Investor interest

Despite political uncertainty, foreign direct investment in Mexico reaches record levels but what’s driving it?

As Mexico reports record levels of foreign direct investment, is the Latin American country finally starting to feel the benefit from the much-hyped opportunity for nearshoring? According to the Mexican Ministry of Economy, foreign direct investment reached record highs in 2022, with a 29.5% increase in the first nine months of the year, to almost USD 39.15 billion. 

The biggest investor in the country was the US, which accounted for 39.1% of Mexico’s FDI; followed by Canada, 9.5%; and Spain, 7.1%. The sectors that have benefitted the most from these investments are manufacturing, transport, telecommunications and media according to an official in the Ministry of Economy, “There was record FDI this year with investments from virtually all major economies in the world, driven by manufacturing, telecomms, IT and auto parts. In contrast, there was a contraction in the mining sector. Furthermore, we are confident that foreign direct investment will remain above USD 30 billion for next year.” 

There was record FDI this year with investments from virtually all major economies in the world, driven by manufacturing, telecomms, IT and auto parts.”

Official, Ministry of Economy, Mexico

Global concerns derived from the Covid-19 health crisis and the war in Ukraine and the trade disputes between the US and China have benefitted Latin America and the Caribbean, seen as US’s natural nearshoring area. The whole region is expected to generate USD 78 billion this year in exported goods and services. “Mexico enjoys a privileged location with its close proximity to the US,” explained the official in the Ministry of Economy, “but we are not yet fully capitalising on the opportunity. Competition for nearshoring is fierce and we need to move faster to meet the level of demand.” 

Competition for nearshoring is fierce and we need to move faster to meet the level of demand.”

Official, Ministry of Economy, Mexico

Mexico, with its foreign investment act that allows to undertake directly or indirect foreign investments without restrictions, is better placed than others in the region to maximise future opportunities. Foreign investors in Mexico are only restricted to acquire stakes of the equity of Mexican companies in land passenger and freight transport services. In other sectors, only sectorial statutory frameworks will request relevant permits, authorisations, or concessions. 

The official and the Ministry of Economy agreed that some of the government’s trade policies had faced criticism but he felt vindicated by this recent data, “There are critics of our policies, but Mexico has always maintained an openness to dialogue with our trading partners which has allowed us to let the United States know that the political criticisms are superficial and based on misunderstandings. Therefore, I don’t think foreign investment has been affected, however a challenge is whether the global economy will continue to generate incentives to relocate.” 

But Mexico also faces challenges to prevent nearshoring FDI opportunities from passing, starting with ensuring there are physical security guarantees and creating a more favourable investment climate. The country also needs to improve its energy issues which include the improvement of affordable and reliable energy sources, and investment incentives for technology and innovation. 

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