The official data released by the Mexican government regarding foreign direct investment (FDI) says that we have investment opportunities in our favor. The forecasts for the end of 2022 and next year are optimistic, but many experts believe that these figures could be “misleading” if different collateral aspects are not taken care of. Let’s look at the data.
These figures are based on what was reported during the first six months of 2022 (January-June), which reported an FDI figure of US$27.51 billion. This number was brought from significant movements that were carried out during this period, for example, the merger of Televisa with Univisión and the restructuring of Aero-méxico, which together represent US$6.87 billion in FDI.
Without considering the movements mentioned above, in the first half of 2022, FDI was 12.0% higher than the amount captured in the same period of 2021 (US$18.43 billion). When considering the merger of Televisa with Univision and the restructuring of Aeroméxico, FDI captured in January-June 2022 increased 49.2% compared to figures for the same period in 2021.
The investments for this period in 2022 came from 2,376 companies with foreign capital participation, 2,649 trust agreements, and 16 foreign legal entities. The above is integrated as follows:
- Types of Investment:
- New investments make up 43%
- Profit reinvestments are 42.4%
- Intercompany accounts represent 14.6%
- Investment by Sector:
- Manufacturing has the largest share with 34.3%
- Transportation comes next at 16.3%
- Communication in media is 14.2%
- Financial and insurance services are at 13%
- Trade has a share of 6.1%
- Mining is 4.7%
- All other sectors together make up 11.4%
- Investment by Country:
- The United States leads with 39.9%
- Canada follows at 10.3%
- Spain contributes 6.8%
- Argentina is at 5.9%
- The UK gives 3.3%
- Germany’s share is 2.6%
- All other countries combined add up to 31.2%
Luis Gonzali, Vice President and Co-Director of Investments at Franklin Templeton Mexico, shared his analysis in this regard: “If we analyze where this investment at traction comes from, we can see that almost half of the investments are new, of which about 35% are in manufacturing. This comes to support the idea of nearshoring and how it could be an interesting catalyst for growth in Mexico.”
For his part, when announcing the figures, Mexican President Andrés Manuel López Obrador commented that “foreign investment arrives when there is an authentic rule of law when there is stability, when there is governability when there is honesty. And also, for geopolitical reasons. We do not want war anywhere, but the Russia-Ukraine conflict, the tensions in Asia, in Taiwan, all of this makes Mexico a very attractive country for investment, for sure.”
These comments suggest that Mexico is benefiting from nearshoring, reshoring (re-locating assets closer to the headquarters of the parent company), or the also known friend-shoring (relocating to friendly territories). With this, it is expected that these commercial modalities, which emerged in post-pandemic times, could help Mexico avoid the recession that some analysts forecast for 2023, which would come mainly as a result of high-interest rates and inflation in the United States.
However, despite this 12% increase in Foreign Direct Investment in Mexico, there are indicators such as the FDI Confidence Index by the international consulting firm Kearney that indicate that the climate of confidence for investment in our country is not favorable, so opportunities are being wasted. “With greater legal certainty in the energy field, investment in Mexico would be much greater.”
Mexico is the ninth largest recipient of foreign direct investment in the world and the sixth among developing economies, according to the 2022 World Investment Report. José Karam Jiménez, director of CB Corporate Business, highlighted the fact that we are facing a great moment of investment for Mexico.
In the businessman’s opinion, during the next two years, investments in Mexico will be encouraging and of continuous growth thanks to different favorable factors, such as state investments in different entities of the country. For example, Nuevo León seeks to attract more than US$3.5 billion in FDI thanks to various projects reactivated in 2021 that have prospects of continuing for next year. Similarly, José Karam Jiménez specifies that Querétaro expects to receive an investment of US$165 million from Italian companies. Moreover, in San Luis Potosi, the addition of new jobs is expected due to the arrival of more automotive companies in 2022 (reported by the Ministry of Economic Development).
Likewise, the director points out that in order to make the most of the opportunities of this great moment of investment, security, trust, and stability must be offered, “we need conditions that Mexico fully complies with.”
Laura Dachner, an expert in trade and competitiveness at the World Bank Group, comments that Mexico is a very attractive territory for foreign investment, but it could attract more investment in general and to more regions of the country in a more equitable way. To do this, she lists four important concepts in terms of investment policies and promotion of foreign investment in Mexico:
- The goal is not to choose foreign investment over local one or the other way around but to link them together in the global market.
- Foreign investment is more than just a one-time deal; it’s an ongoing partnership that involves many people with different goals.
- Investments vary widely. Each type can have different impacts and requires different plans to make the most of their positive aspects and limit any negative effects.
- To attract the investments we want, we need to actively and thoughtfully promote our area. Since there’s a lot of competition to get foreign investment, having a plan for the future is crucial.
With this, Gustavo Méndez, Leader of Financial Services from the consulting firm Deloitte, explains that, in order to make the optimistic figures predicted for the end of 2022 and 2023 a reality, and continue promoting the attractiveness of Mexico as an investment destination, it will be necessary, first of all, to promote certainty for business in the country, through clear rules and incentives for investors.
“In Mexico, the average levels of investment are below 20% of GDP, a figure in which, although the government is a contributor, the private initiative does so to a greater extent. This underscores the importance of the private sector to the national economy, whose participation becomes even more relevant in these times of challenging global economic conditions.”
Secondly, Mendez affirms that it Secondly, Méndez affirms that it would be essential to continue working on the fight against corruption, insecurity, and support for companies, “which play a key role in achieving a speedy economic recovery.” In this way, if we follow this path and expert recommendations, focused on generating an optimal business climate, we will be able to help our country to be seen (by national and international companies) as an attractive id investment destination, an objective that, in the current context, is essential.