Download Global Megatrends Mexico Focus Five global

Global Megatrends
Mexico Focus
November 2014
Five global
megatrends
continue to advance
Highlights
By 2025, World will have added another
billion people to reach about 8 billion, with
the over-65s the fastest-growing group.
China will replace the US as the world’s
largest economy by 2015¹
By 2025, there could be nearly 40 cities
each with a population of over 10 million
people
Only 50 years of supply left in proven oil
reserves
In 10 years, smartphones are reaching half
of US households
The world is changing. Major economic, cultural, social and scientific changes are
having a significant impact in the world. These changes are known as megatrends.
PwC Network Leadership identified five megatrends that will impact the future of both
PwC and its clients over the next decade and reshape the global marketplace.
Demographic
shifts
Shift in global
economic power
Accelerating
urbanization
Resource
scarcity and
climate change
Technological
breakthroughs
These changes are occurring now and causing reactions in companies as well as
individuals, with most attempting to respond in their own best interests.
How will these trends evolve in the future?
In this paper, we explore how these five megatrends are affecting the Mexican market in
different ways
¹ This is by Purchasing Power Parity (PPP) rates; by market exchange rates, PwC project China will replace the US by around 2030.
Global Megatrends
Mexico Highlights
1
Demographic
shifts
Many countries, including Mexico, are
experiencing a massive demographic shift
with a falling fertility rate and increasing
life expectancy.
4
2
The world's economic balance of power is
shifting rapidly. Mexico is expected to be
among the top ten economies, ranked by
Purchasing Power Parity (PPP) in 2030.
Resource scarcity
and climate
change
Between 2013 and 2030, average
temperatures are expected to increase
between 0.5°C and 1.5°C. By 2030, the
world’s population is expected to reach 8.3
billion people. Both human interventions
and climate change will affect global
resources globally and in Mexico.
PwC
3
Shift in global
economic power
5
Accelerating
urbanization
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.
Technological
breakthroughs
Technology advances are reshaping 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
1. Demographic shift
Overview
When countries start to develop, population patterns shift from a high birth rate and
early mortality to a low birth rate and longer life expectancy.¹ Many countries, including
Mexico, experience this process where the population at first grows rapidly and then
more slowly.
One of the main indicators of the slowdown is a fall in fertility. Women in Mexico had on
average seven children in the 60’s, while a 2014 estimate is 2.29 children per woman.²
The number is expected to be below 2 before 2020.¹ At the same time, life expectancy
has grown - most of the Mexican population did not live beyond their 50’s in 1960, when
in 2011 life expectancy was 76.8.³
These demographic changes represent an important threat to both the economy and
national budget.
1 The Economist
2 CIA, The World Factbook
3 World Bank
1. Demographic shift
Population structure
156,102
28,296
1950
2013F
2025F
80
2.25
79
2.20
78
2.15
77
2.10
76
2.05
75
2.00
74
1.95
73
Years
122,332
138,195
2.30
2010E
2012E
2014F
2016F
2018F
2020F
2022F
2024F
2026F
2028F
2030F
2032F
2034F
2036F
2038F
2040F
2042F
2044F
2046F
2048F
2050F
Graph 1. Total Mexican population in thousands,
1950, 2013F, 2025F and 2050F
Graph 2. Fertility rate (number of children) and life
expectancy (years) in Mexico, 2010 and forecast
Number of Children
In 2012, the Mexican population was around 122 million, putting
the country in the 11th place in the list of the most populous
countries in the world.⁴
2050F
F-forecast
Fertility rate
Source: United Nations
Source: Conapo, 2010
Life expectancy
E-estimation
F-forecast
The population will reach around 138 million people by 2025 (see
Graph 1) and after some growth, it will start to steadily decline,
mainly due to a drop in the fertility rate (see Graph 2).
Demographics in Mexico are very favorable in the medium term,
thanks to the low current and future birth rates combined with a
high fertility in the past, which will improve the dependency
ratio.⁵
4 United Nations
5 DNB
1. Demographic shift
Population structure
In the long-term, the total dependency burden is projected to
grow with the declining youth-dependency ratio and the raising
over- 65 dependency ratio (see Graph 3).
Graph 3. Age-dependency ratio in Mexico
(projection), 2000-2050
87
69
55
11
9
2000
13
46
18
42
26
2010
2020F
2030F
2040F
Population aged 65+ as a % of population aged 20-64
35 40
2050F
Population aged less than 20 as a % of population aged 20-64
By 2050, there will be four times more people above 80 years
living in Mexico than in 2013 (see Table 1). Mexico is a femaledominated country with 63,063 thousand or 51.6% of women vs.
59,269 thousand of men in 2013.(UN 2013 medium variant
estimation).
Unlike many countries, migration hardly influences the size of
the population in Mexico. Estimates of 2013 show that the
natural growth in Mexico accounted for an increase in the
population by 1,572,250 people, there was a negative social
growth by 239,017 people.⁷ Natural growth is the difference in
the number of births minus deaths in a given year; social growth
is the difference in the number of immigrants minus emigrants.
