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Foreign investment

Mexico: Foreign investment

FDI in Figures

Mexico is one of the emerging countries most open to foreign direct investment, the world's ninth largest FDI recipient. In 2021, Mexico was the second largest recipient of in Central America. According to UNCTAD's 2022 World Investment Report, FDI inflows increase by 13% to USD 31.6 billion, with new equity investments in the mining and extractive industries. Furthermore, Greenfield investments increased from 304 in 2020 to 376 in 2021, with the biggest jump being in information and communication. For example, Huawei announced the opening a cloud data centre in Mexico for USD 4.5 billion. The total stock of FDI is estimated to have reached USD 578 billion in 2021. Overall, FDI inflows were affected by rising uncertainty over the government's economic agenda, its focus on fiscal austerity, and the slump in fixed investment. These factors were compounded by persistent concerns about the current administration's critical stance on public-private partnerships (PPPs) and the role of the private sector in key industries, together with the financial situation of the state-owned oil company Pemex and the massive assistance it receives from the government (valued at USD 3.5 billion). Besides, shifts in the five-year plan and in the policy of CFE, the state electricity supplier, discouraged private investment in public utilities and contributed to a 67% drop in FDI in electricity generation, transmission and distribution.
Investments mostly come from the United States, Canada, Spain, Japan, and Germany. The sectors receiving significant foreign investment are manufacturing (especially the automobile industry), financial and insurance services, transport, retail and wholesale trade, mining and quarrying, and communication. Foreign investments are mostly concentrated in towns neighbouring the U.S border (where many assembly factories are located), as well as in the capital. Thanks to its robust tourism industry, the Yucatan Peninsula also receives substantial foreign investment. FDI flows to the country fluctuate strongly depending on the arrival and departure of large international groups.

As a member of USMCA, OECD, G20, and the Pacific Alliance, Mexico is very well integrated into the world economic order, making it an attractive country for FDI. Additionally, Mexico enjoys a strategic location, a big domestic market, a wide variety of natural resources, a relatively well-qualified workforce and diversified economy. However, in recent years, Mexico's competitiveness has suffered from the rise of organised crime and lack of reforms in the energy sector and in tax regulations. Corruption and administrative inefficiency have also been major issues and the business climate continues to suffer from safety risks in the country. According to the Economist Business Environment, Mexico ranks 42 out of the 82 countries reviewed for their investment climate. Among the biggest investments that occurred in recent years is the purchase of Mexican bank ABC Capital by Argentine fintech Ualá, in 2021. However, the value of the transaction was not disclosed.

Foreign Direct Investment	2019	2020	2021
FDI Inward Flow (million USD)	34,411	27,934	31,621
FDI Stock (million USD)	567,782	545,612	578,792
Number of Greenfield Investments*	641	304	376
Value of Greenfield Investments (million USD)	27,859	13,951	19,883

Source: UNCTAD, Latest available data.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

FDI INFLOWS BY COUNTRY AND INDUSTRY

Main Investing Countries	2020, in %
United States	39.1
Canada	14.5
Spain	13.7
Japan	4.2
Germany	3.5

Main Invested Sectors	2020, in %
Manufacturing	40.6
Financial and insurance services	23.2
Transport	9.8
Wholesale and retail trade	7.7
Mining and quarrying	4.6
Communication	4.3

Source: Ministry of Economy (in Spanish) - Latest available data.

Form of Company Preferred By Foreign Investors: The most common forms of creating a business company are the Limited Liability Stock Corporation (Sociedad Anonima, S. A.) and the Limited Liability Company (Sociedad de Responsabilidad Limitada S.R.L.).
Form of Establishment Preferred By Foreign Investors: Subsidiaries and assembling plants for the 'maquiladora' (assembly plant) industry.
Main Foreign Companies: IBM, Coca-Cola, Motorola, Walmart, Inditex Group, BBVA Bancomer, Santander Group, Procter & Gambleetc. Also, 500 of the largest Latin American enterprises have a presence in Mexico.
Sources of Statistics: General Direction of Foreign Investments

What to consider if you invest in Mexico

Strong Points

Mexico attracts the most FDI in Central and South America:

In addition to being very open to foreign direct investment, the country is very well integrated into the world economic order: it is a member of NAFTA, OECD, G20 and the Pacific Alliance.
It enjoys a strategic geographic location and acts as a transit platform to North America and Latin America.
The country has a wide variety of natural resources, which allows the development of all types of industries at very competitive prices.
The cost of labour (a young and abundant labour force) is not very high and is relatively well qualified.
The country is the seventh biggest tourist destination in the world and has in parallel a large and important industrial base.

