Global Megatrends

Mexico Focus

November 2014

The world is changing. Major economic, cultural, social and scientific changes are
Five global having a significant impact in the world. These changes are known as megatrends.
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.
continue to advance
Demographic
Highlights Resource
shifts
By 2025, World will have added another scarcity and
billion people to reach about 8 billion, with climate change
the over-65s the fastest-growing group. Shift in global
China will replace the US as the worlds
economic power
largest economy by 2015 Technological
By 2025, there could be nearly 40 cities breakthroughs
each with a population of over 10 million Accelerating
people urbanization
Only 50 years of supply left in proven oil
reserves These changes are occurring now and causing reactions in companies as well as
individuals, with most attempting to respond in their own best interests.
In 10 years, smartphones are reaching half How will these trends evolve in the future?
of US households
In this paper, we explore how these five megatrends are affecting the Mexican market in
different ways

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.
2 Shift in global
economic power
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.
3 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.

4 Resource scarcity
and climate
change
5 Technological
breakthroughs

Between 2013 and 2030, average
temperatures are expected to increase
between 0.5C and 1.5C. By 2030, the
worlds population is expected to reach 8.3
billion people. Both human interventions
and climate change will affect global
resources globally and in Mexico.
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.

PwC 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. 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 60s, while a 2014 estimate is 2.29 children per woman.
The number is expected to be below 2 before 2020. At the same time, life expectancy
has grown - most of the Mexican population did not live beyond their 50s in 1960, when
in 2011 life expectancy was 76.8.

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
In 2012, the Mexican population was around 122 million, putting Graph 2. Fertility rate (number of children) and life
the country in the 11th place in the list of the most populous expectancy (years) in Mexico, 2010 and forecast
countries in the world.
2.30 80

Graph 1. Total Mexican population in thousands, 2.25 79

Number of Children
1950, 2013F, 2025F and 2050F 2.20 78

156,102 2.15 77

Years
138,195
122,332 2.10 76

2.05 75

2.00 74
28,296
1.95 73

2014F
2016F
2018F
2020F
2022F
2024F
2026F
2028F
2030F
2032F
2034F
2036F
2038F
2040F
2042F
2044F
2046F
2048F
2050F
2010E
2012E
1950 2013F 2025F 2050F
F-forecast
Source: United Nations
Fertility rate Life expectancy
E-estimation
Source: Conapo, 2010 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).
4 United Nations
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 DNB
1. Demographic shift
Population structure
In the long-term, the total dependency burden is projected to By 2050, there will be four times more people above 80 years
grow with the declining youth-dependency ratio and the raising living in Mexico than in 2013 (see Table 1). Mexico is a female-
over- 65 dependency ratio (see Graph 3). dominated country with 63,063 thousand or 51.6% of women vs.
59,269 thousand of men in 2013.(UN 2013 medium variant
Graph 3. Age-dependency ratio in Mexico
estimation).
(projection), 2000-2050
87 Unlike many countries, migration hardly influences the size of
69 the population in Mexico. Estimates of 2013 show that the
55 natural growth in Mexico accounted for an increase in the
46 42
35 40 population by 1,572,250 people, there was a negative social
26 growth by 239,017 people. Natural growth is the difference in
13 18
9 11 the number of births minus deaths in a given year; social growth
is the difference in the number of immigrants minus emigrants.
2000 2010 2020F 2030F 2040F 2050F
Population aged 65+ as a % of population aged 20-64 Table 1. Forecast of Mexican population composition,
Population aged less than 20 as a % of population aged 20-64 in %
F-forecast 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 15-59 62.0% 57.4% 46.8%
in the medium variant scenario (medium variant projection is 60-79 8.1% 20.0% 23.5%
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 80+ 1.4% 5.9% 15.9%
Source: United Nations
27.3 years in 2014 to 50.5 years by the end of 2100.
E-estimated
6 CIA and UN data 7 Conapo F-forecast
1. Demographic shift
Socio-economic characteristics of population
On a global scale, Mexico is considered to be an upper-middle Table 2. Income distribution by socioeconomic group
income country, and the population is moving in socioeconomic in Mexico, %, 2013
levels. 17% of the Mexican population has become a part of the
middle class between 2000 and 2010. Socioeconomic
Population share Income share
group
In 2013, the top 6.4% of the wealthiest people in Mexico earned Upper 6.4% 33.7%
33.7% of total income. The combined income of upper and upper
Upper middle 8.4% 16.6%
middle class (33.7% and 16.6% correspondingly) was over 7 times
higher than of marginalized class (6.3%) (see Table 2). However, Middle 11.3% 14.5%
this is by no means an extreme income distribution. Inequality Lower middle 22.8% 18.3%
had gone down about 4.7 points on Gini index in the same
Lower 22.7% 10.6%
period, from 51.87 (2000) to 47.16 (2010). Gini index measures
income distribution of a nations residents.9 Marginalized 28.5% 6.3%