Table 1. Forecast of Mexican population composition,
in %
Age structure
2013E
2050F
2100F
Source: OECD Demographic and Labour Force database
0-14
28.5%
16.6%
13.8%
The elderly will account for an increasing share of the population
– in the medium variant scenario (medium variant projection is
based on the assumption that a Total Fertility Rate (TFR) will be
only 2.1), the median age in Mexico is expected to increase from
27.3 years in 2014 to 50.5 years by the end of 2100.⁶
15-59
62.0%
57.4%
46.8%
60-79
8.1%
20.0%
23.5%
80+
1.4%
5.9%
15.9%
F-forecast
6 CIA and UN data
Source: United Nations
7 Conapo
E-estimated
F-forecast
1. Demographic shift
Socio-economic characteristics of population
On a global scale, Mexico is considered to be an upper-middle
income country, and the population is moving in socioeconomic
levels. 17% of the Mexican population has become a part of the
middle class between 2000 and 2010.⁸
In 2013, the top 6.4% of the wealthiest people in Mexico earned
33.7% of total income. The combined income of upper and upper
middle class (33.7% and 16.6% correspondingly) was over 7 times
higher than of marginalized class (6.3%) (see Table 2). However,
this is by no means an extreme income distribution. Inequality
had gone down about 4.7 points on Gini index in the same
period, from 51.87 (2000) to 47.16 (2010). Gini index measures
income distribution of a nation’s residents.9
Income per capita is expected to grow by 29% for the next decade
(2013-2023) and will reach the value of 84,353 MXN.
8 World Bank, November 2012
9 Investopedia
Table 2. Income distribution by socioeconomic group
in Mexico, %, 2013
Socioeconomic
group
Population share
Income share
Upper
6.4%
33.7%
Upper middle
8.4%
16.6%
Middle
11.3%
14.5%
Lower middle
22.8%
18.3%
Lower
22.7%
10.6%
Marginalized
28.5%
6.3%
Source: Canback analysis
1. Implications of demographic shift
As a direct result of the demographic
change, the workforce composition will
change. For example, there will be a higher
rate of participation in the labor market by
the elderly (see Graph 4).
Even though a female share of the Mexican
population slightly exceeds the male,
gender disparities in employment rates are
very high. Male employment rates were
substantially higher than female
employment: in 2012, labor force
participation rate for male was 80% vs.
45% for female.10
The share of women in the labor market
has increased, from 34.3% in 1990 to
44.6% in 2012 and is projected to rise even
further and reach 47% by 2020 (see Graph
5).11
Graph 4. Economically active population estimates and projections in
Mexico in 2013 and 2020F, by age group, %
Percentage
Workforce
80
70
60
50
40
30
20
10
0
15-19
20-24
25-29
30-34
35-39 40-44 45-49
2013
2020
50-54
55-59
60-64
65+
F-forecast
Source: International Labour Organization (ILO)
Graph 5. Labor force participation in Mexico in %, projection and
estimate
83.9
34.3
1990
83.2
37.6
1995
82.7
38.8
2000
81.1
41.0
2005
Male
Female
80.5
43.9
2010
80.5
45.7
2015F
80.2
47.0
2020F
F-forecast
10World Bank
11 ILO
Source: International Labour Organization (ILO)
1. Implications of demographic shift
Pensions
A growing ageing population is putting
pressure on pension and healthcare
systems.
Graph 6. Public and private expenditure on pensions in Mexico as a % of
GDP
The increasing number of pensioners will
inevitably lead to an increase in spending
on pensions. On average pension
expenditure will grow from 9.3% of GDP
in 2010 to 11.7% of GDP in 2050 with
some variation by country. In Mexico,
spending will raises lightly from 2.4% of
GDP in 2010 to 3.5% in 2060.12
12 OECD
0.3
1.4
1.5
0.2
If we analyze in a global level, public
pension spending was 7.8% of GDP in
2009, compared with 2.2% of private
pension benefits.
Mexico spent 1.6% of GDP on public oldage benefits in 2009 while private
expenditure was 0.3% of GDP (see Graph
6).
0.3
0.3
0.1
0.9
2000*
1.2
1.2
2005
2006
0.3
2007
Public expenditure
*Data is not available for private expenditure
**Data is not available for public expenditure
Source: OECD, 2013
1.3
2008
Private expenditure
2009
2010**
1. Implications of demographic shift
Healthcare spending
The aging population raises concerns
about the affordability of pension and
healthcare programs. More than one in
five Mexicans ages “65 and more” live in
poverty. There are a number of federal and
regional social programs created to
support the interest of elderly individuals
in Mexico, for example, “70 y mas”,
“Oportunidades”, “Catastrophic Expense
Protection Fund”, etc.14
Graph 7. Forecast Healthcare spending in Mexico, in USD per capita,
2013-2017
1,057
1,100
979
1,000
920
866
900
800
USD
The healthcare spending is forecast to rise
from 782 USD in 2013 to 1,057 USD per
person in 2017 in Mexico (see Graph 7).13
782
700
600
500
2013
Source: Economist Intelligence Unit, 2013
13 Economist Intelligence Unit
14 OECD
2014
2015F
2016F
2017F
F-forecast
2. Shift in global economic power
Overview
In the past few years, the global balance of economic power has been shifting from
developed to developing countries. The world economic order is unprecedented in its
speed and scale. It will trigger an equally dramatic realignment of global business
activities and spending power, affecting not just Gross Domestic Products (GDP) but
also other measures such as population, water supplies and trade.15
In its analysis of what has been driving economic growth in OECD member countries
over the recent decades, OECD found that human capital, research & development
activity, macroeconomic and structural policy settings, trade policy, and financial
market conditions play the most important role in the economy growth.16 In this section,
we will briefly outline every factor of growth in regards to Mexico to show steps that
Mexico needs to undertake in order to become one of the world’s biggest economies.
