Foreign Direct Investment in Mexico (fdi)

FOREIGN DIRECT INVESTMENT IN MEXICO (FDI)

INTRODUCTION

Mexico is the top trading nation in Latin America and the ninth-largest economy in the world. No country has signed more free trade agreements - 33 in all, including the two biggest markets in the world, the US and the EU. Altogether these signatory countries make up a preferential market of over more than billion consumers. Much of the FDI in Mexico is attracted by the country's strategic location within the North American Free Trade Agreement, which has positioned it as a springboard to the US and Canada. Other attractions are competitive production costs and a young, skilled workforce, together with political stability and an open economy.

As a result, 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, information and communication technology, agribusiness, chemicals and pharmaceuticals, biotechnology, financial services, water and power generation. As part of the Mexican government's campaign to attract FDI, the 44 overseas offices of the Mexican Bank for Foreign Trade (Bancomext) operate as trade commissions that offer advice and assistance to potential investors.

Mexico has long been one of the more attractive nations in which to make an investment, whether in manufacturing or infrastructure FDI. The large population, inexpensive labor pool, stable political environment and proximity to the US have given it significant advantages over other potential recipients of FDI.

Mexico is a showcase of how emerging markets can attract foreign capital flows into their economies. In 1999, Mexico remained the third main destination of FDI among emerging markets only after China and Brazil.

On a worldwide basis, Mexico ranks 15th among FDI recipients accounting for 1.3 percent of total investment flows. During the first three months of 2000, Mexico received US$3 billion in FDI and it is expected that the year will end at US$12 billion.

In addition to Mexico's economic reforms and liberalization processes, an important element in making Mexico a very attractive market for foreign investors has been the negotiation of bilateral investment treaties (BITs).

To this date, Mexico has established these kinds of agreements with 13 countries (Argentina, Austria, Benelux, Denmark, Finland, France, Germany, Italy, the Netherlands, Portugal, Spain, Switzerland, and Uruguay).

It has concluded negotiations with Sweden, Greece and South Korea, and is currently negotiating with Cuba, the United Kingdom, Israel and Japan. Ireland is on Mexico's list for a future BIT.

ECONOMIC INFORMATION

Population: 102.3m

Population growth: 1.45%

Population density (people per sq. km): 54

UN Human Development Index ranking: 53/177

Gross national income (current US$): $637.2bn (2003)

Gross national income per capita: $6,230

PPP Gross national income: $915.4bn

PPP Gross national income per capita: $8,950

GDP growth: -0.1% (2003)

GDP breakdown Agriculture: 4.1%, Industry: 26.39%, Services: 69.57%

Inflation (12-month average): 6.49 (2003)

Gross capital formation as % of GDP: 19.83%

Final consumption expenditure as % of GDP: (growth) 81.8% (2.9%)

Exports of goods & services as % of GDP: 28.4%

Top 3 export markets: US, Canada, Germany

Local industries: Food & beverages, tobacco, chemicals, iron & steel, petroleum, mining, textiles, clothing, motor vehicles, consumer durables, tourism

WEF Growth Competitiveness ranking * : 48/104

WEF Business Competitiveness ranking ** : 55/103

WEF Quality of the Business Environment ranking : 56/103

Transparency International Corruption Perceptions ranking: 64/145

Languages: Spanish (official)

FDI INFORMATION

Region: Central America

No. of projects (Jan-Sep 2004): 298

Market-share of projects in the region: 65.8%

Value of projects relative to GDP: 4.8%

Top 3 destination sectors: Metals/mining, hotels, tourism & leisure, consumer electronics

Top 3 business functions: Manufacturing, retail, extraction

Top 3 source countries: US, Japan, Canada

Top 3 investors: Ford, LG, Electrolux

FOREIGN DIRECT INVESTMENT

Foreign Direct Investment (FDI) is an investment made by foreign individuals or companies that establish operations in Mexico; it represents a contribution to the initial capital stock of the new society, an increment of the same capital in already established companies or the price of real estate trusteeships. All the previous include fixed assets and labor capital investments to perform trade activities in Mexico.

The liberalization of policies in Mexico during the 1990s have been highly successful in promoting trade and in attracting greater flows of foreign direct investment (FDI). FDI and exports are currently the driving force behind economic growth and job creation. In the last five years, the rate of employment in firms with FDI has grown twice as fast as the national average. FDI has also played a key role in creating new and better paying jobs.

The Commerce and Industrial Promotion Secretariat (SECOFI) promotes and regulates foreign investment, directing it to Mexico and contributing to national development.

Investments involved in asset transference made by Mexican investors to foreign investors are also considered foreign investments, through them DFI totally or partially acquires Mexican societies already established.

The network of free trade agreements and market oriented policies has made Mexico one of the most attractive countries