Fdi in Mexico

. FDI IN MEXICO

To begin describing how has been the growth and progress of FDI in Mexico it is important to define FDI itself. According to the OECD Economic Outlook of 2003, Foreign Direct Investment is "an activity in which an investor resident in one country obtains a lasting interest in, and a significant influence on the management of, an entity resident in another country. This may involve either creating an entirely new enterprise or, more typically, changing the ownership of existing enterprises (via mergers and acquisitions)" (157).

a. Mexican International Relations Synopsis

Mexico first opened its market in 1973 with a law that promoted Mexican investment and regulated the entry of foreign investment. However, the barriers and limitations it stated turned this law into everything but a promotion law. By 1989, 10 years later, a new regulation came. Politicians were surprised by the contradictions between the regulation and the law: the regulation opened significantly Mexican doors to foreign investment. Four years later, with the leadership of President Salinas de Gortari, a new Law for Foreign Investment was formulated, stating clearer conditions for foreigners (Pйrez-Moreno). From this point on Mexico starts simplifying procedures and other guarantees to investors. It is also from this point that Mexico sees the importance of opening its frontiers to international markets by signing bilateral agreements with different countries. No country in the world has signed more free trade agreements: Mexico has celebrated bilateral agreements with 32 countries from different areas, including the two biggest markets in the world: the US and EU. Altogether these countries make up a market of about 850 million consumers that is set to increase with the new agreement with Japan. Much of the FDI in Mexico is attracted by the country's strategic location in North American Free Trade Agreement, which has positioned it as a launch pad to the US and Canada.

Agreement Countries Publication Coming into Force

NAFTA United States and Canada 20/12/1993 01/01/1994

FTA-G3 Colombia and Venezuela 9/01/1995 01/01/1995

FTA Mexico - Costa Rica Costa Rica 10/01/1995 01/01/1995

FTA Mexico - Bolivia Bolivia 11/01/1995 01/01/1995

FTA Mexico - Nicaragua Nicaragua 1/07/1998 01/01/1998

FTA Mexico - Chile Chile 28/07/1999 01/01/1999

UEFTA European Union 26/06/2000 01/01/2000

FTA Mexico - Israel Israel 28/06/2000 01/01/2000

FTA Mexico - TN El Salvador, Guatemala and Honduras 14/03/2001 El Salvador and Guatemala 15/03/2001 Honduras 01/06/2001

FTA Mexico - AELC Iceland, Norway, Liechtenstein and Switzerland 29/06/2001 01/07/2001

FTA Mexico - Uruguay Uruguay 14/07/2004 15/07/2004

FTA Mexico - Japan Japan 17/09/2004

Source: Mexican Economic Department http://economia.gob.mx

For more information see Table 2 in Appendix.

b. Mexico's Commercial Development

Because of the multiple relationships Mexico has with other countries, Mexico has become the eighth commercial world power with a participation of 44% of Latin American exports and 49% of Latin American imports. In this year, NAFTA celebrates its 10th anniversary and since then all other treaties have been celebrated. After these 10 years, Mexico has achieved a triplication of its exports and imports (see also Table 1):

Source: Economic Department and Banxico

It is of relevance to mention that:

* Of the total trade that Mexico made, 86% corresponded to the 32 countries with which Mexico has agreements.

* 96% of total exports were intended to these 32 countries.

* Mexican sales have increased more within the countries with agreement than without agreement.

c. Mexico's FDI Development

Due to the different Bilateral Agreements and the Agreements for Promotion and Reciprocal Protection (Agreements that open new opportunities for investment and bring certainty and authority safeness to national and international investors) with which Mexico counts, the attractiveness to invest in Mexico has increased and therefore the Foreign Direct Investment has done so too. Considering FDI for the period 1994-2003, Mexico turned into the 4th country as receptor of FDI between developing countries and second in Latin America (See Graph 2). Last year it even became first receptor in Latin America, surpassing Brazil, and third between developing countries (Foreign Relations Dep., www.sre.gob.mx ).

Between 1994 and 2003, Mexico received US$142.5 billion in FDI (See Graph 1). The countries from which it received the most are the following:

FDI BY COUNTRY

1994-2003

Source: Foreign Relations Department

Note: Espaсa = Spain, Alemania = Germany, Reino Unido = United Kingdom, Holanda = Holland, Otros = Others, EE.UU. = US.

The number of foreign companies established in Mexico has risen to more than 16,000. The opportunities for investors are numerous, particularly in sectors such as automotive, electronics, ICT, agribusiness, chemicals and pharmaceuticals, biotechnology, financial services, water and power generation (See Table3).

The movement of FDI in Mexico is not unconnected to political and economical, both internal and external, events. As seen in the graph below, the orientation of Foreign Investment in Mexico changed completely in 2000, with the winning of President Fox, from being a country export oriented to a country trying to induce FDI into its internal economy in order to try to motivate and stimulate internal activities and benefit a major area of the population; that is, searching for internal development. For instance, from 1994 to 2000, exports represented a fundamental pillar in the generation of jobs and economical