15 PwC
16 OECD
2. Shift in global economic power
Global highlights
Graph 8. Actual and projected
Mexico GDP in PPP terms, billions
USD, 2011-2015
7,409
3,662
Regional highlights
1,761
2011
Source: PwC
The world economy is projected to grow at around 3% annually between 2011 and 2050,
doubling in size by 2032 and nearly doubling again by 2050, reflecting a catch-up in
high-income economies.17 Mature economies will grow from 1.3% in 2013 to 2.2% in
2014 with some countries doing better: amongst high-income countries, the US is
expected to increase its growth from 1.9% in 2013 to 3% in 2016.18 It is forecasted that a
GDP growth in developing countries will be improved just slightly to 5.3% in 2014 and
5.7% in 2016. The slower growth will be driven primarily by China that will continue to
slow down.19
2030F
2050F
F-forecast
As a result of slower growth in Indonesia, Malaysia and Thailand caused by weak
commodity revenues and policy constrains, growth in East Asia & the Pacific slowed to
7.2% in 2013. Growth in Europe & Central Asia strengthened to an estimated 3.4% in
2013 as countries from this region increased exports to high-income Europe. The growth
will stay stable at 3.5% in 2014 and lift to 3.8% in 2016. Growth of the Middle East &
North Africa region is expected to remain weak; the 2014 growth outlook has improved
significantly to 2.8%, compared to 0.1 % growth in 2013.
Latin America & Caribbean witnessed a weak growth performance in 2013, caused by
weak trade, tighter financial conditions and dynamic commodity markets. Mexico is
expected to reach the value of 1,761 billion USD for GDP in Purchasing Power Parity
(PPP) terms in 2011 and 7,409 billion USD in 2050 (see Graph 8).²⁰
17 PwC
18 Conference Global Economic Board
19 WorldBank
2. Shift in global economic power
Human capital
Graph 9. Employment, % population, 15-64 in Mexico
(projection)
68
67.17
67
Mexican population was estimated to be 122,332 thousand in
2013 and projected to reach 125,927 thousand in 2025.
Consequently, the Mexican economically active population is
expected to expand to 56,412.6 thousand (67.17%) in the same
year (see Graph 9 ).21
66
Percentage
Although for the majority of OECD member countries
demographic trends don't influence GDP growth, demographic
changes made a significant contribution to growth in GDP per
capita in several countries such as Mexico, Korea, Turkey and
Ireland.20
65
64
63
62.09
62
61
60
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015F
2016F
2017F
2018F
2019F
2020F
59
However, there are several risks that could undermine a
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.
F - forecast
Source: PwC
20 OECD
21 UN
2. Shift in global economic power
Government policies
Since taking the office in December 2012, President Enrique
Peña Nieto passed a number of economic reforms which will
enable foreign investors to invest in sectors, such as the
telecommunications and energy, thus, increasing their
competitiveness. 2013’s FDI increased by 178% from the 12.7
billion USD seen in 2012.22
Trade policy
“A liberal trade regime and growing incomes will make the
Mexican market increasingly attractive to exporters and
investors”.23
Mexico has a large amount of agreements with many parties to
facilitate better international trade. These include: 10FTAs (Free
Trade Agreements) which help Mexico reach 45 countries; 30
Reciprocal Investment Promotion and Protection Agreements
(RIPPAs); and 9 trade agreements (Economic Complementation
and Partial Scope Agreements) within the framework of the Latin
American Integration Association (ALADI).24
22 Secretaría de Economia
23 DNB Country Report
24 Secretaría de Economia
Mexico is also a member of multinational and regional
organizations, forums and other bodies such as World Trade
Organization (WTO), the Asia-Pacific Economic Cooperation
(APEC) and OECD.
Mexico is the US’s largest trading partner - more than 78.8% of
Mexican exports went to the United States in 2013 and it could
overtake Canada as the United State’s principal trading partner. 24
Mexico is currently under negotiation for a new trade agreement
that will boost the countries economy. The agreement is called
Trans-Pacific Partnership, a negotiation between 11 countries.
The participating countries are Mexico, the US, Canada, Chile,
Peru, Australia, Malaysia, New Zealand, Singapore, Vietnam and
Brunei. The agreement will enable Mexico reach 658 million
people and a combined GDP of over 20 trillion USD. 25
25 Euclid news
2. Shift in global economic power
Economic shift
Table 3. Projected ranking of E7 and G7 economies
based on GDP in PPP terms, in billions USD, 2011 and
2050
Country
PPP
2011
Rank
Country
PPP 2030
Rank
Projected GDP in
PPP (constant USD
billions)
US
1
China
1
30,634
China
2
US
2
23,376
India
3
India
3
13,716
Japan
4
Japan
4
5,842
Germany
5
Russia
5
5,308
Russia
6
Brazil
6
4,685
Brazil
7
Germany
7
4,118
France
8
Mexico
8
3,662
UK
9
UK
9
3,499
Italy
10
France
10
3,427
Mexico
11
Indonesia
11
2,912
The seven largest emerging economies, which are collectively
referred to as the “E7” (China, India, Brazil, Russia, Indonesia,
Mexico and Turkey) could overtake the “G7” countries (the
United States (US), Japan, Germany, the United Kingdom (UK),
France, Italy and Canada) as early as 2017 in Purchasing Power
Parity (PPP) terms (see Table 3).
