Mexican authorities look to build on recent successes in innovation

The authorities have long recognised the importance of research and innovation to the development of a strong and sustainable economy. To date, however, a number of structural challenges have somewhat limited innovation, and certain government research and development (R&D) spending goals remain unmet.

While renewed interest in promoting R&D has meant the country is performing well on global indices, lower budgets in 2017 and 2018 mean the government will be looking to continue incentivising private investment, while encouraging universities to maintain their work to advance the sector.

History

With abundant natural resources, cheap labour and a relatively protectionist economic policy, there was little necessity to invest in R&D until 1960 when the government took its first step towards developing local science skills. This was done through the creation of the Institute for Scientific Research (Instituto de Investigación Científica, IIC), which provided scholarships for undergraduate and postgraduate scientific research. In 1970 as the Mexican tertiary education system expanded and developed, the IIC was replaced by the National Council for Science and Technology (Consejo Nacional de Ciencia y Tecnología, Conacyt). The new body provided research grants and became a central pillar of the state’s science and innovation strategy, and between 1989 and 1994 the council’s budget more than tripled as the government focused on increasing the capacity for scientific research. As of 2018 around 34% of the total science, technology and innovation budget went to Conacyt.

In the 1990s a new push to further enhance technological innovation began with the creation of the R&D Technological Innovation Trust Fund, a body that provides long-term financing for pre-commercial technologies. A number of complementary agencies and initiatives were also created to support technology incubators and private research centres. However, by the turn of the century, business contributions to R&D stood at just 20% of the total, compared to 40% in Brazil and 70% in South Korea. Very little was spent on experimental development, and few patents were filed by Mexicans. In 2002 Congress passed the Science and Technology Act, providing Conacyt with new autonomy by removing it from its position within the Ministry of Education and having it report directly to the president. The goal of raising sector spending to 1% of GDP by the end of 2006 was agreed upon at that time, and new funding sources were introduced to focus on strategic sectors. However, the impact of these initiatives was limited due to relatively modest funding increases, a lack of institutional capacity, and weak planning and implementation.

Figures from the World Bank show Mexico spending 0.49% of GDP on R&D in 2012 – the year President Enrique Peña Nieto came to office. The new administration moved rapidly to establish agencies for innovation and investment, including the National Institute of the Entrepreneur, designed to provide financing to start-ups, in 2012. This was followed in 2014 by the Special Programme for Science, Technology and Innovation, which set out some key quantitative objectives to be met by the end of the presidential term, reiterating the goal of directing at least 1% of GDP to R&D by 2018, in line with UNESCO recommendations. However, the latest data from UNESCO show that spending on R&D hovered at 0.5% of GDP in 2017.

Performance

The 2017 Global Innovation Index (GII), jointly published by Cornell University, INSEAD and the World Intellectual Property Organisation (WIPO), ranked Mexico 58th out of 127 countries, an improvement of three places on 2016. Outlining the key findings of the report, the WIPO singled out Mexico, Brazil and Chile – the latter two were ranked at 69th and 46th, respectively, on the GII – as important actors. Mexico’s role as an active contributor to global value chains, particularly in high-tech sectors, was also highlighted. However, investment and productivity in Mexico and across the Latin American region were still at historically low levels as a result of tighter R&D funding inflows from selected high-income countries, slower spending growth in emerging countries and a loss of momentum in business expenditure.

At the local level, the Mexican Institute for Competitiveness (Instituto Mexicano para la Competitividad, IMCO) publishes an international competitiveness index that measures a country’s capacity to generate, attract, and retain talent and investment to create increased economic productivity and, in turn, greater well-being for their inhabitants. Mexico ranked 36th in 2017, up from 37th in 2016, placing it behind Turkey but ahead of Russia, on a list of 43 countries.

In addition, ahead of the July 2018 general elections, the IMCO issued a series of recommendations for presidential candidates to increase Mexico’s competitiveness on global markets. Suggestions included incorporating technological innovation into state processes to boost efficiency and combat corruption, as well as reducing federal, state and municipal regulations that hinder the private sector.

Budget

In the 2018 state budget MXN31bn ($1.7bn) was allocated to Conacyt, indicating relatively no change from 2017, but a notable drop from 2015 and 2016’s budget allotments of MXN33.7bn ($1.82bn) and MXN34bn ($1.84bn), respectively.

The 2018 sum includes MXN5.7bn ($308m) for 26 public research centres, which offer degree and postgraduate courses focusing on a variety of sectors, from manufacturing and industrial processes, to environment, health and agriculture. The aim of the centres is to train students in scientific and tech-related subjects so that their expertise can be applied to overall economic production.

