software industry continued to receive the highest level of funding of all industries in the forth quarter receiving $4.5 billion USD. 16 The convergence of technology across sectors is becoming increasingly important. The fourth quarter s largest deals included startups that deploy technologies to challenge incumbents in the financial services, education, and retail and consumer industries. These emerging tech-enabled segments have disrupted traditional industries and should continue to command a larger proportion of venture capital dollars in 2016 and beyond. Tom Ciccolella Venture Capital and Private Equity Assurance Partner Source:, National Venture Capital Associtaion 16, National Venture Capital Associtaion 10
Technological breakthrough Insights on Mexico Investment in R&D in Mexico as % of GDP (2013): 0.49808 17 With an unimpressive growth across much of the globe, promoting new sources of growth has become a global policy priority. Science, technology, innovation and entrepreneurship have a positive impact on competitiveness, productivity and job creation, and are important mechanism for sustainable growth. 6.3% Technology market increase in Mexico in 2015 20 According to CONACYT (Spanish: Consejo Nacional de Ciencia y Tecnología), Mexico still lags behind many countries in terms of number of researchers per one thousand inhabitants, where Mexico has only 1 researcher while South Korea has 12; the United States, 9; Canada, 8; and Spain 6. 18 The World Economic Forum (WEF) releases yearly the Global Competitiveness Report, which ranks countries based on their overall global competitiveness based on 12 pillars. One of these pillars is innovation measuring how capable countries are of producing technological breakthrough. Mexico is on 66 th place in terms of innovation and needs to improve its capacity for innovation, government procurement of advanced technological products and its availability of highly qualified scientists and engineers. 19 Graph 3: Forecast of the value of Mexico s IT industry and contribution to GDP (billion MXN and %), 2014-2018 17 World Bank 18 El Financiero 19 World Economic Forum 20 IDC 11
Technological breakthrough IT market in Mexico The evolution of the IT sector is impressive. Mexico is ranked as the leader in information technologies (IT) and business processing and the country is considered one of the best destination worldwide for the localization of global services including IT outsourcing and business process outsourcing (BPO). In addition, Mexico ranks second in Latin America as an investment destination attracting 23% of total investment in software projects and establishing itself as the best destination in the Americas to establish IT companies. 21 The future brings positive outlook for the information technology industry in Mexico. The compound annual growth rate for the period 2014-2018 was forecasted to be around 7%, with the market expected to reach a value of 385.4 billion MXN in 2018, which will represent 1.7% of GDP. 22 Some of the factors expected to influence the IT market s development are a low PC penetration and an increased move to online services, which will drive the demand for IT services and software. Investment in IoT in Mexico exceeded $550 M USD in 2014. 23 The Internet of Things (IoT) presents a sector with highest potential and strategic value, both for Mexico and the rest of Latin America. The real internet revolution represents an opportunity for economic expansion in non-traditional sectors. The use of IoT applications has countless benefits. The cross-cutting nature of the industry presents new opportunities for development within the country, especially in these sectors: automotive, aerospace, medical, agricultural, and energy. The sector also plays in favour of development of smart cities that will improve quality of life and economic growth. Graph 4: Real income in Mexico s IT sector, by company type, in 2008 and 2016 estimate, in millions MXN Source: PROSOFT 21 ProMexico 22 BMI 23 IDC F - Forecast 12
Technological breakthrough Tech startups in Mexico and institutional support Entrepreneurs in tech industry in Mexico New tech-industry bets FinTech Medical Devices IoT Mobile Cybersecurity Enterprise Software The promotion of startups has shifted from an experimenation to a scaling up phase since 2012. The policy mix has been modernized and new forms of start-up promotion has been introduced. Mexico has accelerated in the support of start-ups in institutional strengthening, closing of financing gap in early stages and strong global orientation and promotion of country image. The National Institute for Entrepreneurship (INADEM) is an administrative organisation within the Ministry of Economy, which aims to implement, execute and coordinate national policy of support for entrepreneurs from small to medium enterprises. The INADEM has established The Entrepreneur Support Network through which 65 programmes are oriented towards increasing the productivity. The National Council for Science and Technology (CONACYT) is a public organisation responsible for developing science and technology policies in Mexico. Through various types of funds CONACYT efforts a multiplier effect on the generation of knowledge, innovation, technological development and human training coordination, as well as strengthening the scientific and technological capacity that the country requires. 13
in the ecosystem
s Accelerator Building a network of 25 Accelerators covering 90% of the economy The network by 2017 USA (2) Canada Mexico Luxembourg France Spain Sweden UK Finland Moscow Germany (3) Switzerland (2) Italy North Africa Turkey Middle East Japan Hong Kong Existing Discussion in progress As an objective Colombia Brazil Malaysia Singapore South Africa Australia 's Accelerator A unique $ 1bn opportunity, placing in a prominent position with high growth potential companies 15
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