China is projected to overtake the United States as the largest
economy and reach GDP in Purchasing Power Parity (PPP) terms
of 30,634 billion USD in 2030. One of the most notable changes
compared to the 2011 position is Mexico (#8) appearing among
the top ten by 2030 with GDP in PPP terms of 3,662 billion USD
in 2030, followed by the UK. 26
Source: PwC
26 PwC
2. Implications of shift in global economic power
Information Technology
Graph 10. Real income in Mexico’s
IT sector, by company type, in
2008 and 2016 estimate, in
millions MXN
53,089
2008
2016F
32,669
23,880
14,196
Interactive
media
2,317
177 480
Independent
call centers
Software
development
BPO
1,318
F-forecast
Source: PROSOFT
In 2012, there were 4,050 economic units
in the Mexico’s IT sector. Out of them, 56%
were located in 4 states: the Federal
District (DF), Nuevo León, Jalisco and
Estado de México.
The evolution of the IT sector is also
impressive, the market value of the
Mexico’s IT market went up from 3.95
billion USD in 2002 to 12.86 billion USD
in 2011. The exports of services also
increased from 1,750 billion USD in 2002
to 4,940 billion USD in 2011. The number
of jobs in the sector also increased
substantially, from 226,000 in 2002 to
600,000 in 2011.27
In 2013, the government called for 700
billion MXN to be invested in the
telecommunications sector. The
investment will include the plans for two
new satellites, two digital TV networks and
expansion of the broadband to around
80,000 public sites and spaces.29
Mexico’s “First initiative” aims to certify
60,000 specialized workers in both
technical and soft skills by 2013. The
second “Mexico’s IT initiative” promotes
the country as a nearshore outsourcing
location for US companies. ProSoft
initiative, the third one, offers subsidies
and tax incentives for companies investing
in the IT sector.30
When it comes to profitability, BPO
(Business Process Outsourcing) companies
are the most profitable in the Mexico’s IT
sector, followed by the companies in the
software development and independent
call centers in third place in 2011 (see
Graph 10).28
27 PROSOFT
28 PROSOFT 2.0
29 PwC
30 A.T Kearney
3.Accelerating urbanization
Overview
The concept of city and urbanization starts to gain importance during the Industrial
Revolution with the development of technology and consequent implementation in
infrastructures like road, networks, sanitation, electricity distribution and others.
The number of world population and urban agglomerations are still growing year after
year. In 2013, the world population was around 7 billion, expecting to grow up to 9.5
billion by 2050. The number of agglomerations with more than 10 million inhabitants is
expected to rise from 2 in 1960 to 36 in 2025 as a result of worldwide urbanization
increase and the growth of regions like Latin America, the Middle East, North and
Central Africa and South and East Asia.42
Latin America is expected to grow around 6.5% each year until 2025, an outcome from a
growth of various factors like 461 million people entering the middle-class income, 567
million more people living in urban areas and an infrastructure expenditure of 1.5
trillion USD.43
42 UN
43 Frost &Sullivan
3. Accelerating urbanization
Graph 14. Forecast of Mexico’s
urban population growth, 20102050F
123.95
million
88.27
million
2010
2050
F-forecast
Source: United Nations
The process of urbanization in Mexico
began in the same time that the
industrialization process in the country,
around 1940. Since 1960, Mexican urban
population was higher than rural
population.44 The proportion of urban
population in Mexico increased from 52%
in 1962 to 78% in 2012, and keeps on
growing.45 The UN expects that, in 2050,
the number of people living in the Mexican
urban area will be 123.95 million (see
Graph 14).46
In 2010, almost 50% of Mexican urban
population lived in cities with more than 1
million of inhabitants, higher than the
global average (approximately 40%).47
During the period of 1990 and 2025, some
states are expected a significant growth in
terms of urban and total population, such
as Chiapas, Veracruz, Puebla, Estado de
México, Michoacán, Guanajuato and
Jalisco.48
44 CONAPO
45 OECD
46 UN
47 UN
48 UNAM
The constant growth of population living
in large urban agglomerations makes
important the delimitation of metropolitan
areas, municipalities and states, for a
better promotion of the urban
development, allowing the conjunction
between distribution and growth of
territorial population towards sustainable
development.