Weak Points

There are still many obstacles to investment in Mexico:

The country relies heavily on its partnership with the United States and is therefore vulnerable to any changes to the free trade agreement
The level of corruption is high and the crime rate is rising
The country faces important structural problems (economic and social)
Some sectors are reserved for the Mexican state or Mexican citizens
Very strong competition in certain sectors
An economy vulnerable to fluctuations in the oil prices
Infrastructure (transport and oil sector in particular) and a system of education that are generally deficient and ineffective
Drug gang violence is a major danger, both socially and economically in many areas, especially in border areas with the US.

Government Measures to Motivate or Restrict FDI

The Mexican government has created an open and secure environment for foreign investors. The ‘Invest in Mexico’ Business Center was established in 2022 to facilitate investments. Land grants or discounts, tax deductions, and technology, innovation, and workforce development funding are commonly used incentives.
Other incentives to encourage foreign investment include:

Special Economic Zones (SEZs) were created to attract investment to the economically underdeveloped areas in the southern states of the country. Companies setting up in these SEZs will receive various incentives, trade facilities, duty-free customs benefits, infrastructure development prerogatives and easier regulatory processes.
Free trade zones (FTZ), where goods directed to foreign markets can leave Mexico duty free.
Refund of import duty paid on definitive imports. This incentive establishes a benefit for importers, who can obtain a refund of the import duty paid on the definitive import of raw materials or finished goods when exported within 12 months of being imported.
The IMMEX program, formally known as the IMMEX maquiladora program, allows foreign manufacturers to import raw materials and components into Mexico, tax and duty free, under the condition that 100% of all finished goods will be exported out of Mexico within a government mandated timeframe
New certified companies programme (NEEC). NEEC certification allows companies to move goods in and out of Mexico quickly and with less paperwork.
Real estate investment funds (REITs)

Protection of Foreign Investment

Bilateral Investment Conventions Signed By Mexico: Mexico has signed onto bilateral investment treaties with over 35 countries. The UNCTAD website allows you to visualise the list of conventions signed by Mexico.
International Controversies Registered By UNCTAD: The ISDS Navigator contains information about known international arbitration cases initiated by investors against States pursuant to international investment agreements. Mexico is involved in 4 cases as Home State of claimant and in 35 cases as Respondent State.
Organizations Offering Their Assistance in Case of Disagreement: ICCWBO , International court of arbitration, International chamber of commerce
ICSID , International Center for settlement of Investment Disputes
Member of the Multilateral Investment Guarantee Agency: Mexico is a member of the MIGA convention.

Country Comparison For the Protection of Investors	Mexico	Latin America & Caribbean	United States	Germany
Index of Transaction Transparency*	8.0	4.1	7.0	5.0
Index of Manager’s Responsibility**	5.0	5.2	9.0	5.0
Index of Shareholders’ Power***	5.0	6.7	9.0	5.0

Source: Doing Business - Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

Procedures Relative to Foreign Investment

Freedom of Establishment

Guaranteed

Acquisition of Holdings

Having a majority of capital holdings in a Mexican corporation is legal, though there are some limitations. There are certain strategic sectors in which the percentage of foreign investment is legally regulated and limited in the following manner (Article 7, Foreign Investments Law - Ley de Inversión Extranjera):

Up to 10% in co-operative production associations.
Up to 25% in local air transportation.
Up to 49% in insurance and bonding companies; currency exchange houses; leasing companies; factoring companies; investment funds (not private equity companies); companies involved in the manufacture and sale of explosives and firearms; newspapers, cable TV and basic telephone services; and port administration.

For more information, see the text of the the Mexican foreign investment law governing such limitations.

Obligation to Declare

The laws restricting or regulating certain takeovers and mergers are the following:

Foreign Investment Law (Ley de Inversión Extranjera)
Federal Antitrust Law (Ley Federal de Competencia Económica)
Securities Law (Ley del Mercado de Valores)

Competent Organisation For the Declaration

Mexican Federal Tax Administration (in Spanish)

Requests For Specific Authorisations

A special authorisation is needed for foreign ownership from the National Foreign Investments Commission (Comisión Nacional de Inversiones Extranjeras) when foreign investment will exceed 49% in: Shipping companies, Air terminals, Cellular-telephone services.