Challenges

There are still issues to be dealt with. The Mexico Institute at the Woodrow Wilson International Centre for Scholars (WWICS) published a report in 2018 on Mexican innovation that, while applauding recent progress, suggested more could be done to further the country’s R&D and innovation work.

The report identified four factors that inhibit innovation related to government, community, infrastructure and a lack of funding. Furthermore, regarding education, in 2016 only 16.8% of Mexican adults held a university degree, compared to the OECD country average of 35.7%, and while most innovation is related to science, technology, engineering and mathematics, only 24% of Mexicans with higher education degrees graduated from such fields in 2017. The report also pointed out that the business community faces challenges in fully promoting innovation, with patents often not commercialised, firm-to-firm partnerships scarce, and incubators often not creating effective links between entrepreneurs and markets. From the legislative side, issues included the protection of property rights and corruption.

Recommendations to enhance innovation-driven entrepreneurship included the promotion of education methods that support creativity and teamwork, the expansion of English-language instruction, the teaching of business skills and the awarding of prizes for entrepreneurship to solve specific challenges. Other recommendations included further encouraging the creation of special economic zones (see Transport & Logistics chapter), the incorporation of demand-driven funding options into the awards granted by Conacyt, payment of incubators rather than companies for the creation of new products, the development of specialised institutions to encourage innovation-oriented public-private partnerships, additional tax incentives to promote innovation, and a reduction in the bureaucratic processes and red tape that can impede starting a business. “There needs to be a more extensive collaboration between universities and private companies,” Carlos Abelleyra, CEO of Aspen Labs, told OBG. “To do this, there should be clear incentives for both parties so that benefits can be shared and developed mutually.”

Working Together

A number of organisations have moved to address challenges by working directly with government. Fundación IDEA, a local non-profit think tank, carries out analyses to design and promote public policies that foster innovation as well as create equal opportunities through economic development and poverty reduction. Among the state entities it advises are the Ministry of Social Development, the Ministry of Public Education, the Ministry of the Economy and the National Housing Fund, as well as foreign organisations including USAID, UNICEF, the World Bank and the Inter-American Development Bank.

Meanwhile, Conacyt directly assists companies with research and technological development through its annual stimulus programme, which provides funding to allow companies to invest in the development of new products, processes and services that could potentially have a positive impact on the economy. As a result of reforms undertaken during the current federal administration, the number of companies approaching Conacyt to seek support for projects in select sectors has grown. “We can see the evidence of reforms as the private sector expresses increased interest through more project proposals. We have seen more bids to develop tech-related initiatives in the aerospace sector, for example, as a result of the telecommunications reform,” Teresa de León, director of technology commercialisation at Conacyt, told OBG. “However, it’s too early to draw conclusions on the results, as projects are developed over the long term, and we may not see an immediate impact.”

Renewable Energy

One such area where innovation is also emerging is with renewable energy. As a result of the energy reforms approved in 2013 that allowed for greater private investment, the country is working to incorporate cleaner electricity generation and increase its installed renewable capacity. This reform package includes the 2015 Energy Transition Law, which set out clean energy generation goals, stipulating that 25% of power was to be generated by renewable sources by 2018, 30% by 2021, 35% by 2024, 45% by 2036 and 60% by 2050. As of the first half of 2017, installed capacity in renewables had reached 25.37% of the total, according to the Ministry of Energy, while in April 2018 Pedro Joaquin Coldwell, the minister of energy, said that renewable sources will likely produce 43% of power by 2024, meaning the country is on track to meet its goals.

Among the new projects being developed are those related to solar power, given the high levels of solar radiation, which see the country receive between 4.4 and 6.3 KWh per sq metre of solar energy per day. Projects included a solar sombrero capable of charging a mobile phone, which was designed for farmhands by students at the University of Guanajuato in the Bajío region; solar traffic lights, developed by students at the Technological University of Tabasco; as well as window panes that generate solar power, a solar-powered wheelchair and a solar stove for use by food vendors to reduce overhead costs as well as air pollution from gas and wood-burning stoves, made by students at the National Polytechnic Institute.

Education

Indeed, projects developed by students have great potential to be brought to market once governmental support and financing have been procured, leading Conacyt to forge links with academia. The Monterrey Institute of Technology and Higher Education (Instituto Tecnológico y de Estudios Superiores de Monterrey, ITESM), for example, a private, multi-campus university founded in 1943, has long been considered a seedbed of talent and innovation, as well as a global leader in issuing patent applications. ITESM holds an annual research conference focusing on strategic sectors such as medicine, mechatronics, biotechnology, sustainable technology and ICT, and public policy. Projects presented at the January 2018 conference included an environmentally friendly food wrapping made from organic materials designed to replace synthetic polymers, the development of a biomedicine from plants to treat eye diseases, intelligent waste disposal bins to reduce food waste, and more efficient water-treatment processes. In addition, February 2018 saw ITESM launch its open access policy, allowing for the distribution of all scientific, cultural and technological research and information developed on its campuses since 2003. It is hoped this move will attract support and financing for further research.