3. Accelerating urbanization
Table 5. The biggest metropolitan areas, in number of
inhabitants in 2010
Metropolitan Area
Population in 2010
1. Valle de México
20,137,152
2. Guadalajara
3. Monterrey
4,434,252
4,080,329
4. Puebla
2,336,694
5. Toluca
1,846,602
Source: CONAPO and INEGI
Graph 15. Population percentage of the metropolitan
areas, in millions
42.1
22.8
49.1
47.1
43.6
22.2
21.1
2010 E
2011 E
2014 F
More than one million
Source: CONAPO
20.6
57.2
55.7
52.4
20.6
18.7
18.3
In Mexico, like in other countries, the concept of metropolitan
areas is still a subject to a lot of discussion and complexity. In
2010 (according to national census), 53.8% of the total national
population resided in 59 metropolitan areas in Mexico.49
It’s important to mention that the metropolitan zone of Valle de
México is by far the largest metropolitan area in Mexico: in 2010,
it combined the population of 16 municipalities from Distrito
Federal, the 59 neighbor municipalities from Estado de México
and the suburban municipality of Tizayuca (see Table 5). The
newspaper Nuestro estimates that, by 2023, there will be at least
15,000 new colonies in metropolitan areas.49
The percentage of population living in the metropolitan areas is
set to increase continuously until the end of the forecast period.
The metropolitan areas will accommodate 57.2% of total
country’s population in 2025. The remaining metropolitan areas
will see a slight decline in the population, however, the total
number of metropolitan areas is going to rise (see Graph 15).50
2016F
2021F
2024F
2025F
The remaining metropolitan areas
E-estimated
F-forecast
49 Nuestro
50 CONAPO
3. Implications of accelerating urbanization
Lower carbon economy
30
In the past
years, Mexico
urbanized area
6
multiplied
times
when urban
population has
doubled.
Source: SEDESOL, La Expan´sión de las Ciudades 1980-2010,
2012
Cities are the place where the production, cultural and artistic exchange happen and it
generates knowledge and innovation in science and technology. Mexican cities grow
with a model of territorial occupation in 3D – Distant, Disperse and Disconnect –
meaning that expansion of the urban areas are disproportionate, fragmented and
unplanned. This model of territorial occupation is highly unproductive, deepening
inequality and generating high levels of pollution and GHG emissions. In turn, this
situation increases the urban risk of climate change, like the occupation of territories
susceptible to extreme weather events.51
Mexico has been engaged with a lower carbon economy, which, among other things,
means reducing emissions of greenhouse gases (GHG) by 30% by 2020, compared to the
baseline emissions.
It seems difficult to reach the indicator above mentioned when World Bank estimates
that the number of vehicles in Mexico was 32 million units in 2010 and if the trend
continues, it will reach 70 million units in 2030. For a productive life of 40 years,
Mexicans spend 3 years stuck in traffic jams. Mexico City loses 3.3 million man hours
with traffic congestion, which is equivalent to 33 billion MXN annually.51
51 SEMARNAT
3. Implications of accelerating urbanization
Graph 16. Mexico’s absolute
differences in water consumption
per capita, 1990-2025F, per state
Water scarcity in Mexico
Due to the rapid population growth, in the future there will be a scarcity of water, which
requires the daily per capita consumption to be reduced. The states presenting high
vulnerability to this indicator are Chihuahua, Baja California, Chiapas, Estado de
Mexico and Jalisco mainly because of increasing of total and urban population (see
Graph 16).52
Education
Mexico doesn’t have the professionals that cities need: only 9 universities offer a degree
related to urban planning in Mexico, which seems insufficient to meet the challenges
that demand the increasingly complex planning and management of cities. 52
Poverty and violence
From 101 to 200
From 51 to 100
From 21 to 50
From 0 to 20
Less than 0*
* Includes negative values
F-forecast
Source: UNAM – “Los asentamientos humanos en el cambio
climático en México”.
An article from 2013 published by CNN México affirms that according to the
government of President Enrique Peña Nieto, the urban poverty grows since 2008,
arriving to an estimate of 36 million people (40.6% of people living in cities) in 2012.
The importance of minimizing the extreme poverty and social violence in dozen of urban
areas made the government insert this subject in the main government social program
“La Cruzada Nacional contra el Hambre”. The first stage of the program includes 400
localities, among which are some of the major cities such as Tijuana (Baja California);
Ciudad Juárez (Chihuahua); Monterrey (Nuevo Leon) and Guadalajara (Jalisco). It
also includes four delegations of the Distrito Federal: Gustavo A. Madero, Iztapalapa,
Tlalpan and Álvaro Obregón.
52 UNAM
3. Implications of accelerating urbanization
Legislation
If Mexico can reduce the speed of urban
30% cost of
infrastructure investment and 68% of
expansion, it will saves
maintenance and operation utilities.
Source: CTS EMBARQ México and IMCO
Mexico has begun to implement some policies that recognize the
importance of cities and how they occupy the territory. The
creation of SEDATU (Spanish: Secretaria de Desarrollo Agrario,
Territorial y Urbano) is important because it gives the power of
developing national urban policies. It’s favorable that the
National Development Plan explicitly recognizes the crisis in
Mexican cities, points objectives, and defines strategies and
courses of action to address the enormous economic, social and
environmental costs posed by the growth of paradigm 3D.