Source: Canback analysis

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
1. Implications of demographic shift
Workforce Graph 4. Economically active population estimates and projections in
Mexico in 2013 and 2020F, by age group, %
As a direct result of the demographic 80
change, the workforce composition will 70
60
change. For example, there will be a higher

Percentage
50
rate of participation in the labor market by 40
the elderly (see Graph 4). 30
20
Even though a female share of the Mexican 10
population slightly exceeds the male, 0
15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+
gender disparities in employment rates are
2013 2020
very high. Male employment rates were
F-forecast
substantially higher than female
Source: International Labour Organization (ILO)
employment: in 2012, labor force
participation rate for male was 80% vs. Graph 5. Labor force participation in Mexico in %, projection and
45% for female.10 estimate

The share of women in the labor market 83.9 83.2 82.7 81.1 80.5 80.5 80.2
has increased, from 34.3% in 1990 to
44.6% in 2012 and is projected to rise even 41.0 43.9 45.7 47.0
34.3 37.6 38.8
further and reach 47% by 2020 (see Graph
5).11

1990 1995 2000 2005 2010 2015F 2020F

Male Female
F-forecast
10World Bank Source: International Labour Organization (ILO)
11 ILO
1. Implications of demographic shift
Pensions
A growing ageing population is putting Graph 6. Public and private expenditure on pensions in Mexico as a % of
pressure on pension and healthcare GDP
systems. 0.3
0.3 0.3
0.2
If we analyze in a global level, public
0.1
pension spending was 7.8% of GDP in
2009, compared with 2.2% of private
pension benefits.
1.4 1.5
1.2 1.2 1.3
Mexico spent 1.6% of GDP on public old- 0.9 0.3
age benefits in 2009 while private
expenditure was 0.3% of GDP (see Graph
6). 2000* 2005 2006 2007 2008 2009 2010**

Public expenditure Private expenditure

The increasing number of pensioners will *Data is not available for private expenditure
inevitably lead to an increase in spending **Data is not available for public expenditure
on pensions. On average pension Source: OECD, 2013
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
1. Implications of demographic shift
Healthcare spending
The healthcare spending is forecast to rise Graph 7. Forecast Healthcare spending in Mexico, in USD per capita,
from 782 USD in 2013 to 1,057 USD per 2013-2017
person in 2017 in Mexico (see Graph 7).13 1,100 1,057
979
The aging population raises concerns 1,000
920
about the affordability of pension and
900 866
healthcare programs. More than one in
five Mexicans ages 65 and more live in 782
800
poverty. There are a number of federal and
USD
regional social programs created to 700
support the interest of elderly individuals
in Mexico, for example, 70 y mas, 600
Oportunidades, Catastrophic Expense
Protection Fund, etc.14 500
2013 2014 2015F 2016F 2017F

Source: Economist Intelligence Unit, 2013 F-forecast

13 Economist Intelligence Unit

14 OECD
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 worlds biggest economies.

15 PwC
16 OECD
2. Shift in global economic power
Graph 8. Actual and projected
Mexico GDP in PPP terms, billions
USD, 2011-2015
7,409
3,662
Global highlights
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

1,761
Regional highlights
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
2011 2030F 2050F
7.2% in 2013. Growth in Europe & Central Asia strengthened to an estimated 3.4% in
F-forecast 2013 as countries from this region increased exports to high-income Europe. The growth
Source: PwC 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).

