Mexico needs US$40 billion in annual FDI

Mexico needs US$40 billion in annual FDI

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By Graeme Stewart

Foreign Direct Investment (FDI) has become so vital to the Mexican economy that without it, there would be no automotive industry, much fewer jobs and zero economic growth.
Enrique de la Madrid Director General BancomextAccording to Enrique de la Madrid, Director General of Bancomext, Mexico receives around US$25 billion a year but needs more, around US$15 billion a year more to reach US$40 billion.
And, as he explained to MexicoNow after speaking at the Mexico Automotive Industry’s Xlll Congress in Mexico City recently, even more FDI coming into the country would be most welcome.
He said: “In the case of Mexico, Foreign Direct Investment is a very good thing. It allows us to have a higher economic growth as our domestic savings are not enough. We need to compensate those needs with foreign investment and I also think that one of the objectives of the Free Trade Agreements was not only to increase trade but also increase foreign investment.”
“It is interesting to see some statistics before the Free Trade Agreement with the US and Canada when Mexico received, on average, between US$2 billion to US$3 billion dollars a year, no more than USD$5 billion. After NAFTA that number went up to between US$15 billion and US$20 billion a year. Currently, it is even more.
“So the Free Trade Agreement not only had an impact on trade but also on foreign investment. And as you can see, for example, in Mexico the automotive industry is clearly a foreign investment industry. It now has a domestic component in domestic suppliers but mainly it is based on foreign investment. So for Mexico, I think that has been very positive.”
“But the level of FDI has to rise in the future. For the size of our economy, we still need more foreign investment because we need to increase the rate of our economic growth and give jobs to one million Mexicans every year. We must have a much higher rate of economic growth and that can be fuelled by foreign investment.”

“Usually, we have between US$20 billion and US$25 billion in foreign investment a year but I think that in Mexico we should have US$30 billion to US$40 billion a year. For example, Brazil had those numbers some years ago and I think that should be the minimum in foreign investment that we receive each year.”
His words have been backed by several studies, one of which shows that Mexico drew a record $35.2 billion in FDI in 2013, according to the country's economy ministry.
The ministry’s report said the raft of economic reforms in industries ranging from telecoms to energy pushed through Congress by President Enrique Pena Nieto lured new investors to Mexico, which averaged $23 billion in FDI per year between 2000 and 2012.
In 2013, FDI was up 178 percent from the $12.7 billion seen in 2012, the ministry said.
The record high seen in 2013 was mainly due to Belgian brewer Anheuser-Busch InBev's acquisition of Mexican beer giant Grupo Modelo, which brought in about US$13 billion.
As a result Belgium was the biggest foreign investor in 2013, followed by the United States and Japan. The ministry added that about half the revenue was new investments and nearly three-quarters of investment went to the manufacturing sector.
The ministry said FDI in the fourth quarter of 2013 was $5.42 billion, up 138 percent from the average fourth-quarter FDI over the previous 10 years.
And figures from the United States’ Embassy in Mexico City reveal the extent of US FDI in Mexico.

In a report on the subject, the Embassy wrote: “NAFTA, proximity to the United States and macroeconomic stability make Mexico an attractive location for FDI. Additional reforms to improve competition, labor regulations and education quality were needed to increase competitiveness and encourage more FDI. Mexico ranked 18th among the largest worldwide destinations and 7th among developing countries according to World Investment Report 2013 by the United Nations Conference on Trade and Development (UNCTAD).” 
“In 2013, the FDI received in Mexico totaled $35.2 billion. Of that total, 55.7% was channeled to the manufacturing industry, 20% to retail, 12.9% to the construction sector and the rest to other sectors. The FDI came mainly from the United States (58.5%), Japan (13.1%), Canada (8.2%), Germany (5.9%), Netherlands (5.7%) and France (2.6%).”
An overview of FDI in Mexico by revealed that Mexico was one of the emerging countries most open to foreign direct investment. However, its competitiveness had been slowed down due to the increase of organized crime and a lack of reforms in the energy, professional and financial fields. But the recent Structural Reforms brought in by the Peña administration had breathed new life into the economy and made the country more attractive to FDI.

The overview continued: “The areas where foreign investments are concentrated the most are the border towns with the United States, where assembly factories are located, as well as the capital. The Yucatan peninsula continues to receive foreign investments thanks to its tourism appeal. Those investments come especially from the United States and Spain, mainly from the banking sector. The sectors receiving significant foreign investments are finance, automobile industry and electronics services.”

And outlined the pros and cons of investing in Mexico. It said the Strong Points were:

  • Mexico forms a bridge between North America and Latin America due to its geographical location;
  • Mexico has an extensive variety of natural resources allowing for the development of all types of industries at competitive prices;
  • Mexico is very open to direct foreign investments;
  • Labor costs are not high and, in general, there is a skilled labor force;
  • Positive structural reforms have been made during the current presidential term;
  • Mexico is the world's 8 th largest tourist destination.

The Weak Points included:

  • The country depends excessively on its partnership with the United States;
  • There is a high level of corruption.
The report concluded: “The Mexican Government has created an open and safe environment for foreign investors. The recently undertaken economic policies should allow investors to manage the safety of their operations despite any future unfavorable global external environment.”

So, as Mr. de la Madrid said, in the case of Mexico, FDI is
one of the fundamental factors to foster to reach the coveted sustained annual economic growth of 6%, up from the 2% to 3% that the country has posted over the last few years.