Foreign Direct Investment in Mexico

June 29, 2010Mexicoby EconomyWatch


Mexico is a populous Latin American nation. It possesses an open trade regime thanks to the North American Free Trade Agreement (NAFTA). Foreign direct investment in Mexico is reported to have recorded a 21% increase in the year 2007. It amounted to US$23.2 billion or €15.7 billion. This was the second highest in the country's history. It was only next to the US$29.5 billion investment made in 2001.

About half of the FDI investment to Mexico came from USA. Holland and Spain followed suit with an investment percentage of 15% and 10% respectively. FDI inflow within September 2007 for Mexico amounted to $18.4 billion. It was 30.3% higher in comparison to figures for the same time period in 2006. Half of the capital investment in the form of FDI was meant for the manufacturing sector. It implied an increased availability of remunerative jobs for the Mexican populace.

Analysts have considered 2008 to be an irregular year with the US economy suffering from multiple effects of recession. It may be noted that, Mexico is highly dependent and interlinked with the US economy through various trade relations.

Mexico's expected foreign direct investment stands to the tune of $20 billion for 2008. This is a scaling down from the 2007 estimate of $23 billion.
FDI Trend in Mexico, Performance during the 1990s

In this era the focus was on foreign direct investment is normally executed through the engine of TNCs or transnational corporations. The share of global FDI flows destined for Latin America increased from 32 % in the year 1990 to 43% in the year 1998. Most of these were meant for the Latin American countries like Argentina, Mexico, Brazil and Chile.

A host of factors were responsible for this increased inflow of FDI to these Latin American countries in general with particular reference to Mexico.

Prime among them was the countrywide implementation of privatization policies and programs of debt conversion. Other important policy changes that were effected involved trade able sector liberalization repeal of restrictive FDI regulations regarding issues like profit repatriation, need for prior authorization for investments and various sectoral regulations.

In addition to the above deregulations, the fairly good performance of various macroeconomic stabilization measures for the Mexican economy boosted the confidence of foreign as well as domestic investors in the country's economy.

It may be noted that FDI inflows are crucial for the modernization of the Mexican economy. It is also considered to be one of the employment generating avenues for the Mexican economy.

It may be noted that, robust FDI flows into Latin America in recent years were propelled mostly by Greenfield investments, which comprise expansions and new investments in place of cross border merger and acquisitions.

This trend was a reflection of the robust local economic growth and high corporate profits (earned mostly due to a commodity price hike).

Analysts estimate that, Mexico might register an increase in its FDI in recent future if the country persists with its policy of opening up the domestic telecommunications sector to foreign investment.

As per the estimates of an analyst, in the coming 4 years Mexico may register FDI to the tune of $7 billion yearly from foreign telephone companies in the arena of telephone line businesses with fixed lines.

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