Mexico

A Nation of Contrast and Opportunity

Key Facts for Understanding the Country and Discussing its Future

May 2016
 MEXICO’S STRENGTHS
and room for improvement

HAPPINESS NATURE GASTRONOMY LACK OF GROWTH EDUCATION QUALITY

7 17 17 22 9

INTERNATIONAL CONSUMPTION
RESERVES CAPACITY CORRUPTION
12 7 23

EXPORTS PROXIMITY TO USA DRUGS TECHNOLOGY

USE
15 12 24 16

GEOPOLITICAL ENTREPRENEURSHIP POVERTY INFRASTRUCTURE

POSITION
12 6 5

INFLATION STABLE ECONOMY POLITICS

18 1

MIDDLE LACK OF
CLASS
CONNECTIVITY SKILLED
WORKFORCE INSECURITY COMPETITIVENESS
8 16 10 25 3

FINANCIAL
ARCHEOLOGY CULTURE INCLUSION
17 17

Productivity TOURISM NAFTA VIOLENCE RULE OF LAW

13 17 12 25 22
 MEXICO IS THE WORLD’S 15 LARGEST ECONOMY TH

it is estimated it could become #8 by 2050

Countries with Largest GDP in 2014 (1) World Estimated GDP, 2050 (2)
(Trillions of dollars) (Trillions of dollars)

Country $USD Rank China 105.9

USA 17.4 1 USA 70.9

China 10.4 2 India 63.8

Japan 4.6 3 Indonesia 15.4

Germany 3.9 4
Japan 11.4
UK 2.9 5
Germany 11.3
France 2.8 6
Brazil 10.3
Brazil 2.3 7
Italy 2.1 8 #8 Mexico 9.8
UK 9.8
Mexico 1.3 #15
France 9.7

Source: (1) IMCO 2013, World Bank 2014. (2) ProMéxico with information from Bloomberg and The Economist.
1
 MEXICO’S COMPETITIVE POSITION HAS NOT IMPROVED SINCE 2005
largely due to low productivity and lack of rule of law

International Competitiveness Index (1) Competitiveness Index by Specific Indicator (2)

(2015) Ranking Score

109
32 59 Institutions
Innovation 59 Infrastructure
36 36 37 36 IMCO
4.2
3.3
Business
sophistication 50 3.4
56 Macroeconomic
environment
4.2 4.9

52 Market
size 11 5.7 71 Health and
primary education
55
5.7

58 58 57 WEF 3.8
61 4.0
86 Advanced
Technological
advance 73 4.2
education
and training
3.8 4.2

2005 2007 2009 2011 2013 2015

Financial market
development 46 82 Property market

114
efficiency

Labor market
efficiency

Source: (1) Índice de Competitividad Internacional 2015, IMCO. (2) World Competitiveness Index 2015-2016 from the World Economic Forum.
2
 MANY STATES IN MEXICO ENJOY COMPETITIVENESS AND GROWTH
but performance levels are unequal by state given different business environments, poverty levels, security and regulatory frameworks

Competitiveness Index by State Economic Growth by State (2)

(2014) (1) (Percentage growth of GDP, 2014) (2)

BC
95
90
2.3%
-1.6% SON
4.4%
CHIH
75 75 BCS
5.5%
70 70
65 65
AVERAGE SIN
COAH
1.8%
60 60 6.2% 1.2% NL 4.9%
DGO
55 2%
8.8% TAMS
50 50 50 -1.6% ZAC
0.7% 1.3% 0%
45 45 45 NAY AGS SLP
40 40 40 40 5% 2.7%
35 35 -0.5% 2.5% GTO QRO HGO 0.3% 1.6% YUC
1%
JAL 6.3%
30 MÉX TLA
-5.2%
QROO
COL
MICH
25 9.8% MOR PUE
0.1% TAB
CAMP

20 20 20 1.4%
1.6%
VER
6.3% GRO
OAX 5.7%
CHIS
10 10 1% 1.6%
5 5 -1.6%
Mexico
City
AGS