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 Although for the majority of OECD member countries
(projection) 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
68
Ireland.20
67 67.17

66 Mexican population was estimated to be 122,332 thousand in

65 2013 and projected to reach 125,927 thousand in 2025.
Percentage

Consequently, the Mexican economically active population is

64
expected to expand to 56,412.6 thousand (67.17%) in the same
63 year (see Graph 9 ).21
62 62.09
61 However, there are several risks that could undermine a
demographic driver, e.g. the quality of Mexico's human capital. In
60
order to benefit from the demographic bonus instead of just
59 adding to the ranks of the unemployed, the country will need to
2002

2010
2003

2012

2014
2001

2005

2007

2016F

2019F
2011
2000

2017F
2018F

2020F
2004

2006

2008
2009

2013

2015F

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
Pea 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. 2013s 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 Secretara de Economia
23 DNB Country Report
24 Secretara 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 USs 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 States 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 The seven largest emerging economies, which are collectively
based on GDP in PPP terms, in billions USD, 2011 and referred to as the E7 (China, India, Brazil, Russia, Indonesia,
2050 Mexico and Turkey) could overtake the G7 countries (the
United States (US), Japan, Germany, the United Kingdom (UK),
Country PPP Country PPP 2030 Projected GDP in France, Italy and Canada) as early as 2017 in Purchasing Power
2011 Rank PPP (constant USD Parity (PPP) terms (see Table 3).
Rank billions)
US 1 China 1 30,634 China is projected to overtake the United States as the largest
China 2 US 2 23,376 economy and reach GDP in Purchasing Power Parity (PPP) terms
India 3 India 3 13,716
of 30,634 billion USD in 2030. One of the most notable changes
compared to the 2011 position is Mexico (#8) appearing among
Japan 4 Japan 4 5,842 the top ten by 2030 with GDP in PPP terms of 3,662 billion USD
Germany 5 Russia 5 5,308 in 2030, followed by the UK. 26
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

Source: PwC

26 PwC
2. Implications of shift in global economic power
Information Technology
Graph 10. Real income in Mexicos In 2012, there were 4,050 economic units
IT sector, by company type, in in the Mexicos IT sector. Out of them, 56%
2008 and 2016 estimate, in were located in 4 states: the Federal
millions MXN District (DF), Nuevo Len, Jalisco and
Estado de Mxico.
53,089
2008 2016F The evolution of the IT sector is also
impressive, the market value of the
Mexicos IT market went up from 3.95
32,669 billion USD in 2002 to 12.86 billion USD
in 2011. The exports of services also
23,880 increased from 1,750 billion USD in 2002
to 4,940 billion USD in 2011. The number
14,196 of jobs in the sector also increased
substantially, from 226,000 in 2002 to
600,000 in 2011.27
2,317
1,318 177 480
When it comes to profitability, BPO
(Business Process Outsourcing) companies
BPO
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
Mexicos First initiative aims to certify
60,000 specialized workers in both
technical and soft skills by 2013. The
second Mexicos 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

Interactive
development

Independent
call centers
Software

media

are the most profitable in the Mexicos IT

sector, followed by the companies in the
software development and independent
call centers in third place in 2011 (see
F-forecast Graph 10).28
Source: PROSOFT
27 PROSOFT 29 PwC
28 PROSOFT 2.0 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 Mexicos The process of urbanization in Mexico The constant growth of population living
urban population growth, 2010- began in the same time that the in large urban agglomerations makes
2050F industrialization process in the country, important the delimitation of metropolitan
around 1940. Since 1960, Mexican urban areas, municipalities and states, for a
123.95
population was higher than rural better promotion of the urban
million population.44 The proportion of urban development, allowing the conjunction
88.27 population in Mexico increased from 52% between distribution and growth of
million in 1962 to 78% in 2012, and keeps on territorial population towards sustainable
growing.45 The UN expects that, in 2050, development.
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
2010 2050
million of inhabitants, higher than the
global average (approximately 40%).47
During the period of 1990 and 2025, some
F-forecast states are expected a significant growth in
Source: United Nations terms of urban and total population, such
as Chiapas, Veracruz, Puebla, Estado de
Mxico, Michoacn, Guanajuato and
Jalisco.48

