In order to fully benefit from the next generation of opportunities between the US & Mexico, a strong digital partnership will be critical for the growth and success of both economies. The United States-Mexico-Canada Agreement (USMCA) rightly addresses this opportunity in Chapter 19 by outlining the new digital economy that has emerged since the North American Free Trade Agreement (NAFTA) was signed into law more than 25 years ago. Not only was this the first trade agreement to put forth a digital trade chapter, but it also allows North America to serve as a model for an open and transparent 21st Century digital trade economy.
•Government appropriation: Governments should widely adopt cloud services for internal use as well as for its interactions with citizens and businesses.
•Universal connectivity: The federal government needs to promote the deployment of the infrastructure required to ensure connectivity for both fixed and wireless broadband access to all citizens.
•Digital skills: It is fundamental to promote digital skills and education programs for the population that constantly evolve workforce skills to keep up with emerging trends.
•Energy policies: To attract cloud infrastructure investments, specifically in the installation of data centers in Mexico, it is critical that the Government develops policies to foster investment in the electric grid, prioritize green energy generation projects and continue to pursue a competitive electricity marketplace.
These report recommendations are a great first step for Mexico to take a “Cloud First” leadership role across Latin America in furthering a 21st Century Digital Economy.
2. Fintech Growth
Mexico is one of the largest fintech markets in Latin America. Many of the fastest growing fintech companies in Mexico support payments, remittances, and lending that rely on digital infrastructure like cloud services to scale quickly. Like eCommerce growth during Covid-19, Mexican fintech startups saw accelerated customer growth. According to the USMF report, fintech now accounts for 40 percent of all venture dollars in this territory.
In fact, Covalto, formerly known as Credijusto, will now be the first Mexican fintech to publicly trade on a US Stock exchange. Covalto also became the country’s first “fintech bank” after it purchased a regulated bank, significant regulatory hurdle for many Mexican fintechs and paving the way for further growth. The primary offering for Covalto is to provide Small and Medium-Size Enterprises (SMEs) a multi-product credit offering, banking services and a full suite of business analytics tools.
According to Covalto, Mexico currently has the lowest credit penetration in Latin America, as outstanding loans represent only 38 percent of GDP –compared to 70 percent in Brazil and 216 percent in the United States. According to data from the International Finance Corporation, market concentration in Mexico has left a funding gap for SMEs amounting to more than US $160 billion, underlying the growth potential for digital financial services.
This fintech success story is a primary example of the opportunities enabled by making sure that a smart public policy empowers the private sector to access digital infrastructure in order to grow and innovate on behalf of SMEs in Mexico.
3. Smart Borders
The 2,000-mile border between the U.S. and Mexico with 55 ports of entry is responsible for the trade of goods and services totaled US $661.2 billion in 2021, making Mexico the United States’ number 2 trade partner, according to the U.S. Census Bureau. Over US $1.2 million in products move across the border every minute, making it the busiest in the world. As security and migration concerns grow, a smart border approach will be essential for the efficient flow of goods and services.
During the most recent meeting between President Biden and President López Obrador in July, the joint commitment of nearly US $5 billion in funding from the United States and Mexico for modernization projects at ports of entry along the border will hopefully serve as models of innovation, just as the digital trade chapter did in the USMCA. The funding commitment from the public sector is an important first step and the implementation phase must create the opportunity for the private sector to put forward innovative solutions that make the U.S.-Mexico border reflect a 21st Century digital trade partnership.
The digital partnership between the United States and Mexico will increase the ability of our shared border, economies, and cultures to benefit from the advantages that digital trade offers. We are on track to be the global example for a cross border, collaborative digital economy.