COAH

CHIH

CDMX

SIN

ZAC

CHIS
MICH
QRO

NL
GTO
JAL

TAMS
BC
CAMP

DGO
GRO

BCS
COL

NAY

TAB

PUE
SLP
SON
MEX

YUC
HGO
MOR
TLAX

QROO

OAX
VER

States with States with States with growth below

higher-than-national, higher-than-national, the national level
and higher-than-2013 but lower-than-2013
growth levels growth levels

Source: (1) México cómo Vamos, 2015. (2) Secretaría de Hacienda y Crédito Público, 2015.
3
 STATE ECONOMIC COMPLEXITY IS VERY IRREGULAR
some states are comparable to Uganda (Chiapas) and others to Hong Kong (Nuevo León)

Economic Complexity Index by State Economic Complexity Index

(2014) (International comparative, 2014)
BC

1.0 Japan
SON
CHIH

Nuevo León Italy

BCS
COAH
0.8 Hong Kong
Baja California Norte
SIN NL
DGO

Guanajuato 0.6 Panama

ZAC TAMS

SLP
AGS
NAY CDMX
YUC 0.4
GTO
Higer Complexity JAL
QRO
HGO
Chiapas Uganda
QROO
From 75 to 100 COL MICH MÉX
TLA
CAMP
PUE
0.2
MOR

From 50 to 75 VER TAB

GRO
From 25 to 50 OAX CHIS
From 0 to 25
0.0 Angola

Source: The Atlas of Economic Complexity and the Mexican Atlas of Economic Complexity, Harvard 2014.
4
 THERE IS POTENTIAL TO BETTER POSITION MEXICAN CITIES
only two Mexican cities are ranked in the regional top 5

Best Five Cities, by Indicator (according to the Urban Competitiveness Index)

(2015)
Brand Miami Buenos Aires São Paulo Santiago Bogotá
power 100.0 97.2 96.1 94.4 94.4

Environmental San José Barranquilla Cali Cartagena Panama City

sustainability 94.5 93.2 93.0 93.0 92.5

Human capital and Santiago São Paulo Buenos Aires Miami Mexico City
knowledge economy 100.0 97.3 97.1 89.2 87.7
Infrastructure Miami São Paulo Mexico City Bogotá Panama City
& connectivity 100.0 73.3 63.6 53.7 53.2

Executive Miami São Paulo Mexico City Bogotá Panama City

services 100.0 63.1 62.8 61.9 59.1

Corporate Miami Mexico City Bogotá Cali Monterrey

services 100.0 76.9 74.1 74.1 72.5
Economic framework Miami Santiago Mexico City Panama City São Paulo
& dynamism 100.0 89.5 82.8 80.9 76.7
Political & Santiago Miami Valparaíso - V.del Mar Concepción-Talcahuano Montevideo
social framework 100.0 99.9 99.5 98.5 95.2

Source: americaeconomia.com, 2015.

5
 MEXICO IS THE 11 MOST POPULATED COUNTRY TH

but 53% of 120 million Mexicans live beneath the poverty line

Social Deprivation Indicators in Mexico Per-Capita Income Distribution by Decile in Mexico

(Percentage of total population in 2014) (1) (In thousands of pesos, monthly average, INEGI 2014) (2) (3)

Forbes’ Top Five

Mexican Businessmen
50% of the hold 9% of GDP
59 %
without
23 %
without access
21 %
without access
Mexican population
social security to nutrition to health services has a monthly income $13.7
below 2 thousand
pesos

$5.3
$3.7
19% 18% 12% $0.6 $1.0 $1.3 $1.6 $2.0 $2.4 $2.9

subject to insufficient without basic without access

education utilities at home to quality housing
I II III IV V VI VII VIII IX X
See more here...