44 CONAPO
45 OECD
46 UN
47 UN
48 UNAM
3. Accelerating urbanization

Table 5. The biggest metropolitan areas, in number of

inhabitants in 2010
In Mexico, like in other countries, the concept of metropolitan
Metropolitan Area Population in 2010 areas is still a subject to a lot of discussion and complexity. In
1. Valle de Mxico 20,137,152 2010 (according to national census), 53.8% of the total national
2. Guadalajara 4,434,252 population resided in 59 metropolitan areas in Mexico.49
3. Monterrey 4,080,329
4. Puebla 2,336,694 Its important to mention that the metropolitan zone of Valle de
5. Toluca 1,846,602 Mxico is by far the largest metropolitan area in Mexico: in 2010,
Source: CONAPO and INEGI it combined the population of 16 municipalities from Distrito
Graph 15. Population percentage of the metropolitan Federal, the 59 neighbor municipalities from Estado de Mxico
areas, in millions and the suburban municipality of Tizayuca (see Table 5). The
newspaper Nuestro estimates that, by 2023, there will be at least
55.7 57.2
52.4 15,000 new colonies in metropolitan areas.49
47.1 49.1
42.1 43.6
The percentage of population living in the metropolitan areas is
set to increase continuously until the end of the forecast period.
22.8 22.2 21.1 20.6 20.6 The metropolitan areas will accommodate 57.2% of total
18.7 18.3
countrys 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
2010 E 2011 E 2014 F 2016F 2021F 2024F 2025F
More than one million The remaining metropolitan areas

E-estimated
F-forecast 49 Nuestro
Source: CONAPO 50 CONAPO
3. Implications of accelerating urbanization

Lower carbon economy

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
In the past 30 meaning that expansion of the urban areas are disproportionate, fragmented and
unplanned. This model of territorial occupation is highly unproductive, deepening
years, Mexico inequality and generating high levels of pollution and GHG emissions. In turn, this
urbanized area situation increases the urban risk of climate change, like the occupation of territories
susceptible to extreme weather events.51
multiplied times 6 Mexico has been engaged with a lower carbon economy, which, among other things,
when urban means reducing emissions of greenhouse gases (GHG) by 30% by 2020, compared to the
population has baseline emissions.
doubled.
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
Source: SEDESOL, La Expansin de las Ciudades 1980-2010, continues, it will reach 70 million units in 2030. For a productive life of 40 years,
2012 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. Mexicos absolute Water scarcity in Mexico

differences in water consumption
per capita, 1990-2025F, per state
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 doesnt 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

An article from 2013 published by CNN Mxico affirms that according to the
government of President Enrique Pea Nieto, the urban poverty grows since 2008,
From 101 to 200
arriving to an estimate of 36 million people (40.6% of people living in cities) in 2012.
From 51 to 100
The importance of minimizing the extreme poverty and social violence in dozen of urban
From 21 to 50
areas made the government insert this subject in the main government social program
From 0 to 20
La Cruzada Nacional contra el Hambre. The first stage of the program includes 400
Less than 0*
localities, among which are some of the major cities such as Tijuana (Baja California);
* Includes negative values
Ciudad Jurez (Chihuahua); Monterrey (Nuevo Leon) and Guadalajara (Jalisco). It
also includes four delegations of the Distrito Federal: Gustavo A. Madero, Iztapalapa,
F-forecast Tlalpan and lvaro Obregn.
Source: UNAM Los asentamientos humanos en el cambio 52 UNAM
climtico en Mxico.
3. Implications of accelerating urbanization

Legislation
Mexico has begun to implement some policies that recognize the
importance of cities and how they occupy the territory. The
If Mexico can reduce the speed of urban creation of SEDATU (Spanish: Secretaria de Desarrollo Agrario,
Territorial y Urbano) is important because it gives the power of
30% cost of
expansion, it will saves developing national urban policies. Its favorable that the
National Development Plan explicitly recognizes the crisis in

infrastructure investment and 68% of

Mexican cities, points objectives, and defines strategies and
courses of action to address the enormous economic, social and
maintenance and operation utilities. environmental costs posed by the growth of paradigm 3D.

