Latin American CEOs more optimistic than global average about future growth

13 August 2018 Consultancy.lat

With confidence in the local markets after a year of electoral uncertainty, 96% of Latin American CEOs expect their company will grow in the next three years. Due to a combination of local and global factors, the optimism exhibited by the continent’s CEOs is higher than the global average of 90%, according to a recent study by professional services firm KPMG.

The study compares the results from the recent 2018 Global CEO Outlook by KPMG International who interviewed 1,300 CEOs across the globe and 278 CEOs from Latin America. For the first time in a decade, Latin business leaders are confident about their own companies and their country’s business environment.

Latin America has undergone a tremendous change in the past ten years with Brazil and Argentina returning to growth after sustained recessions. In the past year, the region has moved towards an open business environment which is emanating rays of optimism. This sentiment contradicts a level of pessimism spreading through North America and Europe due a rise of what the consulting firm refer to as ‘territorialism’ in Spanish.

According to Scott Ozanus, President of the KPMG in the Americas Region, “Confidence sustained in the local economic recovery is keeping at bay electoral uncertainty as the threat of territorialism, with 90% of the Latin American CEOs who expressed optimism about the prospects for growth for your country for the next 3 years, which represents an increase in 20% from the survey conducted in 2017.”

Latin American CEOs more optimistic than global average about future growth

Territorialism – the restrictions of trade and business due to inward looking policies i.e., Brexit and US President Donald Trump’s tariffs – has created a stir in the international business community. Whilst these policies will have an effect on Latin America trans-equatorial and trans-Atlantic trade, Latin CEOs considered it one of the smallest risks for their businesses (5% compared to 16% globally).

An increase in protectionist policies emerging from the US is actually creating a degree of regional integration throughout Latin America, according to the report’s authors. As the US vows to revisit NAFTA, “Mexico and other countries in the region can also benefit from a realignment in the trade blocs.” The amalgamation of Latin trade has also been met by increasing ties with ‘open-for-business’ Asia as opposed to the ‘isolationist’ United States.

These factors together have influenced Latin CEOs’ positive outlook but have also shaped their negative view on the global economy. In comparison to the world average of 67%, only 37% of Latin CEOs have confidence in the growth of the global economy in the next three years.“For the first time, I would say in the last ten years, there is synchronicity in growth throughout the region and in much of the world. CEOs feel confident about their own capacity to take advantage of the opportunities in this growth cycle,” said Víctor Esquivel, Senior Partner, KPMG, Mexico and Central America.

Latin American CEOs

"CEOs are taking advantage of the adverse winds of change to move their organizations towards growth,” said Bill Thomas, President, KPMG International. “The CEOs with whom I have spoken recognize geopolitical uncertainty, disruption and cyber threats as their new concept of normal. The best ones are in search of the opportunities that this creates, they are modifying their systems and, in certain cases, all of their business.” 

In order to capitalize on this optimistic sentiment, CEOs are turning towards implementing Industry 4.0 technology in leaps and bounds. With a highly tech-proficient and connected labor force, implementing advances in technology in Latin America will drive economic growth in the near future. According to Pedro Melo, Managing Partner of KPMG’s operations in South America, by replacing entrenched inefficient processes in Latin America with technology, “savings can be more immediate and more significant” because Latin executives have leapfrogged early stage tech-development.

Whilst technology will not counter a global shift in trade policies, it will help individual companies become more competitive on a global scale. And the technologies that can offer improvements in many parts of the world could have a large effect on the Latin American economy overall, driving growth and development in the next emerging global marketplace. It has been said that Industry 4.0 will offer Latin America many of the same opportunities that have occurred in Asia over the past two decades. 

“With such unique political, economic and cultural models in each country, and some recent difficult chapters in some of those countries, it is encouraging that our 2018 survey finds Latin American CEOs in a moment of shared optimism: 40 percent of them identified Central and South America as the main emerging market for expansion in the next 3 years,” said KPMG’s Americas Vice Chairman.

“In fact, its trust is shared by managers who also identified the expansion to emerging markets as a priority, with Central America and South America being their first selections, which is an additional sign of the growing global influence of Latin America.”

Overall the report concludes that the perspectives of Latin American CEOs are focused on the positives. As a mood which is in stark contrast to populist politics, Latin executives are optimistic about the fact that the recovering Latin economy is in sync with global economic growth and especially for the (re)emergence of the middle class.

Profile

More news on

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

22 January 2019 Consultancy.lat

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 gob.mx, 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 gob.mx, 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.