Source: (1) Coneval, 2015. (2) INEGI. Encuesta Nacional de Ingresos y Gastos de los Hogares, ENIGH 2014. Basic tabulations 2015. (3) Data from SAT, 2016.
6
 MEXICO IS A YOUNG COUNTRY WITH A GROWING WORKING POPULATION
generating production sustainability and consumption within the country

Mexico Population Working Population

(% of distribution by age, 2000 vs. 2030) (1) (% change, 2010 vs. 2035) (2)

2000 Ages 2030

85 or more
80 to 84 India 36.5%
75 to 79 Working
70 to 74 Population Mexico 26.4%
65 to 69
60 to 64 Brazil 14.3%
55 to 59
50 to 54
45 to 49
USA 8.7%
40 to 44
35 to 39 UK 3.7%
30 to 34
25 to 29 Spain -2.2%
20 to 24
15 to 19 China -6.3%
10 to 14
5 to 9
0 to 4
Japan -19.0%

10% 8% 6% 4% 2% 0 0 2% 4% 6% 8% 10% -40% -20% 0% 20% 40%

World Happiness Index, see more here...

Source: (1) INEGI, Censo de Población y Vivienda 2010, Conapo, Proyeciones de la población en México 2005-2010. (2) UN Population Division 2011, Economist Intelligence Unit.
7
 THE MIDDLE CLASS HAS REGISTERED SIGNIFICANT GAINS SINCE 2011
in addition to strong purchasing power

LATAM Middle-Class Growth Consumer Spending Share, Emerging Economies

(As a percentage of total population, 2012) (1) (Percentage of GDP, 2015) (2)

2001 2011

Ecuador 8 21
Colombia 62.5% 67.3%
11 21 61.2%
56.6% 59.3%
Bolivia 13 19
Peru 14 25
Argentina 14 32 36.5%
Mexico 17 26
Brazil 18 28
Paraguay 20 27
Venezuela 20 30
Chile 25 34 China Indonesia India Colombia Brazil Mexico
Uruguay 30 33

Source: (1) PEW Research Center, 2011. (2) ProMéxico with information from the Brazilian Institute of Geography and Statistics. Instituto Nacional de Estadistica Geográfia e Informatica. Central Statistical Organization, India. Badan Pusaat Statistic. China National Bureu of Stadistics Harver Analytics.
8
 THERE ARE 36 MILLION STUDENTS IN MEXICO
however, only 2% graduate from college and according to PISA, Mexico is ranked #53 in global education quality

Student Attrition Rates by Grade PISA Test Ranking

(2013-2014. Base 100) (1) (2014) (2)

100
Student population RANKING REGION SCORE

Primary school 14.6M 99.4 1 SHANGHAI 613

2 SINGAPORE 573

3 HONG KONG 561

Middle school 6.3M 42.9
4 TAIPEI 560

5 SOUTH KOREA 554

High school 4.0M 27.4
OCDE AVERAGE 494

36 USA 481

53 MEXICO 413
University 3.0M 2.2

Source: (1) Índice de Competitividad Internacional 2015, IMCO. (2) Prueba PISA.
9
 MEXICO IS THE 8 LEADING COUNTRY AT PRODUCING ENGINEERS TH

and is ranked 16th by number of worldwide-ranked universities

Graduating Engineers, by Country Ranked Universities by Country

(Thousands, 2015) (1) (2015) (2)

Per-Capita Total engineers 181

Russia 3.2 454
Ukraine 3.0 130 74
Iran 3.0 234
South Korea 2.9 148 46 44 44
38 36
France 1.6 105 33
26 24
Japan 1.3 168 22 21 19
16 14 13 13
Vietnam 1.1 100
#8 Mexico 0.9 114

France

Italy
Austria

Russia

India

Netherlands
Germany

Canada
USA
UK

Japan

South Korea

Spain
Argentina

#16 Mexico
China

Brazil
USA 0.7 238
Indonesia 0.6 140

Source: (1) World Economic Forum 2015/UNESCO Institute for Statistics. (2) Social Progress Index, 2015.
10
 THE SUPPLY OF INFORMATION TECHNOLOGY PROFESSIONALS IS GOOD
6 out of 10 certified PSP* developers are Mexican

IT Professionals Supply Evolution

(Number of IT professionals, 2002-2014)

