How Mexico Can Benefit from the Digital Economy
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Fifth draft: 17/01/2017 How Mexico can benefit from the digital economy Martin Cave & Ernesto Flores-Roux* This report … * Cave is Visiting Professor at Imperial College Business School, Flores-Roux is an independent consultant and a member of IFT’s Advisory Board. We would like to thank research assistantship by … and acknowledge funding received for this research by the Consejo Ejecutivo de Empresas Globales (CEEG). The views expressed in this paper, however, are strictly ours, as are any mistakes. 1 Table of Contents 1 Introduction: the importance of the digital transformation ................................................ 4 2 Where Mexico stands now with the digital transformation ................................................ 5 2.1 Trends in digitisation of the economy ......................................................................... 6 2.2 Digitisation for government and public services......................................................... 8 3 The key precondition: enhanced connectivity .................................................................... 9 3.1 Mexico and the rest of the world ............................................................................... 11 3.2 Trends in investing .................................................................................................... 15 3.3 Trends in pricing ....................................................................................................... 16 3.4 The 2013 regulatory changes .................................................................................... 17 3.5 The impact of and requirement for ongoing regulatory change ................................ 19 4 Other important contributory factors ................................................................................ 19 4.1 Independence of regulators ....................................................................................... 20 4.2 Trust .......................................................................................................................... 21 4.3 The “App Economy” ................................................................................................. 23 5 Review of progress and prospects in key sectors: e-commerce; banking, finance and taxation; e-health and e-education ........................................................................................... 24 5.1 e-commerce ............................................................................................................... 25 5.2 Banking, finance and taxation ................................................................................... 27 5.3 e-health ...................................................................................................................... 33 5.4 e-education ................................................................................................................ 38 6 A projection of overall benefits ........................................................................................ 42 7 Summary of public policy recommendations ................................................................... 47 Bibliography ............................................................................................................................ 50 2 Tables and Figures Figure 1. Digitisation index – Mexico compared to the rest of the world ................................. 7 Figure 2. Evolution of Mexico’s absolute and relative standing for each of the components of the “digitisation index” ...................................................................................................... 7 Figure 3. Mexico: Telecommunications basic services – Relative performance ..................... 12 Figure 4. Mexico telecommunications broadband services – Relative performance .............. 14 Figure 6. Trends in pricing....................................................................................................... 16 Figure 7. MOU and ARPU in the Mexican market ................................................................. 17 Figure 8: Performance of the App Economy in selected lower income countries. App economy performance ..................................................................................................................... 24 Table 1. Mexico’s position in e-commerce compared with others. ......................................... 26 Figure 9. Financial inclusion in the world ............................................................................... 28 Figure 10. SPEI: Number of electronic transfers (in millions) ................................................ 29 Figure 11. Relationship between the taxpayer base and total tax revenues ............................. 30 Figure 12. Channels used for tax payment............................................................................... 31 Figure 13. Electronic invoices (“factura electrónica”) ............................................................ 31 Figure 14. Evolution of accounts associated with Transfer® .................................................. 33 Figure 15. Telesalud – Percentage of population coverage by state. 2012 .............................. 35 Table 2. e-health indicators. 2015 (percentage of affirmative answers for each of 8 modules) .......................................................................................................................................... 37 Table 3. m-health indicators for Mexico .................................................................................. 38 Figure 18. Mobile penetration in Mexico and in the average country in our data set (2001-2015) .......................................................................................................................................... 45 Figure 19. Comparison of mobile impact across generations in the baseline country ............ 46 Figure 20. The potential impact of mobile catch-up on GDP .................................................. 47 3 1 Introduction: the importance of the digital transformation The 2016 World Bank Development Report, Digital Dividends (WBR, 2016), is a thoughtful review of the impact the “greatest information and communications revolution in human history” has had, which has led to a situation in which the “poorest households are more likely to have access to mobile phones than to toilets or clean water”1. While access to voice has a great effect, access to data, via smart phones and the Internet, magnifies it further. Where does the this revolutionary impact come from? Essentially, from three sources. First, it reduces the cost of existing activities, such as shopping or delivering existing health care. Second, it puts services, including basic ones such as education, within the reach of people who were previously deprived of them; it is thus inclusive. And thirdly, it permits new things to be done, such as interacting real-time with virtual groups around the globe (think of social media). Thus, it is hardly an exaggeration to say that information and communications technologies (ICT) leave very few acts of production or consumption unaffected. Clearly this applies not only to information products (such as streamed video, for example), but to almost every public or privately produced good and service. In fact, the degree to which digitisation has penetrated most sectors of the economy makes it extremely difficult to quantify its reach.2 Can we clearly separate brick and mortar business and digital activity? Can we isolate digital advances in typical technological industries from those that apply in less affected? Digitisation has, de facto, imbued our economic and social life. Take agriculture as an example – a sector which in Mexico employs about one worker in eight. Agricultural productivity can be enhanced by the better communication of agricultural extension advice or weather forecasts. The operation of the agricultural supply chain, and the underpinning logistics, are profoundly affected by ICTs. And the market place for agricultural products – how inputs (such as fertilizer and seeds) and outputs (agricultural products) are bought and sold and over what geographical area – is also affected: many studies have shown how access to mobile phones enables farmers to get better and more stable prices.3 The goal of this study is to describe the benefits which Mexico might gain by taking advantage of the opportunities of digitisation, to evaluate Mexico’s performance to date, and to identify ways in which that performance might be improved by various public policy interventions. It is clear both that this project is crucial to the economy’s success and that success requires putting in place a wide range of complementary inputs. The study does not, however, attempt to examine the impact that digitisation has had on non-economic aspects of the life of a society, such as plurality of opinions and freedom of expression. While we recognise their importance, we have excluded these aspects form the present study. 1 Page xiii. The report is available at: http://www.worldbank.org/en/publication/wdr2016 2 See OECD Digital Economy Outlook 2015, Ch. 3. The difficulty of measuring the “digital economy” can be contrasted with the relative ease of measuring the output of ICT-producing sectors. 3 See Deichmann et al., Will Digital Technologies Transform Agriculture in Developing Countries?, World Bank, 2016. 4 With this in mind, we consider successively in sections 2 to 7: Where Mexico now stands comparatively in digitally