As it is known, Foreign Direct Investment (FDI) aims to create a lasting bond for long-term economic and business purposes by a foreign investor in the receiving country. This type of investment allows increasing employment generation, increasing development and foreign exchange acquisition, stimulating competition, encouraging new technologies, and boosting exports .
For Mexico and in general, for most countries, this sector has been affected as a result of the COVID-19 pandemic; however, despite global health circumstances, Mexico continues working on strategies to maintain a reliable and attractive index of FDI for international financial markets to provide better economic, political and social conditions in the country.
The 2021 FDI Confidence Index
The Kearney FDI Confidence Index is an annual survey of global business executives that ranks the markets that are likely to attract the most significant investment over the next three years. The index uses primary data from a survey of 500 senior executives from the world’s leading corporations. Ratings are calculated based on questions about whether respondents’ companies will make a direct investment in a market over the next three years.
Mexico’s appearance in the ranking of the 25 most attractive FDI countries published in this survey has been very volatile. Edition after edition can be seen as Mexico’s financial market increases or decreases its level compared to other global economic powers. In 2019 Mexico ranked 25th in this classification, but the arrival of the pandemic aggravated this scenario. Consequently, in 2020 and 2021, Mexico did not appear within the 25 most attractive foreign direct investment economies.
In an environment characterized by increased caution from investors, the results of this year’s survey reaffirmed the shift towards security seen in previous years. The new findings show an apparent predisposition to more extensive and more advanced markets to the extent that the same six economies were at the top of the ranking last year. This year marks the third time in the index’s 23-year history and the third year in a row in which developed economies rank in the top five. Besides, the ranking of the top 25 includes only three developing economies: China (12o), the United Arab Emirates (15o), and Brazil (24o) .
Favorable factors for Mexico
UNCTAD. World Investment Report 2020
Despite the flawed perceptions of the 2021 FDI Confidence Index regarding Mexico and that the data obtained encompass an opinion that could change from one moment to the next, there is quite favorable data for Mexico. For example, the United Nations Conference on Trade and Development (UNCTAD) issued the document “World Investment Report 2020”. Mexico appears as one of the most attractive FDI countries at the Latin American level.
According to UNCTAD’s January 2021 report on global investment 2020, Mexico ranks second as regionally host FDI economics below Brazil and followed by Chile .
The data highlighted through this document are new projects in the medical equipment manufacturing sector, which increased by one-third in the first quarter of 2020. THE FDI in medical supplies in Mexico leads to new manufacturing projects, and multinational companies already present in this country expand their production.
ECLAC. Foreign direct investment in Latin America and the Caribbean 2020
The report issued by ECLAC, called “Foreign Direct Investment in Latin America and the Caribbean 2020”, confirmed that Mexico remains the second largest FDI recipient in the region. In 2019, incomes of $29,354 million, 22.0% less than in 2018, accounted for 17.8% of total flows to Latin America and the Caribbean.
The report also highlights benefit data on FDI in Mexico, such as:
- Capital contributions and reinvestment of profits were higher than the previous year; they increased by 16.4% and 35.8%, respectively.
- The trend observed since the mid-1990s continues that manufacturing has been the hub for FDI attraction in Mexico. In 2019, the industry’s investment amount was 2.7% higher than in 2018 and accounted for almost half of the incomes (46.8%). Services, for their part, attracted a substantial share of capital (47.3%), but inflows were 3% lower than in 2018.
- The flow to the natural resources sector increased by 23.6% compared to that year. The increase in this investment resulted in better incomes of hydrocarbons, mining, and mining services.
- Investments by transnational companies in transport equipment manufacturing-led manufacturing (46% of manufacturing FDI) increased by 11% compared to 2018. Revenues in beverages and tobacco and the chemical industry also increased, representing 12% and 11% of manufacturing FDI incomes and in 2019, respectively.
- In services, inflows in financial services almost tripled, representing 33% of the sector’s total revenues and increased trade revenues (reached 12% of services incomes) and telecommunications (10% of service revenue).
Historically, U.S. transnational corporations have led the ins and outs of Mexico. However, 2019 was the exception. That year, the United States’ incomes reached 37.5% of the total and finished second behind the European bloc. In 2019, the European Union bloc was the primary source of the FDI that arrived in Mexico. Their investments grew by 19.27% compared to 2018 and accounted for 40% of the total. There was an increase in incomes from France (66%), Germany (17%), Belgium (19%), incomes representing 7%, 25%, and 10% of the European total, respectively.
In imports and other goods, larger economies in terms of Gross Domestic Product (GDP) have been the main markets: Mexico, Brazil, Colombia, Argentina, and Chile are the top five medical device importers. Besides meeting domestic demand from countries in the region to trade within the industry, some of the imports are linked, mainly inputs, parts, or components used in the manufacture or assembly of end products.
In recent decades, the growth of the medical device industry has allowed a sustained increase in exports in Mexico and Costa Rica and the increase of high technological complexity in the export basket of this chain. Among high technological complexity, products were exports of therapeutic devices (including prostheses, implants, and hearing aids), where diagnostic and imaging equipment and x-ray generating devices.
In Mexico, according to official balance-of-payments statistics, FDI in manufacturing medical instruments and equipment and the manufacture of non-electronic equipment and disposable materials for medical use totaled $2,842 million in the cumulative of the last 15 years (2005-2019), representing 0.63% of the total EDD that entered the country.
