Investment in Mexico

Are We Failing in Attracting Investments in Mexico?

¿Estamos fallando en la atracción de inversiones en México?

Well, this question has different angles and different answers. Statistically speaking, we are not! If we look at the latest figures revealed by the Ministry of Economy, they indicate that during the first half of 2020 USD$17,969.3 million were raised, compared to USD$18,102.4 million of the same period of 2019 with preliminary figures, giving us a decrease of 0.7%.

For what we have seen in the fall in GDP and total investment in Mexico (20% and 30%), then the truth is the data is not bad.

Now, if we analyze its components, what we see is a strong contraction in the part of “new investments” which could be an indicative of discouragement from the investors. However, this is not necessarily true. The flows were concentrated in the category of reinvestment of profits, and accounts between companies, which means two things:

  • The companies operating in Mexico continue to believe in the country and, therefore, they invest their profits; and
  • That new investors may be following a common practice of investing in another country, as loans to their subsidiaries before converting to equity, or to repatriate profits easier in the future.

The latter is a very technical issue involving tax experts, corporate lawyers and economists. I don’t mean to bore you with this comment, but for those interested, you can consult the IMF’s Balance of Payments Manual Version 6, or the “Benchmark Definition for FDI” from OECD.

Future Challenges on the Horizon

Even so, a subsequent adjustment of the figures, which is usually around the end of the year, could modify and increase the amount presented this week by the Ministry of Economy. However, we do not believe this will be greater than 5% or 10%.

Now, why is this happening amid the biggest economic debacle our country has had since the Great Depression? Most likely because the investment decisions, especially in manufacturing, respond to different variables than a country’s domestic policies.

In other words, the foreign investor still sees an advantage in continue producing in Mexico. Therefore, what shall be taken care of is precisely that “advantage” component that we have, to remain a pole of attraction for investment, as are the easiness for foreign trade, the simplification of local procedures, legal certainty, and a good working environment.

The new association formed in Nuevo León by the Private Initiative and the State Government, aims just that. But we require the Federation to do its part.

Link to the initiative: