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Gabriel's 2 Worlds


Gabriel's 2 Worlds

I’ve recently been reading a lot about Mexico’s economy, having spent a fair amount of time on the Mexico Projects Hub - Investment & Infrastructure' site, which is an excellent way to access to the pipeline of infrastructure investment projects in this key market for Probitas 1492.

And, I’m glad I have, as I had the good fortune of showing a young Mexican diplomat around Lloyd’s. As the man in charge of economic affairs at the London embassy, we discussed at length the key developments taking shape in Mexico and the tangible impact they are having on the economy and people’s lives.

When you start to talk about economics, it’s really easy to jump to the usual topics ‘how Mexico’s economy will overtake that of the UK to become the one of the worlds’ 8 largest economies’; or ‘how the country is the 13th largest exporter in the world and the largest in Latin America representing 42% of the regions exports’; or even ‘how Mexico is Latin America’s largest reinsurance market, despite having one of the lowest uptakes of insurance as a percentage of GDP’.

However, my discussion with the diplomat got me thinking…

In 2016, Mexico’s economy grew well above the LatAm average, yet many are disappointed with the average annual growth over the past decade, which has been around 2.5%. Strong by international standards, but not enough to reduce poverty or absorb the rapidly growing and young workforce.

Yet it seems other indicators are telling a different story. Steady growth in airline passengers, traffic on toll roads, growth in the retail space, and the boom in telecoms, energy, and start-ups in the FinTech sector show that the economy is undergoing a transformation. Mexico is embracing technological change at an ever-faster pace.

However, the actual impact these are having on the economy doesn’t seem to get nearly as much coverage as the structural reforms approved in the past few years which are changing the landscape quickly. And, will continue to push economic development over the next decade or so.

The telecoms reform was launched in 2013 to increase competition in a market where the incumbent, America Movil1, had over 70% share of market. Whilst critics argue the reform is taking too long to reduce their dominance (estimated market share of 60% in 2017, and 55% expected by 2020), the real impact has shown an increase in access and usage, as prices have fallen. It’s simply more affordable for a wider consumer base.

As well as benefiting consumers and making it more competitive for businesses to operate in Mexico, this fall has also helped to set the scene for a rapid increase in entrepreneurship. The Fintech sector and technological innovation is beginning to enhance people’s lives across the region.

One example of this innovation reaching the wider population, is an app which links domestic workers with work opportunities near them. The app reduces the time spent commuting between jobs, therefore, increasing the number of jobs they are able to carry out. The results already show that these domestic workers have, on average, substantially higher weekly earnings. In addition, the users will be encouraged over time to open a bank account, paving the way for these workers to join the formal economy.

The Financial Times “Mexico Innovation and Technology” report reveals the country is now Latin America’s leader of Venture Capital deals. Many of these involve start-ups offering financial services via mobile phones. There are currently large segments of the population without access to financial products, but do have connectivity and smartphones. Opportunities via these start-ups enables more of the population to get involved with the formal economy.

The results of investments like these are tangible, in terms of both the economy and the population.

It’s exciting to read about these changes, but even more so to see the actual impact on communities across Mexico.

This is just the tip of the economic iceberg, I’ve not even mentioned oil prices and renewable energy!

 

1 - Mexican company America Movil currently operates in over 20 countries, with around 290 million mobile telephony subscribers, 34 million landlines, 23 million broadband and 22 million pay TV subscribers. Its international expansion has in part been a response to limited growth opportunities in Mexico due to its high market share.