Mexico’s National Economy With a GDP of USD 1.2 trillion and a population of almost 130 million, Mexico’s economy is the second largest in Latin America and the 15th largest in the world measured by 2019 GDP. In recent decades it has moved from one based heavily on agriculture and manufacturing to being led more by services. Growth, which since 2015 had been in the range of 2.1–3.3%, became negative in 2019 and has remained so due to COVID-19, but has been forecast by the IMF to recover to 4.5% in 2021. Key sectors include manufacturing (led by automobiles, aerospace and medical devices), agriculture, energy, telecommunications, IT, and financial services, with telecom, IT and financial services seeing particularly strong growth.
In global rankings for innovation, ease of doing business, and competitiveness Mexico falls in the middle, but at or near the top in Latin America. In the mid 2000s the Mexican government initiated a series of reforms to stimulate competition and open the country’s telecommunications and energy markets. As a result, telecommunications costs have dropped dramatically and access to service has increased, laying the foundation for a growing digital economy. The de-nationalization of the energy sector has spurred foreign investment, increased production, and accelerated the shift toward renewable energy. In another initiative, INADEM (the national entrepreneur institute), invested government funds to jump-start a venture capital industry.
Lately, under the administration of President Andrés Manuel López Obrador, many of those reforms have been challenged or reversed, as government priorities have shifted toward social services and support for state-owned entities such as PEMEX and CFE. INADEM was dissolved in 2019. As national government policies have become less supportive of business, attention is shifting to Mexico’s states and cities, many of which have adopted policies that actively support business development and innovation-led growth.
Entrepreneurs, Startups and Venture Capital
As the economy evolves toward advanced manufacturing, business services, and innovation-led growth, new economic actors are taking the stage as startups with venture capital play a more active role.
Mexico’s venture industry is young but has grown significantly since 2016, when infusions of funding from INADEM helped to launch a wave of new venture capital firms. From USD 55 million in 2010, yearly capital investment grew to more than USD 1 billion in 2019. Investment is primarily at seed and early-stage, with most funds concentrated in Mexico City, followed by Jalisco (Guadalajara) and Nuevo León (Monterrey). An important corner was turned in 2019 with the launch of Softbank’s USD 2 billion Innovation Fund to invest in Latin American startups; now a USD 5 billion fund, its entry into the market validated Mexico and Latin America as a field for global venture investment.
Most venture deals are concentrated in the consumer discretionary and financial services sectors, with fintech a major focus. Successful companies such as Cornershop, Clip, Kavak, Konfio, and Jüsto have confirmed the ability of Mexican startups to scale. To scale further, many are expanding into Latin America, particularly Colombia and Chile.
The venture market still faces limitations: conservative investors, a shortage of growth capital, a narrow window for exits, and low visibility for Mexican startups outside Mexico. But investment growth in 2019 and 2020 and the success of a handful of now well-known startups point to continued progress.