In addition, the progress in the discussion of the General Law of
Human Settlements also contributes to the creation of an
appropriate legal and institutional framework for sustainable
development of cities.53
53 SEMARNAT
3. Implications of accelerating urbanization
Investment in infrastructure
Table 6. Strategic projects in infrastructure for urban
social development, 2013-2018, in million USD
Project
Investment
1
Urban transportation
15,433
2
Urban water and sanitation
14,735
3
Urban economic development
11,292
4
Urban connectivity network
6,671
5
Education and training
2,945
6
Telecommunications for safety
2,778
Total
Source: IMEF
53,854
A researcher, Lorena Isla, affirmed that “Urbanization creates
significant opportunities for investment in smart infrastructure
and new market opportunities for innovative products aimed at
urban households".54
On July 15th, 2013, Mexico’s president Enrique Peña Nieto,
unveiled the “Transport and Communications Infrastructure
Investment Program 2013-2018” that plans to invest 4 trillion
MXN (315 billion USD) in the nation’s infrastructure over the sixyear period.55 For the same period of time, IMEF defined a
portfolio of 1,138 strategic projects in infrastructure, where 6 of
them will be for urban social development (see Table 6). Also 69
projects were identified to increase logistical competitiveness,
with transport infrastructure having 24 projects followed by oil
and gas infrastructure with 20 projects, electricity infrastructure
wit 12 projects. The last two water and sanitation and
telecommunications infrastructure had less that 10 projects
planned.56
54 Pulsosocial
55 Presidencia de la Republica, Mexico
56 IMEF
4. Resource scarcity and climate
change
Overview
PwC makes several predictions about the global climate. Between 2013 and 2030,
average temperatures are expected to increase between 0.5°C and 1.5°C (a considerable
increase considering they have risen by 0.5°C over the past 20 years). This is due in part
to an increased dependency on fossil fuels, which will lead to a rise of 16% in carbon
emissions for the same period.
By 2030, the worldwide population is expected to reach 8.3 billion people, which will
raise the global demand for resources such as energy, water, and food (see Graph 11).31
Graph 11. With a population of 8.3 billion
people by 2030, we will need:
50%
more energy
Source: PwC
31 PwC
40%
35%
more water
more food
4. Resource scarcity and climate change
Temperature Raise
Table 4. Mexican projected
temperature increase, 2020-2080
In 2080, the temperature in the north part of Mexico is projected to increase up to
4.8°C, while that in the southern part of the country could rise up to 2.8°C (see Table
4).32
Period
North
Mexico
South
Mexico
Carbon Dioxide Emissions
2020
1.3±0.8°C
0.5±0.5°C
2050
2.3±1.0°C
1.3±0.3°C
2080
3.5±1.3°C
2.5±0.3°C
Source: Secretariat of Environment and Natural Resources of
Mexico, 2012
Carbon dioxide is the main contributor to the greenhouse effect, causing up to 80% of
the damage to the atmosphere from 2005 to 2011. Methane, halocarbons and nitrous
oxide contribute to the remaining 20%.
Based on data collected by the United States’ Department of Transportation, emissions
of carbon dioxide from energy-related sources (such as the burning of fossil fuels) is
increasing in most of the countries, even with the importance attributed over the last few
years to renewable energies. Such is the case for Mexico, where this type of gas emission
is expected to more than double from 1990 to 2030.
Energy-related carbon dioxide emissions in Mexico are expected to increase from 300
million metric tons in 1990 to almost 700 million in 2030. It is worth noting that this
means that emissions will have an average annual percent change of 2.3% over the 40
year period, while the OECD average is expected to be just 0.8%.33
32 SEMARNAT,
33 Intergovernmental Panel on Climate Change
4. Implications of resource scarcity and climate change
Graph 12. Projected loses of
agricultural income of Mexican
states (in % of agricultural
income), 2008-2050F
Mexico is vulnerable to the impacts of climate change on many fronts with 68% of the
Mexican population and 71% of GDP strongly exposed to climate change risk.
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 a sea level rise of 20 cm by 2050.34
Adverse health effects
According to a study led by Mexico’s Federal Commission Against Sanitary Risks
(COFEPRIS), in 2012, climate change can have negative effects on Mexico’s population.
Increases in temperature can lead to the proliferation of diseases such as dengue fever,
as well as a larger amount of cases of heat strokes in people, both of which can be deadly,
particularly in infants and the elderly. Statistical data shows that in the case of countries
in the European Union, an increase of 1°C in temperature can lead to an increase in the
mortality rate of between 1% and 4%.35
Adverse agriculture effects
Total loss
Loss greater than 50%
Loss between 0% and 50%
Income Increase
F-forecast
Source: SAGARPA
Mexico’s Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y
Alimentación (SAGARPA) released a report which tried to highlight the impact of
climate change in the sector in the medium- to long-term.
The study found that if the trend of increasing temperature and reducing rainfall
continued, by 2050 many Mexican states would be faced with catastrophic losses.
The map on the left tells us that from 2008 to 2050 only 6 of all the Mexico’s states will
see an increase in their agricultural income, while the rest of them will suffer in this
regard. States like Guerrero will see total losses, which means their agriculture sector
will be completely decimated by adverse weather conditions (see Graph 12).
If the analysis is extended to the year 2099, the outlook is even worse. By then, more
than half of Mexico’s states will have lost over 50% of their agricultural incomes, due to
the inability to properly grow crops such as corn, wheat, orange and beans, and more
difficulties in taking care of livestock.36
34 OECD
35 COFEPRIS
36 SAGARPA
4. Implications of resource scarcity and climate change
Renewable energy
Graph 13. Installed capacity for electricity generation
in Mexico, in GW, 2012-2035F
1602
990
1035
283
Wind
Source: Secretaría de Economia
In 2012, FDI (Foreign Direct Investment) announcements by
companies for renewable energy in Mexico totaled 1,442 million
USD.