Good export positioning in medical devices is not due to widespread specialization in Latin American and Caribbean countries. On the contrary, it is explained by exports from very few countries: Mexico and Costa Rica first and second, respectively, followed by the Dominican Republic and Brazil. Mexico has been the country with the highest export value in the region and the seventh-largest exporter globally.
Current overview FDI Mexico 2021
Mexico had to take several political, economic, and social measures to address the COVID-19 pandemic; among the measures implemented, they chose to use 1.8% of GDP to reduce the impact on the health sector (places in the health sector, purchase of pre-vaccines, medical instruments, and equipment). Some measures were carried out with the National Banking and Securities Commission (CNBV) to help restructure credits (Enterprises, SMEs, Mortgages). Carried out support programs for micro-enterprises INFONAVIT appropriations were provided and made payment agreements to support formal employment.
According to comments to the Statistical Report on the Behavior of Foreign Direct Investment in Mexico (January September 2020)  issued by the Center for Public Finance Studies, Mexico’s economy improved during the third quarter of 2020 as GDP had an actual quarterly increase of 12.12 percent, a figure that contrasts with the 16.95 percent reduction it recorded in the second quarter. The previously mentioned is explained by the recovery of domestic consumption in the face of social deconfination, increased consumer confidence, the relaxation of measures implemented by health contingency on productive activities and increased external demand.
In particular, with seasonally adjusted figures, industrial activity rebounded from a decrease of 23.34 percent to an increase of 21.69 percent between the second and third quarters of 2020; which originated from the rise of manufacturing (31.45%); construction (21.78%); the generation, transmission and distribution of electricity, water and gas supply by pipelines to the final consumer (4.99%); and mining (2.44%).
FDI made and reported in the National Register of Foreign Investment (NRFI) amounted to 23 thousand 482.3 M between 1 January and 30 September 2020.
This figure was the net result of the sum of 31 thousand 171.0 M per investment income, minus 7 thousand 688.7 M recorded as decreases in FDI. On the other hand, in January-September 2020, the FDI came from 2 thousand 884 companies with foreign capital participation, less than the 3 thousand 759 corporations reported a year ago (23.28% less). In this period, reinvestment of profits was the main component of FDI that arrived in the country, representing 53.71% of the total in the first nine months of 2020.
On the other side, the accounts between companies accounted for 24.89 percent of the total by registering an amount of 5 thousand 845.8 M, a share of more than 8.65 percent and the amount of the 2 thousand 252.8 M observed in the same period of 2019; which involved an increase of 159.49 percent.
The sectoral analysis of FDI conducted and reported in the NRFI between January and September 2020 shows that the central sector of destination is the manufacturing industry, amounting to 9 thousand 424.2 M, equivalent to 40.13% of the total. After the manufacturing industry, the sector that captured the most FDI was the financial services, with a value of 4 thousand 328.4 M (18.43% of the total), higher than that recorded in the same span of 2019 (3 thousand 622.3 M), which involved an increase of 19.49 percent.
On the other hand, as regards the perspectives for FDI heading to Mexico, in the October 2020 Private Sector Economics Specialist Expectations Survey , it was estimated to amount to 25,973 M by 2020, which would mean a decrease of 21.11 percent from the preliminary FDI data released for 2019 (32 thousand 921.2 M). By 2021, the private sector forecast is for FDI to rise to 25,898 M, a 0.29 percent reduction from what is expected by 2020.
Arturo Herrera, Secretary of the Mexican Ministry of Finance, affirms that Mexico captured 29.1 M in FDIs in 2020 and among the 20 economies with the highest FDI fl despite the adverse international environments.
The axes for economic recovery in 2021 address trade agendas (T-MECs) investment in infrastructure, financial inclusion, and gender equity. They expect higher tax revenues a crude oil price increase against the one approved in 2020. External debt is expected to start to decline, and spending is reported to focus on driving economic recovery, productive investment, and strengthening the health sector.
According to the UNCTAD in its 38th report “Investment Trends Monitor,” risks related to the last wave of the pandemic, the pace of implementation of vaccination programs and economic support packages, fragile macroeconomic situations in major emerging markets, and uncertainty about the global political environment for investment will continue affecting FDIs in 2021.
- While Mexico’s global view of FDI is not the most favorable, it is among the top regional levels.
- Mexico is the leading exporter of medical devices.
- Data 2020 Mexico is among the first FDI places regarding natural resources, manufacturing, and manufacturing of transport equipment.
- In particular, the financial sector has shown significant increases in the level of FDI in the country.
- By 2021, Mexico has vital FDI recovery hubs that will try to attract more financial markets to the country.
 Secretary of Economy What is foreign direct investment?, 2016.
 A.T. Kearney, “On shaky ground. The 2021 FDI Confidence Index”, 2021.
 UNCTAD, “World Investment Report 2020”, 2020.
 Center for Public Finance Studies, “Statistical Report on the Behavior of Foreign Direct Investment in Mexico (January September 2020)”, 2020.
 This note reports the results of the November 2020 survey on the expectations of private sector economics specialists. This survey was collected by the Bank of Mexico among 34 national and foreign private sector economic analysis and consulting groups.