McKinsey’s IoT strategy plan could boost Brazilian economy by $200 billion

25 June 2018

A plan by management consultancy McKinsey & Company in conjunction with a local innovative IoT solutions firm has been adopted by the Brazilian Government. The “Action Plan for Brazil” says that the widespread adoption of IoT technologies throughout the country could add up to $200 billion to the Brazilian economy by 2025. 

The study-turned-action plan was commissioned by the Ministry of Science, Technology, Innovation, and Communications (MCTIC) and the Brazilian Development Bank (BNDES). Initially the study was to identify which Brazilian sectors would benefit most from Internet of Things (IoT) technologies. However, with Brazilian President Temer signing a decree earlier this year, the McKinsey study has now become the country’s national IoT strategy.

The aspiration of the national strategy is to “accelerate the implementation of the Internet of Things as a tool for sustainable development of Brazilian society. One that is capable of making the economy more competitive, strengthen the nation's productive chains, and promote improved quality of life.”

The strategy looks at the application of IoT technology in both rural and urban areas as well as in sectors as wide ranging as health and industry. More specifically this translates to four main priorities which include; Smart Cities, Healthcare, Agribusiness and Manufacturing. It is within these areas which the collection of authors identified the greatest growth potential for the Brazilian economy.McKinsey’s IoT strategy plan

Due to Brazil’s rapidly urbanizing population – which currently sits at 86% of the total population and is likely to continue to grow – the government’s IoT aspirations for its cities is fundamentally important. The Government of Brazil would like to use IoT technologies and practices to enable the integrated management of services and the improvement of mobility, public security and resource use. 

These practices are in line with smart city plans which are already being implemented by just under 20% of municipalities throughout the country. However, building a base which will allow smart city initiatives to flourish is contingent on providing internet connections to the wider public. As a part of the IoT smart city plan, providing affordable and accessible internet is fundamental in the strategy’s success.

In line with the country’s plans, telecommunication companies are laying the foundations for IoT and smart city technology with the forerunners being Qualcomm Technologies and Ericsson. The two are laying a massive low-power wide-area connectivity leverage system which will enable the deployment of IoT in industries across the country, aiming for mass commercialisation of the network.

Smart cities

The head of Ericsson Brazil, Eduardo Ricotta said that broadband was the starting point for making cities smarter. “Mobile networks are the foundation for spreading connectivity to every sector of society, helping in essential questions such as traffic, security and education. We can’t lose sight that every time there is a 10 percent increase in broadband penetration, the country’s GDP increases 1 percent.”

“When we connect the agribusiness, we promote smarter cities and creating a platform for more diverse elements of the IoT ecosystem, all while making the country more economically efficient,” Ricotta continued. The deployment of IoT technologies across rural areas in Brazil will however be more difficult due to the sheer expanse of the country.

Being the fifth largest country in the world and one of the globes largest exporters, connecting rural areas and especially agribusiness to the network is an increasingly paramount. The strategy highlights the government’s aspirations in this sense to develop as one of the largest IoT agribusiness exporters on the global stage. The move is multifaceted and both aims to increase productivity within the country and also export the knowledge of how to leverage IoT tech to produce agricultural products which are of a high quality and socio-environmentally sustainable.

In the context of the Brazilian healthcare industry, implementing IoT is an imperative for the government. The country offers one of Latin America’s most comprehensive government-funded healthcare systems and the number of citizens over the age of 65 is projected to triple by 2050. To expand access to quality healthcare, Brazil intends to leverage IoT to create “an integrated vision of patients, decentralize the healthcare system, and improve the efficiency of health units” across the country.

Lastly, for industries across the country, the government aims to use IoT to increase efficiency and national productivity. This will be done via innovative business models and through greater cooperation in the production and supply chains. Brazil is the second largest manufacturer in Latin America after Mexico – with a growing automotive sector and production in steel, petrochemicals, computers, aircraft and consumer goods – which accounts for just under 30% of the country’s GDP.

Implementation entering phase 3

An update on the progress of the plan released in early 2018 during phase 3 of the implementation of the strategy states: “The Internet of Things field is an unique opportunity for Brazil to capture its value. By 2025, in the world, IoT will have an economic impact of $4-11 trillion, higher than advanced robotics, cloud technologies, and even the mobile internet. In Brazil, the potential impact is $50-200 billion per year, which represents about 10% of the Brazilian GDP.”

According to the report, the message of this integration is clear: “The Government wants to act as a facilitator, putting society as protagonist of this revolution.” Brazilian President Michel Temer said at a FutureCom Conference in late 2017 that “technology is something that must serve society. Nowadays technology is essential to participate in public debate and even in politics.” The government is hoping that IoT will help it recover from two decades of social and economic shortcomings and reinvigorate the Brazilian national agenda. 

Digitization could add $240 billion to Mexico’s GDP by 2025

22 January 2019

New in-depth analysis by McKinsey & Company ranks Mexico 55th in digital maturity out of 151 countries. When compared to countries with similar economic output, Mexico is in good shape, but the country has “yet to achieve the kind of world-class digital transformation that fuels productivity and economic growth.”

Countries that have adequately transformed, such as Estonia and Malaysia, have incomes close to Mexico, but punch “above their weight” when it comes to digital maturity. Mexico is about halfway there. Taking steps to improve its global digital position, however, could increase the country’s GDP by  7-15% (approximately $155-240 billion) by 2025. Such an increase would be powered by increased productivity and employment in existing industries, new digital businesses, a broadened expanded information-and-communication-technology (ICT) sector, as well as the successful labor force transition into the digital world.

Mexico is the second-largest economy in Latin America, meaning it is in the unique position to set the regional standard for a “digitally enabled” government.