Source: CTS EMBARQ Mxico and IMCO 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 A researcher, Lorena Isla, affirmed that Urbanization creates

significant opportunities for investment in smart infrastructure
Table 6. Strategic projects in infrastructure for urban and new market opportunities for innovative products aimed at
social development, 2013-2018, in million USD urban households".54
Project Investment
On July 15th, 2013, Mexicos president Enrique Pea Nieto,
1 Urban transportation 15,433 unveiled the Transport and Communications Infrastructure
2 Urban water and sanitation 14,735 Investment Program 2013-2018 that plans to invest 4 trillion
MXN (315 billion USD) in the nations infrastructure over the six-
3 Urban economic development 11,292 year period.55 For the same period of time, IMEF defined a
4 Urban connectivity network 6,671 portfolio of 1,138 strategic projects in infrastructure, where 6 of
them will be for urban social development (see Table 6). Also 69
5 Education and training 2,945 projects were identified to increase logistical competitiveness,
6 Telecommunications for safety 2,778 with transport infrastructure having 24 projects followed by oil
and gas infrastructure with 20 projects, electricity infrastructure
Total 53,854 wit 12 projects. The last two water and sanitation and
Source: IMEF 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 0.5C and 1.5C (a considerable
increase considering they have risen by 0.5C 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% 40% 35%

more energy more water more food

Source: PwC

31 PwC
4. Resource scarcity and climate change
Table 4. Mexican projected
temperature increase, 2020-2080
Temperature Raise
In 2080, the temperature in the north part of Mexico is projected to increase up to
4.8C, while that in the southern part of the country could rise up to 2.8C (see Table
4).32

Period North
Mexico
South
Mexico
Carbon Dioxide Emissions
Carbon dioxide is the main contributor to the greenhouse effect, causing up to 80% of
2020 1.30.8C 0.50.5C
the damage to the atmosphere from 2005 to 2011. Methane, halocarbons and nitrous
2050 2.31.0C 1.30.3C oxide contribute to the remaining 20%.
2080 3.51.3C 2.50.3C 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
Source: Secretariat of Environment and Natural Resources of
Mexico, 2012 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 Mexicos Federal Commission Against Sanitary Risks
(COFEPRIS), in 2012, climate change can have negative effects on Mexicos 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 1C in temperature can lead to an increase in the
mortality rate of between 1% and 4%.35

Adverse agriculture effects

Mexicos Secretara de Agricultura, Ganadera, Desarrollo Rural, Pesca y
Alimentacin (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.
Total loss Loss between 0% and 50% The map on the left tells us that from 2008 to 2050 only 6 of all the Mexicos states will
Loss greater than 50% Income Increase 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
F-forecast will be completely decimated by adverse weather conditions (see Graph 12).
Source: SAGARPA If the analysis is extended to the year 2099, the outlook is even worse. By then, more
than half of Mexicos 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
Mexico has good conditions for the development of renewable
energy.37 To give an example, Mexicos sun exposure during a
Graph 13. Installed capacity for electricity generation period lasting six hours generates the same amount of energy that
in Mexico, in GW, 2012-2035F is consumed during the whole year. In terms of wind power, the
estimation of Mexicos technically usable wind power potential is
1602
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.
990 1035

In 2012, FDI (Foreign Direct Investment) announcements by

companies for renewable energy in Mexico totaled 1,442 million
406 USD.
283 244
100 83 91 The capacity for electricity generation in renewable energy in
3 12 59
Mexico is expected to increase substantially, with hydro power
Hydro Wind Solar Biomass Solar (CSP) Other taking the lead, followed by wind and solar power (see Graph
2012 2035 12).38
F-forecast
Source: Secretara de Economia

37 ProMxico Negocios
38 ProMxico
4. Implications of resource scarcity and climate change
Green economy in
Mexico
In commemoration of the World
Environment Day in 2013 Juan Jos
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 Jos 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.
The president of the Mexican Association
of Environmental Impact, Ricardo Juarez
Palacio is asking for urgent update on the
countrys 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
Circular economy
During the World Economic Forums
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 Tecnologa),

