MegatrendsGlobal perspective and insights on Mexico

Emmet Daly

www.pwc.com

MITA TechTalks Summit 2016

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Global Megatrends Highlights

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Demographicshifts

Many countries, including Mexico, are

experiencing a massive demographic

shift with a falling fertility rate and

increasing life expectancy.

Shift in global

economic power

The world‘s economic balance of power is

shifting rapidly. Mexico is expected to be

among top ten economies, ranked by

Purchasing Power Parity (PPP) in 2030.

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.

Resource scarcity

and climate change

Between 2013 and 2030, average temperatures are

expected to increase between 0.5°C and 1.5°C. Both

human interventions and climate change will affect

global resources globally and in Mexico.

Technological

breakthroughs

Technology advances are shaping the economies and

societies of many countries, including Mexico, around

the world. IT systems are affecting the healthcare

industry in Mexico, overcoming geographic or income

barriers and reaching a large audience.

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Megatrends in detailGlobal perspective and insights on Mexico

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Demographic shifts Global perspective and insights on Mexico

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In 2015, Mexico population was around 127 million, placing the country in the 10th place in the list of the most populous countries in the world. The population will reach around 138 million people by 2050 but after some growth will start to steadily decline, mainly due to drop in the fertility rate. 1

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The elderly will account for an incresing share of the population. The median age in Mexico is expected to increase from 27.3 years in 2014 to 50.5 years by the end of 2100. By 2050, there will be four times more people above 80 years living in Mexico than today. A growing ageing population is putting pressure on pension and healthcare systems. On average, pension expenditure will grow from 9.3% of GDP in 2010 to 11.7% GDP in 2050. The aging population raises concerns about the affordability of pension and healthcare programs. 2

1 United Nations

2 CIA and UN data

Graph 1: Total Mexican population in thousands, 1950, 2013F, 2025F and 2050F

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Shift in global economic powerGlobal perspective and insights on Mexico

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The demographic changes make asignificant contribution to growth in GDPper capita in several countries such asMexico. In 2015, the GDP per capita in PPP(Purchasing Power Parity) was estimated toreach 18,714 International Dollars. 4

The expanding Mexican economically active population brings several risks that could determine the demographic driver, e.g. the quality of Mexico‘s human capital. In order to benefit from the demographic bonus instead of just adding to the ranks of the unemployed, the country will need to improve its educational policies and investment.

8 Mexico appears on the 8th position among top 10

economies with GDP in PPP terms of 3,662 billion USD in

2030. 3

3 PwC4 IMF

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Accelerating urbanizationGlobal perspective and insights on Mexico

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Did you know?

1.5 million people are added to the global urban population every week 8

50% of global GDP is generated by the 300 largest metropolitan areas 9

$8 trillion is the ammount we predict will need to be spent on infrastructure in New York, Beijing, Shanghai, London over the next 10 years 10

The number of people living in urban slums since 1990 has increased by 33%

Since 1960, Mexican urban population was higher than rural population. 5 The proportion of urban population in Mexico increased from 52% in 1962 to 78% in 2012 and according the the UN, 123.95 million people are expected to live in the Mexican urban area in 2050. 6

3DMexican cities grow with a model of

territorial occupation in 3D – Distant, Disperse and Disconnect – the expansion of the urban areas are disproportionate,

fragmented and unplanned. 7

It is important to mention that the metropolitanzone of Valle de México is by far the largestmetropolitan area in Mexico: in 2015, itcombined population of 16 municipalities fromDistrito Federal, and 59 neigbor municipalitiesfrom Estado de México.

5 CONAPO6 United Nations7 SEMARNAT

8 UN Habitat, State of the worlds cities9 Brookings institution 10 PwC Cities of Opportunity

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Climate change and resource scarcityGlobal perspective and insights on Mexico

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4.8°CIn 2080, the temperature in the north part of

Mexico is projected to increase up to 4.8°C, while in the southern part of the country could rise up

to 2.8°C. 15

Mexico is vulnerable to the impacts of climate change of many fronts. Potential threats of climate change for Mexico include higher temperatures; lower rainfall in the north and storms and heavy seasonal rainfall in the south; stronger hurricane activity and intensity; and sea level rise of 20 cm by 2050. 11

The green economy is slowly growing in Mexicowith the sectors such as mass transit, cleanindustry, construction, agriculture, renewableenergy and waste management providing mostdirect green jobs. The green sectors that providemost indirect jobs are manufacturing electricity,manufacturing and supply, waste managementand temporary accommodation. 12

Mexico has good conditions for the development of renewable energy. 13 The capacity for electricity generation in renewable energy in Mexico is expected to increase substantially, with hydropower taking the lead, followed by wind and solar power. 14

11 OECD12 Universopyme

13 ProMéxico Negocios 14 ProMéxico

15 SEMARNAT

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Technological BreakthroughGlobal perspective and insights on Mexico

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Technological breakthroughThe venture capital and private equity country attractiveness index

IESE Business School and EMLYON Business School have tracked the attractiveness of risk capital around the world with the Venture Capital & Private Equity Country Attractiveness Index. Mexico is on the 40th place in the ranking, the USA occupies the first place in ranking.

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Source: IESE Business School

Emerging markets represent a territory with economic soundness with large populations and strong ecnomic catch-up potential. Corporate governance indicators including Mexico and investor protection still remain obstacles.