889
IT professionals Software developers

693
578
507
436
371
347
257

2002 2006 2010 2014

Source: ProMéxico with information from Carnegie Mellon University 2015 *Personal Software Process.
11
 MEXICO ENJOYS AN ENVIABLE GEOPOLITICAL AND ECONOMIC POSITION
natural resources, strategic location plus solid economic and business climate

Free trade Next door to the world’s

agreements #1 economy: USA
12 with 49 countries GDP: $19 Tr USD / 320M inhabitants
NAFTA is worth $20.5 Tr USD, 26% Global GDP 460M border crossings yearly

Commercial Exporting power

infrastructure Export surplus with USA
117 ports, 16.7K km railroad, worth over $100Bn USD
378.9K km highway,
58 international airports 28x growth over past 20 years

Spending power Solid resources

GDP $1.26 Bn USD 13.4Bn barrels of oil, ranked #17 worldwide
with a working population of 47M $177Bn USD in international resources

Source: Social Progress Index, eia.gov, Pemex, Análisis SWS / Ignia, 2016.
12
 MEXICO HAS BECOME AN IMPORTANT EXPORTER
and a strong global competitor in costs primarily due to its productivity and exchange rate

Labor Cost Mexico vs. China

USA Imports Participation Cost competitiveness Index Main variables: exchange rate,
(selected countries, % of total) (1) vs. Top 25 Countries (2) cost of transport and productivity (USD/hour) (1)

Top 25 Average Mexico

Country 1990 2014 2004-2014 2004-2014 1990 2014

6.1 12.5 Wages +71 +67

Productivity +27 +53

3.1 19.9
0.6 4.2
Currency +7 -11
18.4 14.8
Cost of
Natural Gas +98 -37
1.6 3.3
Cost of
18.1 5.7
Electricity
+75 +55
Source: (1) Average Cost; Economist Intelligence Unit, US Department of Commerce. (2) Weighted average cost for all industries, U.S. Economic Census, U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, International Labour Organization, Euromonitor, BCG analysis.
13
 SOME INDUSTRIES ARE TAKING ADVANTAGE OF MEXICO’S BENEFITS
automotive manufacturing exceeds remittances, tourism and oil production. Between 1993-2014 automotive production has increased from 1.0M to 3.3M

Automotive Plants in Mexico

19% of cars in the USA

originate from Mexico
#7 Producer of
light vehicles

#6 Producer of
heavy vehicles

6% of GDP

Source: Banxico, 2015.

14
 MEXICO HAS BECOME A RECOGNIZED MANUFACTURED GOODS EXPORTER
top 2013 Mexico exports (Billions USD)

Light Phones and Transport Computers and TV

vehicles Auto-parts accessories vehicles components receivers

$32.4 $20.5 $18.0 $17.6 $17.4 $16.7

Electric Solid Medical and Refrigerators and

Tractors Seating
conductors gold surgical equipment cooling equipment

$10.2 $5.8 $5.6 $5.3 $5.1 $4.4

See more here...

Source: ProMéxico con información de Global Trade Atlas, 2014.

15
 MEXICANS ARE MORE CONNECTED THAN EVER
but ranks 75 on the digitization index according to the WEF (1)

68M 18M
Internet users homes have Pay TV

52M Facebook users

63M
5th worldwide

Smartphones
Ranked
8% of small vs. 5M in 2011 75 on the
th

businesses digitization
have a website
vs. Chile 34% and USA 60%
index (1)

Source: (1) World Economic Forum 2015, IAB 2016, Competitive Intelligence Unit 2016.
16
 MEXICO RANKS 6 IN WORLD HERITAGE SITES
TH

but insecurity and lack of infrastructure put it 44th in tourism competitivity

#10 Global Tourism Competitivity Index #22

(Ranking of 140 countries, 2014)
by number of tourists by income from foreign tourists

Ranking Country World Heritage Sites Nature Culture Infrastructure Security

1 25 19 6 5 2
2 5 31 4 23 14
3 31 49 12 23 7
4 3 29 1 5 2
5 8 15 13 23 23
6 10 3 5 23 22
7 4 30 8 5 57
8 16 10 16 23 33
44 6 8 21 61 121

Source: World Tourism Organization. 2014, UNESCO 2015.