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

CONACYT estimates a coefficient of

Graph 17. Mexicos coefficient of inventiveness to determine the countries While patents requests and patents
inventiveness, 2008-2012 degree of inventiveness. It measures the granted have remained relatively stable
number of national applications for since 2008, they have not seen any growth,
0.107 patents per 10,000 inhabitants and the which indicates Mexico needs to provide
0.093
0.076 0.08 proportion of the population devoted to further incentives and support for both
0.064
technological activities. A higher intellectual property and production of
coefficient indicates more technological technological breakthroughs in the
activities currently being undertaken in the country. This is further illustrated by the
2008 2009 2010 2011 2012 country. In Mexico, the coefficient has fact that over half of patent requests and
increased significantly since 2008, going granted patents came from the United
Source: CONACYT
from 0.064 in 2008 to 0.107 in 2012 (see States.
Graph 18. Number of patents Graph 17). In 2013, a measly 302 patents were
requests and patents granted to granted to Mexicans, out of a total of
Mexico, 2008-2014* 10,343, according to data from IMPI (see
15,444
Patents Graph 18).60
14,576 15,314
14,055 Mexico is the 17th country with the most
11,485 12,330
9,399 10,343 registered patents in the world, with over
3,935
77 thousand registered patents.59
2,204 According to Instituto Mexicano de la
Propiedad Industrial (IMPI), Mexico has
had around 15 thousand patent requests
2010 2011 2012 2013 2014* per year since 2008 and has granted over
Applications Granted 10 thousand of these per year as well.60
*data until March
Source: IMPI

59 World Intellectual Property Organization

60 IMPI
5. Technological breakthroughs
Competitiveness
The World Economic Forum (WEF) releases a yearly report
known as the Global Competitiveness Report, which ranks
Table 7. Mexicos ranking in the WEFs Global countries based on their overall global competitiveness, which is
Competitiveness Report Innovation Pillar based on 12 different pillars. One of these pillars is innovation,
which measures how capable countries are of producing
technological breakthroughs.
World Ranking in
Year of WEF Report
Innovation
2013-2014 55th Mexico has seen vast improvements in its ranking in terms of
innovation, going from 90th place worldwide in 2008 to 55th place
2012-2013 56th
in 2013 (see Table 7). The biggest areas in which Mexico needs to
2011-2012 63rd improve in order to further increase its ranking are: its capacity
2010-2011 78th for innovation, government procurement of advanced
2009-2010 78th technological products and its availability of highly qualified
scientists and engineers.61
2008-2009 90th
Source: WEF

61 World Economic Forum

5. Technological breakthroughs
Employment
According to estimates made by CONACYT, the number of people
Graph 19. Base of science and technology human
working in the Science and Technology sector in Mexico was 10.6
resources in Mexico in millions, 2008-2012
million in 2012, an increase of around 200 thousand workers
compared to 2011 (see Graph 19).
10.6
10.4 In terms of gender composition, in 2012, 50.7% were males and
10.1
49.3% were females.

9.8 According to the same report, out of the 10.6 million people
9.5 working for the Mexicos Science and Technology sector in 2012,
only around 3,3 million had a science degree. The majority of
them had a bachelors degree (87.1%), followed by those having a
masters degree (11.9%). Students with a PhD represented only
1%.62
2008 2009 2010 2011 2012E