To find out the total that must be declared visit the Mexican Federal Tax Administration.

Office Real Estate and Land Ownership

Possible Temporary Solutions: Temporary office solutions
The Possibility of Buying Land and Industrial and Commercial Buildings: Only Mexican nationals (by birth or naturalisation) and Mexican companies can acquire the ownership of land, water and their associated items and obtain concessions for mining or water sources and waterways.
The state may grant the same rights to foreign individuals, provided they agree with the Ministry of Foreign Affairs to consider themselves Mexican nationals with respect to such property and undertake not to invoke the protection of their governments in respect of such property. Otherwise, the land acquired in case of default is confiscated and transferred to the Mexican State.
Under no circumstances can foreign individuals acquire direct ownership of lands and waters located within 100 kilometres from Mexico's international borders and within 50 kilometres from its coastlines (for commercial use).
Risk of Expropriation: Foreign investors have a right to a compensation if they are victims of expropriation for public means. Expropriations are governed by international law and require rapid fair market value compensation.

Investment Aid

Forms of Aid

Land grants or discounts, tax deductions, and technology, innovation, and workforce development funding are commonly used incentives.

Privileged Domains

Investment aids aim to promote innovation, research and development and job creation.

Privileged Geographical Zones

Companies setting up in these Special Economic Zones will be offered tax, customs duty and administrative and regulatory benefits.
The main SEZs:

The Pacific port of Lázaro Cárdenas (on the border of the states of Michoacán and Guerrero)
Salina Cruz
Puerto Chiapas (Chiapas)
The Coatzacoalcos Corridor / Ciudad del Carmen (Campeche)
Champotón
Progreso
Dos Bocas

Special Economic Zones (Zonas Económicas Especiales or ZEEs) are now entirely under state jurisdiction. As of April 2020, there are only two federal ZEE-style projects being developed where fiscal incentives would apply. These are the Trans-Isthmic Interoceanic Corridor and the Chetumal State border area.

Free-trade zones

Mexico's first foreign trade zone is located at an industrial park located in the city of San Luis Potosí and consists of:
1. The 'maquiladora' zone (assembly factories) as well as bonded warehouses;
2. Bonded zones (in customs), free trading posts to perform activities such as manufacturing, repairing, distribution and sales of merchandise;
3. Free zone "Recinto Fiscal Estratégico" with a customs office (WTC industrial zone)

In general, the Mexico version of the foreign trade zone reportedly permits raw materials and components to enter Mexico duty-free for manufacturing, assembly and other services (similar to the Maquila industry in Mexico).

Public aid and funding organisations

Nacional Financiera, Banca de Desarrollo and Bancomext.

Investment Opportunities

The Key Sectors of the National Economy: Auto parts, machinery, equipment, chemicals, financial services and insurance services.
High Potential Sectors: After-sales services for the automotive sector (repairs, maintenance, sale of parts and accessories), electronics, distribution chains, renewable energies, food, beverages and tobacco products, specialised and customised professional technical services. The banking sector is also growing fast and represents an opportunity for investors. The government has expressed its desire to modernise the country's infrastructure, including hospitals and transport, and seeks to attract increased FDI.
Privatization Programmes: Mexico's Oil And Gas Industry privatization efforts have begun in 2015, following the privatization reforms introduced that year.
Tenders, Projects and Public Procurement: Compranet, Public Procurements
Tenders Info: Mexico, Tenders in Mexico
DgMarket Tenders, Tenders Worldwide

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors

The following activities can only be carried out by the Mexican government:

Exploration and extraction of oil and other hydrocarbons (however, private investors can participate under a scheme that was initiated in 2015).
Planning and control of the national electricity system and provision of the electricity transmission and distribution public service.
Nuclear power generation.
Radioactive minerals.
Telegraphs, telegraphy and mail.
Currency issuance.
The control, supervision and surveillance of ports, airports and heliports

Finding Assistance For Further Information

Investment Aid Agency: Industrial Development Commission (Mexicali)
National Bank of Foreign Trade
Other Useful Resources: Mexico Projects Hub
Doing Business Guides: Mexico Country Commercial Guide (trade.gov)
Doing business in Mexico (Thomson Reuters)
Investment Climate in Mexico - US Department of State

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