406
244
100
Hydro
Mexico has good conditions for the development of renewable
energy.37 To give an example, Mexico’s sun exposure during a
period lasting six hours generates the same amount of energy that
is consumed during the whole year. In terms of wind power, the
estimation of Mexico’s technically usable wind power potential is
14% of the current total installed capacity for electricity
generation. The untapped potential for wind power in exact
numbers in Mexico totals 40,000 MW, while it stands at 53,000
MW for hydro power and 40,000 MW for geothermal in 2012.
Solar
2012
83
Biomass
2035
3
91
Solar (CSP)
12 59
Other
The capacity for electricity generation in renewable energy in
Mexico is expected to increase substantially, with hydro power
taking the lead, followed by wind and solar power (see Graph
12).38
F-forecast
37 ProMéxico Negocios
38 ProMéxico
4. Implications of resource scarcity and climate change
Green economy in
Mexico
In commemoration of the World
Environment Day in 2013 Juan José
Guerra Abud stated that Mexico had a
responsibility to demand other countries to
reduce their greenhouse gases (GHG)
emissions, seeing how Mexico only
generates around 1.4% of these gases on a
global scale.
Juan José Guerra Abud also stated that the
country has a long way to go in terms of
handling deforestation, solid waste
management issues and mentioned the low
participation of green businesses in terms
of Gross Domestic Product (GDP), which is
barely 0.6% for Mexico and 10% in
Denmark, a leader in this topic.
Circular economy
The president of the Mexican Association
of Environmental Impact, Ricardo Juarez
Palacio is asking for urgent update on the
country’s legal framework. That is because
the General Law of Ecological Equilibrium
was cutting edge at the time it was passed
which was 25 years ago with a second law
passed 14 years ago, but they have a need
for update to reflect current situation
better. 39
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.40
39 El Economista
40 Universopyme
During the World Economic Forum’s
Annual Meeting 2014, Ellen MacArthur
Foundation announced “Project
Mainstream”. The project will help
businesses to shift towards a circular
economy and, as a result, it will save 500
million USD in materials and prevent 100
million tons of waste globally. The term
“Circular Economy” refers to an industrial
economy that relies on renewable energy,
minimizes, tracks, and eradicates waste
through careful design.
The first “Project Mainstream” report
estimates that the transition to a circular
economy could contribute 1 trillion USD a
year by 2025 to the global economy and
create 100,000 new jobs within the next
five years, if companies would commit to
change.41
41 Ellen MacArthur Foundation
5. Technological breakthroughs
Overview
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 mechanisms for sustainable growth.57
A representative of CONACYT (Spanish: Consejo Nacional de Ciencia y Tecnología),
Enrique Cobrero says that Mexico still lags behind many countries in terms of number of
researchers per one thousand inhabitants, where Mexico has only 1 researcher, when
South Korea has 12; the United States, 9; Canada, 8; and Spain, 6. Other indicators that
Mexico needs to catch up are articles published and patents registered.58
57 OECD
58 El Financiero
5. Technological breakthroughs
Graph 17. Mexico’s coefficient of
inventiveness, 2008-2012
0.064
2008
0.076
0.08
2009
2010
0.107
0.093
2011
2012
Source: CONACYT
Graph 18. Number of patents
requests and patents granted to
Mexico, 2008-2014*
15,444
15,314
14,576
14,055
12,330
11,485
10,343
9,399
3,935
2,204
2010
2011
Applications
2012
2013
Granted
2014*
*data until March
CONACYT estimates a coefficient of
inventiveness to determine the countries’
degree of inventiveness. It measures the
number of national applications for
patents per 10,000 inhabitants and the
proportion of the population devoted to
technological activities. A higher
coefficient indicates more technological
activities currently being undertaken in the
country. In Mexico, the coefficient has
increased significantly since 2008, going
from 0.064 in 2008 to 0.107 in 2012 (see
Graph 17).
Patents
Mexico is the 17th country with the most
registered patents in the world, with over
77 thousand registered patents.59
According to Instituto Mexicano de la
Propiedad Industrial (IMPI), Mexico has
had around 15 thousand patent requests
per year since 2008 and has granted over
10 thousand of these per year as well.60
Source: IMPI
59 World Intellectual Property Organization
60 IMPI
While patents requests and patents
granted have remained relatively stable
since 2008, they have not seen any growth,
which indicates Mexico needs to provide
further incentives and support for both
intellectual property and production of
technological breakthroughs in the
country. This is further illustrated by the
fact that over half of patent requests and
granted patents came from the United
States.
In 2013, a measly 302 patents were
granted to Mexicans, out of a total of
10,343, according to data from IMPI (see
Graph 18).60
5. Technological breakthroughs
Competitiveness
Table 7. Mexico’s ranking in the WEF’s Global
Competitiveness Report Innovation Pillar
Year of WEF Report
World Ranking in
Innovation
2013-2014
2012-2013
2011-2012
2010-2011
2009-2010
2008-2009
55th
56th
63rd
78th
78th
90th
The World Economic Forum (WEF) releases a yearly report
known as the Global Competitiveness Report, which ranks
countries based on their overall global competitiveness, which is
based on 12 different pillars. One of these pillars is innovation,
which measures how capable countries are of producing
technological breakthroughs.