E-estimation
Source: CONACYT

62 CONACYT
5. Technological breakthroughs
Investment
The President Pea Nieto formalized the creation of the General
Council on Scientific Investigation, Technological Development
and Innovation in September 2013, therefore, announcing about
Graph 20. Mexican public investment on science, renewed support for technology and innovation in the
technology and innovation (as % of GDP), 2006-2013 country.623Historically, Mexicos public investment in science,
technology and innovation has hovered at around 0.4% of the
countrys GDP. The budget of CONACYT which provides
0.42
scholarship, investigation funds, and more, has also been steadily
0.41 increasing in the past decade (see Graph 20). 64
0.40
0.39
0.36 The President also confirmed the goal of the current government,
which is to bring the investment to around 1% of GDP, placing it
2008 2009 2010 2011 2012 around the average of other developing countries. However, this
should only be considered the first step for Mexico, taking into
Source: Scientific and Technologic Consulting Forum (FCCyT) 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
Graph 21. Forecast of the value of Mexicos IT
industry in Mexico. It is forecasted that the market will grow by
industry and contribution to GDP (billion MXN and
6.9% in 2014 to reach a total value of 293.3 billion MXN. This
%), 2014-2018
growth is expected to be bigger than the one achieved in 2013
because of the slight shift in consumption from notebooks and
450,000 1.8
low-cost tablets. 66
400,000 1.6
350,000 1.4 The compound annual growth rate for the period 2014-2018 is
forecasted to be around 7%, with the market expected to reach a
Million MXN

300,000 1.2

% of GDP
250,000 1 value of 385.4 billion MXN in 2018, which will represent 1.7% of
GDP (see Graph 21).66
200,000 0.8
150,000 0.6 Some of the factors expected to influence the IT markets
100,000 0.4 development are a low PC penetration and an increased move to
50,000 0.2 online services, which will drive the demand for IT services and
0 0
software. It is important to mention that the government
2014 2015F 2016F 2017F 2018F spending will represent a key driver across all the industry
segments.
Market value % of GDP

F-forecast
Source: BMI

66 BMI
5. Implications of technological breakthroughs
Healthcare industry
Table 8 Expected health benefits from mHealth in Technological breakthrough is creating opportunities in many
Mexico, in 2017 industries, including, but not limited to healthcare, government,
education, etc.
10%
100% IT development is helping the healthcare industry in the many
adoption
adoption ways such as improving patient to healthcare provider
Activities Unit (if no
(full interaction, increasing dissemination of information
action
potential) dissemination, preventing and controlling emerging infectious
taken)
diseases, etc. Mexican hospitals are using mobile technologies
Estimated (mHealth solutions) to connect patients and doctors through
M 121.1
population in 2017 diagnosis services, e.g. within the project called Telemedic,
Additional Patients medical service i.e. health advice relating to self-treatment is
M 15.5 1.7 provided by phone. Another example Diabedario, provides a set
Reached
of interactive tools (including educational messages, a
Total Care Cost glucose diary and medication reminders) for self-management of
bn USD 3.8 0.4
Saved diabetes by patients.
Public Care Cost bn USD
1.9 0.2 mHealth could enable an additional 15.5 million people access to
Saved
the healthcare system in Mexico with total healthcare expenditure
Additional Patients reduction of 3.8 billion USD in Mexico. Enhanced productivity
accommodated M 2.3 0.3 could add 8.4 billion USD to the Mexican GDP (see Table 8).
within cost savings
Additional economic
output generated by bn USD 8.4 0.9
healthier patients
Source: GSMA & PwC
Contact us: If you have more questions about the topic or wish to learn more about other
Mexican industries, please contact:

Jos Antonio Quesada Alexandra Mendes

Partner Clients & Markets Consultant
jose.antonio.quesada@mx.pwc.com alexandra.mendes@mx.pwc.com
(55) 5263 6070 (55) 5263 7536

Manuel Flores De Orta Ekaterina Ponkratova

Sr. Specialist Manager Knowledge Management Consultant
and Knowledge Center Clients & Markets ekaterina.ponkratova@mx.pwc.com
manuel.flores.de.orta@mx.pwc.com (55) 5263 7586
(55) 5263 8543

2014 PwC Mexico. All rights reserved. PwC (www.pwc.com) provides industry-focussed assurance, tax
and advisory services to build public trust and enhance value for our clients and their stakeholders. More
than 163,000 people in 151 countries across our network share their thinking, experience and solutions to
develop fresh perspectives and practical advice.

PwC refers to PwC Mexico which is a member firm of PricewaterhouseCoopers International Limited
(PwCIL), each member firm of which is a separate legal entity and does not act as agent of PwCIL or any
other member firm. No member firm is responsible or liable for the acts or omissions of any other
member firm nor can it control the exercise of another member firms professional judgement or bind
another member firm or PwCIL in any way.