Source: IESE Business School

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Technological breakthroughEquity investments

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The venture capital ecosystem deployed $58.8 B USD across the

United States

Each quarter, Pricewaterhousecoopers and the National Venture Capital Association release the MoneyTree Report based upon data from Thomson Reuters.

According to the MoneyTree Report for the fourth quarter of 2015, venture capitalists invested $11.3 billion USD into 962 deals. Software industry continued to receive the highest level of funding of all industries in the forth quarter receiving $4.5 billion USD. 16

Source: PwC, National Venture Capital Associtaion

“The convergence of technology across sectors is becoming increasingly important. The fourth

quarter‘s largest deals included startups that deploy technologies to challenge incumbents in the financial services, education, and retail and

consumer industries. These emerging tech-enabled segments have disrupted

traditional industries and should continue to command a larger proportion of venture

capital dollars in 2016 and beyond.“

Tom CiccolellaVenture Capital and Private Equity Assurance Partner

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16 PwC, National Venture Capital Associtaion

Graph 2: Investment by industry

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Technological breakthroughInsights on Mexico

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With an unimpressive growth across much of the globe, promoting new sources of growth has become a global policy priority. Science, technology, innovation and entrepreneurship have a positive impact on competitiveness, productivity and job creation, and are important mechanism for sustainable growth.

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6.3%Technology market increase in Mexico

in 2015 20

Investment in R&D in

Mexico as % of GDP (2013): 0.49808 17

The World Economic Forum (WEF) releases yearly the Global Competitiveness Report, which ranks countries based on their overall global competitiveness based on 12 pillars. One of these pillars is innovation measuring how capable countries are of producing technological breakthrough. Mexico is on 66th place in terms of innovation and needs to improve its capacity for innovation, government procurement of advanced technological products and its availability of highly qualified scientists and engineers. 19

According to CONACYT (Spanish: Consejo Nacional de Ciencia y Tecnología), Mexico still lags behind many countries in terms of number of researchers per one thousand inhabitants, where Mexico has only 1 researcher while South Korea has 12; the United States, 9; Canada, 8; and Spain 6. 18

17 World Bank 18 El Financiero

19 World Economic Forum20 IDC

Graph 3: Forecast of the value of Mexico‘s IT industry and contribution to GDP (billion MXN and %), 2014-2018

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Investment in IoT in Mexico exceeded

$550 M USD in 2014. 23

Technological breakthroughIT market in Mexico

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The evolution of the IT sector is impressive.Mexico is ranked as the leader in information technologies (IT) and business processing and the country is considered one of the best destination worldwide for the localization of global services including IT outsourcing and business process outsourcing (BPO). In addition, Mexico ranks second in Latin America as an investment destination attracting 23% of total investment in software projects and establishing itself as the best destination in the Americas to establish IT companies. 21

The Internet of Things (IoT) presents a sector with highest potential and strategic value, both for Mexico and the rest of Latin America.

The real internet revolution represents an opportunity for economic expansion in non-traditional sectors. The use of IoT applications has countless benefits. The cross-cutting nature of the industry presents new opportunities for development within the country, especially in these sectors: automotive, aerospace, medical, agricultural, and energy.

The sector also plays in favour of development of smart cities that will improve quality of life and economic growth.

Graph 4: Real income in Mexico‘s IT sector, by company type, in 2008 and 2016 estimate, in millions MXN

F - Forecast

Source: PROSOFT

21 ProMexico22 BMI

The future brings positive outlook for the information technology industry in Mexico. The compound annual growth rate for the period 2014-2018 was forecasted to be around 7%, with the market expected to reach a value of 385.4 billion MXN in 2018, which will represent 1.7% of GDP. 22

Some of the factors expected to influence the IT market‘s development are a low PC penetration and an increased move to online services, which will drive the demand for IT services and software.

23 IDC

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Technological breakthrough Tech startups in Mexico and institutional support

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The promotion of startups has shifted from an experimenation to a scaling up phase since 2012. The policy mix has been modernized and new forms of start-up promotion has been introduced. Mexico has accelerated in the support of start-ups in institutional strengthening, closing of financing gap in early stages and strong global orientation and promotion of country image.

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The National Institute for Entrepreneurship (INADEM) is an administrative organisation within the Ministry of Economy, which aims to implement, execute and coordinate national policy of support for entrepreneurs from small to medium enterprises. The INADEM has established “The Entrepreneur Support Network“ through which 65 programmes are oriented towards increasing the productivity.

The National Council for Science and Technology (CONACYT) is a public organisation responsible for developing science and technology policies in Mexico. Through various types of funds CONACYT efforts a multiplier effect on the generation of knowledge, innovation, technological development and human training coordination, as well as strengthening the scientific and technological capacity that the country requires.

Entrepreneurs in tech industry in Mexico

FinTechMedical DevicesIoTMobileCybersecurityEnterprise Software

New tech-industry bets

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Moscow

Finland

Luxembourg

Singapore

UK

Sweden

Switzerland (2)

Germany (3)

South Africa

Hong KongNorth Africa

ExistingMalaysia

Mexico

Italy

France

Brazil

Australia

Canada

Colombia

Middle East

JapanTurkeySpain

Discussion in progress

As an objective

USA (2)

The network by 2017

Thank you for your attention

Emmet Daly

www.pwc.com

MITA TechTalks Summit 2016MEGATRENDS

Global perspective and insights on Mexico