Inversión Extranjera Directa

Foreign Direct Investment

After successfully incorporating Fan Agency, a Peruvian corporation, we decided to write this post explaining the current Foreign Direct Investment overview in Mexico.

In general, Foreign Direct Investment (IED) is considered when:

Foreign investors participate in the capital of Mexican enterprises.
Foreign investors participate in activities as contemplated by Mexican legislation.

The international norm for considering an operation as FDI is that the investor acquires at least 10% of the voting power within an enterprise.

Data concerning the Foreign Direct Investment in Mexico

Foreign Direct Investment is calculated in accordance to the International Monetary Fund's manual, as well as the OECD's FDI's definition.

Learn more about the OECD's work here!

In this context, during the first semester of 2022, Mexico received an FDI quantity of US$27,511.6 million, a variation of 12% with regard to the same period during 2021.

During the first semester of 2022, the figure is integrated in the following way.

The type of investment (financing origin)

New investments 43%.
Profit reinvestment 42.4%.
By accounts among companies 14.6%.

Economic sector:

Manufacturing 34.3%.
Transport 16.3%
Information in the mass media 14.2%.
Financial and insurance services 13%.
Trade 6.1%.
Mining 4.7%.
Other sectors 11.4%.

Country of origin:

United States 39.9%.
Canada 10.3%.
Spain 6.8%.
Argentina 5.9%.
United Kingdom 3.3%.
Germany 2.6%.
Other countries 31.2%.

Benefits of Foreign Direct Investment

Increase of employment.
Incorporation of global value supply and distribution chains.
Transfer of technologies, training, and learning for the population of the host country.
Access to capital in order to finance public and private projects that require great amounts of investment.

Why are foreigns investing in Mexico?

Geographic location. Mexico has access to the Pacific and Atlantic Oceans. This facilitates the mobility of merchandise.
Benefits to enter the North American market via the TMEC (Mexico-US-Canada Free Trade Agreement).

Learn more about Mexico's free trade agreements!

Many startups with scalable business models aim to enter markets characterized by unfulfilled necessities. One example is the Fintech sector, which innovates financial services. For this sector, Mexico is an attractive market due to the general lack of access to financial services by most of the population. This is a great market for offering loans.
Due to the trade dispute between China and the US. This brings about great uncertainty to US enterprises with factories in China as they could encounter restrictions to export their Chinese production to the US.

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The impact of Foreign Direct Investment in the Mexican peso

Foreign Direct Investment (FDI) has been over the years one of the most important engines for the economy in Mexico, as it helps the country’s economic growth, as well as the creation of qualified jobs. They promote technological innovation and can create greater integration into international trade.

The impact that foreign investment has on the Mexican Peso depends on the volume of investment. There could be a foreign currency exchange with a relevant volume flow within the country if so, it can alter the price with the Mexican peso. Meaning that the peso would appreciate.

FDI involves the entry of foreign exchange into the country and creates higher liquidity in it since it reverses the restriction of external financing. However, care must be taken not to cause the opposite effect, as this means an extreme exit of foreign exchange or investment flows. This will generate macroeconomic problems, such as inflation and unemployment.

Process to invest in Mexico

Generally speaking, there are two ways in which a foreign individual or legal entity may invest in Mexico.

Creation of a company through softlanding.

Contribute capital to an existing company. It can be a public or private company. In both cases, the investor will be treated under Mexican Law.

As you might have noticed, Foreign Direct Investment offers benefits for people seeking to invest in a country, as well as for the recipient country.

In the case of Mexico, it offers the benefits of certainty in uncertain international climates, as well as commercial opportunities due to its geographic and economic position. Additionally, it is attractive for companies seeking large, unattended markets.

Sources

Gobierno de México: ¿Qué es la Inversión Extranjera Directa?

Secretaría de Economía: Inversión Extranjera Directa

CEPAL: desafíos en la medición de la inversión extranjera directa.

Gobierno de México: cifras de inversión extranjera.

Oscar Perez