For their analysis, McKinsey & Company researchers Alberto Chaia, Gonzalo Garcia-Muñoz, Philipp Haugwitz, Max Cesar, and Andre de Oliveira Vaz defined digital maturity using four categories: government, foundations, economy, and society. The study also laid out steps that Mexico could take to improve its digital maturity. Of these four factors, Mexico has the most work to do in digital economy and digital foundations, categories in which its scores are just below average – and which are highly correlated.

Digital maturity of Mexico according to McKiney

The bad news first

Digital foundations essentially encompass the ability of citizens to participate in a digital society. This means internet access, mobile networks, and so forth. “In 2016, Mexico had just 13 fixed-line broadband subscriptions for every 100 inhabitants” the analysis found. “The rate of subscription to mobile broadband is higher, at 61%, but this still leaves a sizeable portion of the population unconnected and thus spending additional time and money getting to physical centers to access government services.” This lack of access causes Mexico to rank 93rd overall in the digital foundations category. 

Mexico’s digital economy, in turn, is hindered by its “shaky” digital foundations. It sits in 92nd place of all countries surveyed. There is a lack of access to high-speed internet, as stated, as well as an unreliable postal service and a lack of bank accounts among the population, with just 40% of citizens aged over 15 having an account. These factors decrease the country’s potential to develop an e-commerce industry that is widely and conveniently used. Exports of ICT goods, as well, account for an astonishing less than 1% of all exported goods and services.

And now for the good news

Mexico’s digital government, which ranks 39th overall, has made great strides in recent years. The creation of, for example, provides "a one-stop portal that consolidates 34,000 databases from 250 government institutions and 5,400 public services. The platform is described as the “centerpiece” of Mexico’s digitization efforts, allowing citizens easy access to important legal documents such as birth certificates, as well as automating internal processes, making workplaces tasks run more smoothly for government employees.

Despite this – and the appointment of a national digital strategy coordinator who sits on the president’s staff - Mexico “receives low scores from its citizens on their overall satisfaction with the convenience and accessibility of government services.” Citizen experience was the worst-rated of those group countries surveyed (Canada, France, Germany, Mexico, the United Kingdom and the United States). There was also a largest perception gap between the private and public sector.

How digital can boost Mexico’s GDP

A digital society, according to the report, “can improve the quality of life for citizens by fostering greater civic participation, providing access to information, and offering new tools for health and education.” As previously shown, Mexico is pushing such platforms, including several subsections of, on which citizens can participate in public polls and discussions, and present potential digital solutions to serious societal problems such as earthquake detection systems.

Mexico is well on its way to achieving a “good” or “very good” digital maturity rating (right now, the country is “acceptable”). According to McKinsey, “There are three basic initiatives Mexican government leaders could consider putting on top of their priority lists [to speed the transition into the upper echelons of digitization].”

First, the Mexican government must define a digital vision and strategy. Second, it must link that vision to policymaking. Entwining the two ensures that digitization acts as a “lever” to a policy’s success. “To establish a clear link between its digital vision and public value, Mexico’s incoming administration may want to consider revisiting the country’s "National Digital Strategy" for 2013 and aligning it with Mexico’s current and future needs, as well as with the new government’s priorities,” the report states. A “test and learn” attitude toward linking digital vision and policy will also be necessary, as the only way to avoid repeated mistakes is by closely evaluating those that have been made, then planning accordingly. Adopting this attitude, according to the report, will necessitate more flexible budgetary strategies.   

The third suggested initiative is all about power to the people. Successful digital transformations are those that are centered around the citizens, rather than the institutions that serve and govern them. This means service delivery is key, and centralization of digitalization efforts – initially, perhaps, in the form of a council that would oversee governmental transformation – could greatly aid government agencies in getting the people what they desire. As Mexico transforms, so would the ways in which ideas are generated and put into action. For instance, the United States has the US Digital Service, which works with the White House, and Singapore relies greatly on the Government Technology Agency, which reports to the country’s president and implements digital strategies.

Digital maturity benchmark

Filling in the cracks

Because Mexico ranks on the low end of the “digital foundations” category, it is obvious that the other four categories, which by nature fall under the “foundations” umbrella, are potentially negatively affected. As such, McKinsey offers five steps that could be taken to strengthen the country’s digital infrastructure. 

Private companies, for one, could be offered incentives to provide broadband internet to “marginalized” communities, such as those in Oaxaca and Chiapas. The study points to India as an example, where the government-created National Optical Fibre Network (BharatNet) “successfully brought broadband services to approximately 115,000 villages, aiming to deliver broadband connectivity to 250,000 villages overall.” 

Talent is also an issue. “In recent years, Mexico has made significant strides to boost the number of college graduates with degrees in science, technology, engineering, and mathematics (STEM),” the report states. In 2016, 25% of university graduates with a STEM degree. 

But degrees aren’t so much the problem as education in general. “Only 17% of Mexicans graduate from college, making the talent pool small.” Programs that keep primary and secondary school teachers in the loop are a must – as are “reskilling” programs meant to train a percentage of the workforce that is soon to be displaced by technology such as automation. 

Rounding out the five suggestions are a system that easily and simply explains new regulations regarding technology - an invaluable resource for startups; the development of cybersecurity units required to monitor the security of such a large, overarching transformation; and a streamlined, interoperable model for data sharing across multiple government agencies. 

It’s an investment

The challenges and obstacles in Mexico’s path to digital transformation are not inconsiderable, but are neither without long-term reward. “Going digital will require an investment of financial resources, extensive coordination among the multiple stakeholders and levels of government, and new regulations governing the growing e-commerce and fintech sectors. It most likely would entail participation incentives for the private sector, since governments should not attempt to 'go it alone.' In the end, both sectors of society stand to reap the value digitization will sow.” 

Related: Mexico leads Latin America in robotization, followed by Brazil and Argentina.