17
 MEXICO’S GOVERNMENTAL FINANCES ARE SOLID
yet the nation lacks adequate private-sector and venture-capital financing

Mexico Latin America and the Caribbean

Annual Inflation (%) Government Debt (% of GDP)
12% 60%

10%
50%
8%

6%
40%
4%

2% 30%
2002 2004 2006 2008 2010 2012 2014 2015 2000 2002 2004 2006 2008 2010 2012 2014

Domestic Credit Allocated to the Private Sector (% of GDP) Venture Capital Investment as a Percentage of GDP, 2014
0.33%
50%

40%
0.25%
0.15%
30%

20% ~20x ~30x

10% 0.01% 0.005%
0
2002 2004 2006 2008 2010 2012 2014 Developed
countries India China LATAM MEXICO

Source: SHCP, Banxico 2015, Banco Mundial 2016.

18
 FISCAL AND MONETARY PRUDENCE IS ONE OF MEXICO'S STRENGTHS
despite low economic growth rates and fiscal deficit growth

Debt and Fiscal Deficit in Selected Countries vs. Maastricht Criterion

180%
Greece

140% Italy Portugal Ireland

Public debt (% of GDP)

Maastricht Criterion France

100% (≤60% of GDP)
Germany Canada Spain UK
)

USA
60%
Brazil
Mexico
(4.1%)
2015
20% Chile Australia Maastricht Criterion
(≤3% PIB)

-3% -1% 1% 3% 5% 7% 9%
Fiscal deficit (& of GDP)

Source: CIA World Factbook, SHCP 2015.

19
 LOW ECONOMIC GROWTH PERSISTS
mainly due to slow progress in productivity

Economic Growth Comparative Total Productivity Factor in Mexico

(Selected countries, 1983-2015*) (1) (1950-2010) (2)

9.9
250 Annual Average Drop
1980-2010: 0.7%
230

5.0 4.8 190

3.7

Index, 1950=100
2.9 2.4 2.4
150

110
Mexico
China

Chile*

Emerging
Economies*

Spain
Colombia*

Brazil*

2004

2010
1980
1950

1962

1968

1986

1992

1998
1956

1974
Source: * 1983-2014 (1) IMF (2) Kehoe y Meza (2011), “Catch-up Growth Followed by Stagnation: Mexico, 1950–2010,” Latin American Journal of Economics, 48.
20
 MEXICO HAS ACHIEVED IMPORTANT LEGISLATIVE REFORMS
which according to preliminary estimates will have a positive impact on GDP

Estimate of Structural Reforms Impact on GDP Growth

(GDP percentage growth, 2013-2018)

4.4 - 4.9%

+0.3%
2.5 - 3% +1%
+0.1% +0.5%

GDP growth rate Labor Telecommunications Energy Fiscal Estimated growth

(2013) reform reform reform reform rate (2018)

Source: ProMéxico with information from SHCP 2016.

21
 LAW ENFORCEMENT INNEFICIENCY IS ALARMING
the outcome of bias, few cases ever reaching court, information opacity and corruption

Law Enforcement Efficiency Sentencing Effectiveness in Corruption Cases

(Percentage of commited crimes, 2015) Involving Accused Governors in Mexico vs. USA
(2000-2015)
0.3
33M
unreported 1.7M
%
sentenced criminals Accused
governors
Investigated
cases
Detained
governors
94.7%
crimes 5% reported crimes

41 16/41 4/41

Mexico
In the Last 16 Years, 272 Corruption Scandals
Involving Governors Have Been Reported by the Press