Among the success stories created by ITESM graduates is medical sciences company Higia Technologies, which produces wearable biosensors capable of detecting cancer. One such garment detects abnormalities in the elasticity and cell patterns of breast tissue, potentially indicating early-stage cancer. The product is currently undergoing clinical trials and is expected to be ready for sale in early 2019.

Higia has partnered with companies including French multinational insurer AXA, US tech company Apple and cosmetics company Avon Products, as well as the Mexican National Cancer Institute and the Mexican Social Security Institute. In 2017 the cancer detection project won the Global Student Entrepreneur Award, which recognises excellence in student entrepreneurship around the world.

Aerospace

Mexico’s aerospace industry is relatively young, but aided by its proximity to the US, in 2017 the sector generated an estimated $8bn in revenue, according to the Ministry of the Economy. As part of a drive in the aerospace industry to reduce component size and costs while having a shorter service life, students at Mexico’s largest public university, the National Autonomous University of Mexico (Universidad Nacional Autónoma de México, UNAM), designed and built the NanoConect1, a cargo-carrying nano satellite. NanoConect1 successfully carried out a suborbital flight in November 2017 while completing several scientific experiments with its on-board particle detector. The nano satellite was developed in conjunction with UNAM’s Space Instrumentation Laboratory and the Institute for Nuclear Sciences, and was launched from the facilities at the Council of Science, Technology and Innovation of Hidalgo.

Beyond aerospace, UNAM’s engineering faculty is home to a web and wireless applications development lab, which created UNAM Mobile, a research institute and one of Mexico’s largest app developers. UNAM Mobile has partnered with a number of international companies, including Apple, Canadian tech giant Blackberry, Google, US telecoms equipment firm Qualcomm and local wireless provider Telcel.

Social Development

UNAM’s Innovation and Development Coordination (Coordinación de Innovación y Desarrollo, CID) is a technological R&D centre founded in 2008 to develop projects for public, private and social sectors for the benefit of society. Among CID alumni success stories are Sewilow, a social awareness campaign based on a cartoon character of the same name, which has been used to draw attention to various social and health concerns, such as bullying and obesity, as well as environmental issues.

Private Sector

Several incubators have sprung up in Mexico over the last decade, acting as a bridge between innovators and the private sector to steer financing towards projects with a potential benefit to the economy and which offer a return in investment.

Play Business, for example, is a crowdfunding platform that recruits capital for start-ups looking to solve local and regional problems with technology. Among the projects launched by the firm are Gama Energía, a solar-power developer, and Grupo BNT, a biotechnology firm developing nutritious food products to supplement daily diets. “We seek projects that can be commercialised within the Latin American context. As the region faces common problems, such as access to education and potable water, and issues with urban mobility and a lack of transparency, which are all part of the Latin American reality. The region cannot wait for problems to be solved from Silicon Valley,” Joan Segura, director-general of Play Business, told OBG. However, the task of attracting capital to fund startups has not been without its challenges. “There is a lot of government support for projects, but then again, there are also many gaps where sometimes the support is not enough,” Segura added.

Fondo de Fondos is a local investment firm that attracts private equity to small and medium-sized enterprises that seek to develop innovative projects both in Mexico and the wider region. The firm currently manages investment commitments totalling more than $700m, and targets the energy and infrastructure industries by working with local development banks such as Nacional Financiera and Banobras, foreign trade bank Bancomext, rural sector investment fund Focir, as well as the Development Bank of Latin America, better known as CAF. In the company’s 10-year history, Fondo de Fondos has launched seven investment vehicles, two of which are co-managed by US private equity firm Sun Mountain Capital. In its recommendations made in early 2018, the WWICS suggested that Fondo de Fondos target social programmes to ensure a greater impact on development.

Outlook

While Mexico has a strong background in innovation, fostering new research and actioningnew ideas may require structural change. “Mexico is undoubtedly progressing in its innovative capacity, but a greater focus on R&D needs to be accompanied by dynamic and qualified human capital, market stability, links with universities, and R&D impact on the local market,” Alejandra Torijano, country manager of health care research firm Agilent Technologies, told OBG.

As the incoming administration of Andrés Manuel López Obrador, of the National Regeneration Movement, takes office in December 2018, entrepreneurs will be hoping that the new government recognises the significant contribution that innovation and technology make to economic development.

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The Report: Mexico 2018

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