Foreign Direct Investment in Mexico: the record, the lights, the shadows and the question marks

Foreign Direct Investment (FDI) in the first quarter of 2024 was 20,313 million dollars. This is the maximum figure for a first quarter since records have been kept. It is 9% higher than last year and more than double the 9,502 million dollars that were raised in 2018.

Comparing the numbers for 2024 with those of Peña Nieto’s sixth year helps us put into perspective how Foreign Direct Investment into Mexico has grown in recent years. To complete this overview, we must take into account that in the first quarter of 2006 (the last year of Vicente Fox’s Presidency) FDI was 1,446 million dollars. In 2012, Felipe Calderón’s sixth year, it reached 4,372 million dollars.

What explains this great jump? There is a geopolitical reordering of the world economy, based on the United States’ decision to reduce its dependence on China. In this new global order, Mexico has one of the winning tickets in that lottery called nearshoring, friendshoring or relocation.

We were in a position to take advantage of the new United States strategy due to our geographical position and the T-MEC. These are the greatest asset of the Mexican economy, more than oil, silver, beaches or any of our natural resources.

What merit belongs to the López Obrador administration? In such a polarized country, this is a source of controversy. It was clearly a success for AMLO to ratify the T-MEC, which was negotiated by a team led by Ildefonso Guajardo. It was a pragmatic decision in a six-year term that has had its fair share of ideological decisions. The ratification of the T-MEC implies a commitment to free trade and commercial openness. A decision to integrate more into the United States economy. In this six-year period, binational trade with the US has grown from 611,543 million dollars in 2018 to 798,000 million dollars in 2023. In that period, Mexican exports to the US grew 47 percent. Sales from the United States to Mexico increased by 30.4%.

How much more would Foreign Direct Investment have grown with a more neoliberal government? In this regard, we can only speculate. In the FDI statistics in 2024 we find that 8,502 million dollars (42%) are in manufacturing and 5,153 million dollars in financial services (25%). Mining occupies third place, with 2,373 million dollars, 12% of the total. The energy sector is the great absentee. Instead of having billions of dollars of FDI in electricity and oil, we have sad figures. In 2023, for the first time in 25 years, the balance of foreign investment in the electricity sector was negative. Minus 59 million dollars.

How do we look on the World Map… how do our FDI figures look… are we attractive? In Latin America, Brazil continues to be the undisputed leader in attracting Foreign Direct Investment. In 2022 it received 74.2 billion dollars and in 2023 it stumbled. It fell to $62 billion. The figures for Mexico in those years were 35,291 million dollars in 2022 and 36,508 million dollars in 2023. For Brazil, this 62,000 million is a very bad figure, so bad that they are making changes to reverse it. It is striking that they bring infrastructure investment projects worth 36,000 million dollars for the next three years. Not everything will be FDI, but they are getting their act together.

Data from Brazil helps us better understand where we are. In this effort, the ranking prepared by Kearney, a consulting firm based in Chicago, which produces the Foreign Direct Investment Confidence Index, is very useful. There, Mexico occupies 21st place. Three positions ahead of us is Brazil, which is in 18th place. Among the emerging countries, above Mexico are China, the United Arab Emirates, Saudi Arabia and India, in addition to Brazil.

With this information, where is the nearshoring narrative? It remains valid, because the reorganization of the world economy is a reality that will mark global trade and investment flows for the coming years. We must keep in mind, however, that global competition is brutal and that we have no guarantees. Kearney’s 2024 report highlights the rapid rise of Arab countries and China’s return to the Top 3. The dragon is recasting.

It took many six-year periods of continuous work to achieve 20,313 million dollars of FDI in one quarter and 475,000 million dollars in exports to the United States. It will take another few years (and a relaunch of energy policy) to move to another level and, perhaps, think about overtaking Brazil. We are talking about 80,000 million dollars annually. We will can?

Source: eleconomista