Mexico has seen vast improvements in its ranking in terms of
innovation, going from 90th place worldwide in 2008 to 55th place
in 2013 (see Table 7). The biggest areas in which Mexico needs to
improve in order to further increase its ranking are: its capacity
for innovation, government procurement of advanced
technological products and its availability of highly qualified
scientists and engineers.61
Source: WEF
61 World Economic Forum
5. Technological breakthroughs
Employment
Graph 19. Base of science and technology human
resources in Mexico in millions, 2008-2012
10.6
10.4
10.1
9.8
9.5
2008
2009
2010
2011
2012E
According to estimates made by CONACYT, the number of people
working in the Science and Technology sector in Mexico was 10.6
million in 2012, an increase of around 200 thousand workers
compared to 2011 (see Graph 19).
In terms of gender composition, in 2012, 50.7% were males and
49.3% were females.
According to the same report, out of the 10.6 million people
working for the Mexico’s Science and Technology sector in 2012,
only around 3,3 million had a science degree. The majority of
them had a bachelor’s degree (87.1%), followed by those having a
master’s degree (11.9%). Students with a PhD represented only
1%.62
E-estimation
Source: CONACYT
62 CONACYT
5. Technological breakthroughs
Investment
Graph 20. Mexican public investment on science,
technology and innovation (as % of GDP), 2006-2013
0.42
0.41
0.39
0.40
0.36
2008
2009
2010
Source: Scientific and Technologic Consulting Forum (FCCyT)
2011
2012
The President Peña Nieto formalized the creation of the General
Council on Scientific Investigation, Technological Development
and Innovation in September 2013, therefore, announcing about
renewed support for technology and innovation in the
country.623Historically, Mexico’s public investment in science,
technology and innovation has hovered at around 0.4% of the
country’s GDP. The budget of CONACYT which provides
scholarship, investigation funds, and more, has also been steadily
increasing in the past decade (see Graph 20). 64
The President also confirmed the goal of the current government,
which is to bring the investment to around 1% of GDP, placing it
around the average of other developing countries. However, this
should only be considered the first step for Mexico, taking into
account that the OECD average investment in 2011 stood at 2.3%,
and countries like Finland, Japan and Korea invested over 3.5%
of their GDP in the sector. 65
63 El Economista
64 CONACYT
65 OECD
5. Technological breakthroughs
Forecast
The future brings positive outlook for the information technology
industry in Mexico. It is forecasted that the market will grow by
6.9% in 2014 to reach a total value of 293.3 billion MXN. This
growth is expected to be bigger than the one achieved in 2013
because of the slight shift in consumption from notebooks and
low-cost tablets. 66
450,000
1.8
400,000
1.6
350,000
1.4
300,000
1.2
250,000
1
200,000
0.8
150,000
0.6
100,000
0.4
50,000
0.2
0
0
2014
2015F
2016F
Market value
Source: BMI
% of GDP
Million MXN
Graph 21. Forecast of the value of Mexico’s IT
industry and contribution to GDP (billion MXN and
%), 2014-2018
2017F
2018F
% of GDP
The compound annual growth rate for the period 2014-2018 is
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 (see Graph 21).66
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. It is important to mention that the government
spending will represent a key driver across all the industry
segments.
F-forecast
66 BMI
5. Implications of technological breakthroughs
Healthcare industry
Table 8 – Expected health benefits from mHealth in
Mexico, in 2017
Activities
Unit
100%
adoption
(full
potential)
10%
adoption
(if no
action
taken)
Estimated
population in 2017
M
Additional Patients
Reached
M
15.5
1.7
bn USD
3.8
0.4
1.9
0.2
M
2.3
0.3
bn USD
8.4
0.9
Total Care Cost
Saved
Public Care Cost
Saved
Additional Patients
accommodated
within cost savings
Additional economic
output generated by
healthier patients
Source: GSMA & PwC
bn USD
121.1
Technological breakthrough is creating opportunities in many
industries, including, but not limited to healthcare, government,
education, etc.
IT development is helping the healthcare industry in the many
ways such as improving patient to healthcare provider
interaction, increasing dissemination of information
dissemination, preventing and controlling emerging infectious
diseases, etc. Mexican hospitals are using mobile technologies
(mHealth solutions) to connect patients and doctors through
diagnosis services, e.g. within the project called Telemedic,
medical service i.e. health advice relating to self-treatment is
provided by phone. Another example – Diabedario, provides a set
of interactive tools (including educational messages, a
glucose diary and medication reminders) for self-management of
diabetes by patients.
mHealth could enable an additional 15.5 million people access to
the healthcare system in Mexico with total healthcare expenditure
reduction of 3.8 billion USD in Mexico. Enhanced productivity
could add 8.4 billion USD to the Mexican GDP (see Table 8).
Contact us:
If you have more questions about the topic or wish to learn more about other
Mexican industries, please contact:
José Antonio Quesada
Alexandra Mendes
Partner Clients & Markets
[email protected]
(55) 5263 6070
Consultant
[email protected]
(55) 5263 7536
Manuel Flores De Orta
Ekaterina Ponkratova
Sr. Specialist Manager Knowledge Management
and Knowledge Center Clients & Markets
[email protected]
(55) 5263 8543
Consultant
[email protected]
(55) 5263 7586
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