Unpunished Punished
9 9/9 9/9
USA
91.7% 8.3%
251 cases 21 cases

Source: ENVIPE (2013), México Unido Contra la Delicuencia (2013), Montes, Pesos sin contrapesos: corrupción y gobiernos locales, Índice de Competitividad Internacional 2015, (IMCO).
22
 JUDICIAL INSTITUTION PRESTIGE HAS BEEN TARNISHED
leading to generalized pessimism and demoralization

Perception of Corruption Associated Making Shady Deals:

With Law Enforcement Agencies a Way of Life
(Affirmative responses, 2015*)
%

“So, how do we get

Transit police 77% on the same page
“Hey, if on this?”
Judicial police 68% you scratch “One hand
my back...” washes the
Municipal police 65% “Help me other”
Judges 65%
help you”
“You don't “I leave it
have to feed me, up to your
Prosecution authorities 64% just get me a spot judgment”
at the table”
Note: Affirmative public-survey response to the question
See more here...
“Do you consider the following Institutions corrupt?”

Source: Encuesta Nacional de Victimización y Percepción sobre Seguridad Pública 2014, INEGI.
23
 DRUG TRAFFICKING HAS AFFECTED MEXICO PROFOUNDLY
because of proximity to the US, a roughly $200Bn USD per-year consumer market

Territorial organization of cartels and illegal drug flow in Mexico

Sinaloa
Sinaloa Cartel Tijuana Mexicali
Beltrán Leyva
The Mazatlecos
El Chapo Trini/El Cadete
Nogales
Annual drug production in Mexico*
Júarez
Tierra Caliente MARIJUANA HEROIN

15,800 18.0
Jalisco Cartel New Generation
Knights Templar Hermosillo
The Michoacan Family
Guerreros Unidos
Los Rojos
Independent Cartel of Acapulco Obregón
Nuevo
Laredo
cubic tons cubic tons
The Viagras
Torreón Reynosa
Tamaulipas Matamoros
The Zetas
Gulf Cartel Monterrey
Culiacán
All drug traffic
from Colombia, Venezuela and Brazil
Marijuana and methamphetamines
Tampico
Methamphetamine precursors Mazatlán Cancún
Mérida
Cocaine
Production areas Guadalajara

Boca del Río

Manzanillo CD MX
from Asia
Lázaro
Cárdenas
Acapulco
from Colombia

Source: INE, PNUD, 2013. World Drug Report, 2013. *Ilegal drugs in selected products.
24
 STRONG INSECURITY PERSISTS IN VARIOUS STATES
the outcome of drug trafficking plus inadequate rule-of-law enforcement

Peace/Security Index by Mexican State

BCN

Most peaceful Most dangerous

SON

HIDALGO CHH GUERRERO

YUCATÁN MORELOS
BCS
COA SINALOA
QUERÉTARO
MICHOACÁN
CAMPECHE SIN NLE
DUR GUANAJUATO
TLAXCALA
TAMAULIPAS
CHIAPAS ZAC TAM CHIHUAHUA
VERACRUZ BAJA CALIFORNIA NORTE
SLP
SAN LUIS POTOSÍ NAY
AGU
CDMX JALISCO
YUC
NAYARIT GUA QTO
MEXICO STATE
JAL HID
PUEBLA QUINTANA ROO
ROO
MIC MEX
TLA
CAM COLIMA
TABASCO
COL
MOR PUE
VER TAB MEXICO CITY
BAJA CALIFORNIA SUR GRO DURANGO
OAXACA OAX CHP
NUEVO LEÓN
AGUASCALIENTES SONORA
COAHUILA ZACATECAS

Source: Mexico Peace Index 2015 - visiónofhumanity.org.

25
 IN SHORT,

Many are betting on the

Mexico’s strengths are among country - to great success
the world’s most extensive

The country's future depends on

citizen participation to strengthen rule
Our nation is weak when it comes to of law, eliminate corruption, improve education and
poverty rates,competitiveness, social drive entrepreneurship
justice and institutional quality

26
 This presentation seeks to enhance
understanding of today’s Mexico and help
generate ideas for it improvement

www.sws.ms www.ignia.mx

Your ideas and comments are welcome at research@sws.ms