Historically, Foreign Direct Investment (FDI) has been one of the most important factors for Mexico. Since January 1, 1994, with the entry into force of the North American Free Trade Agreement (NAFTA), and further on with the entry into force of the Agreement between Mexico, the United States and Canada, the T-MEC or USMCA, it has been possible to observe not only a greater integration in the North American region, but also the transformation of the export sector in Mexico, the creation of jobs and the attraction of investments in the manufacturing sector.  

Moreover, during the 24 years of NAFTA, although Mexico was not benefited in all sectors included in the agreement, it is considered that in terms of foreign direct investment attraction especially in some economic sectors, Mexico benefited the most.

This success is attributed to multiple aspects, from Mexico’s strategic geographic position, which had facilitated land, port, air and rail connectivity and logistics with North, Central and South America, to low labor costs, high availability of qualified labor, low industrial costs,  developed infrastructure (according to ministry of communications and transport Mexico counts with more than 400 thousand kilometers of highways, 27 thousand kilometers of railroads, 77 airports, 117 port) ,availability of suppliers, among others. 

While it is true that these are some of the reasons why Mexico became an attractive destination for foreign direct investment, Mexico is still a strategic place for trade and investment, for the additional following reasons: 

1. Mexico is among the countries with the largest number of Free Trade Agreements in the world. 

     Mexico currently has a network of 14 Free Trade Agreements with 50 countries (FTAs), 30 Agreements for the Promotion and Reciprocal Protection of Investments (APPRIs) with 31 countries or administrative regions and 9 agreements of limited scope (Economic Complementation Agreements and Partial Scope Agreements) within the framework of the Latin American Integration Association (ALADI). 

Furthermore, the free trade agreements give Mexico access to over 60% of the world´s domestic product. Furthermore, this economic opening, has been crucial to diversify Mexico’s trade relations with the world and thus boost the country’s economic growth. 

     2. Mexico is one of the largest countries and economies in the world.

Based on data provided by the World Bank in    2021; Mexico is among the fifteen largest economies in the world and is the second largest economy in Latin America. In view of this data, the Mexican market represents a great potential market, in addition to its rich favorable geography and abundant natural resources. 

     3. Mexico offers programs and decrees that encourage foreign investment in the country. 

At the Federal level,  Mexico offers programs and decrees to encourage foreign investment in the country, among which the following stand out: 

• IMMEX Program

Is an instrument which allows the temporary import of goods that are used in an industrial process or service , to produce, transform or repair foreign goods imported temporarily for subsequent export , without paying the general import tax , VAT and countervailing duties.  

• PROSEC 

The Sectorial Promotion Programs (PROSEC) are an instrument aimed at legal entities that produce certain merchandise, through which they are allowed to import various goods with a preferential ad-valorem tariff (General Import Tax) to be used in the elaboration of specific products, regardless of whether the goods to be produced are destined for export or for the national market. 

• DRAWBACK Program 

The objective of the Drawback Program is to return to exporters the value of the general import tax paid for imported goods or supplies that are incorporated into export merchandise, imported merchandise for repair or alteration, or merchandise that is returned in the same state. 

Therefore, global companies can take advantage of the incentive programs offered by the Mexican government. While at the same time share the best practices of experience in other countries, as well as the values they advocate, including competition, ethics and the promotion of diversity, which is why Mexico has been committed for years to facilitate and provide the right conditions for multinational companies to benefit from Mexico´s advantages.  

If your company has future plans to invest in Mexico, Contact us for a free consultation. 

Mexico is a country that highly depends on foreign trade, it has signed 13 free trade agreements (FTA) with 50 countries, therefore, mexican products have preferential access to the main markets worldwide that represents more than 50% of world GDP. The above mentioned makes Mexico an attractive country for manufacturing for a subsequent export, mainly in the automotive and electronic industries, Mexico plays a fundamental role in exports.

According to data from banco de Mexico, in 2020 exports of goods and services form Mexico totaled more than 400 billion dollars, equivalent to 47% of the national GDP, with Mexican production fully integrated into global value chain. Mexico ranked  as the 11^th exporter and 13^th importer worldwide in 2020, according to the World Trade Statistical Review 2020 prepared by the World Trade Organization (WTO).

Mexico Exports

According to INEGI data in September 2021, exports totaled USD $41,680 million. In general, the. Main exported products are the following:

• Vehicles

The export of cars in Mexico has been increasing each year and represents 11% of the country´s total exports, Mexico is the 5^thlargest exporter and manufacturer of specialized and heavy vehicles and of automotive parts (making up 7% of total exports). United States and Canada receive the largest number of exported light vehicles from Mexico.

• Oil

Around 48% of the national oil production is exported, its main destination is United States, but it also supplies to Canada, China, Japan, New Zealand, Australia, and Germany.

• Minerals

Mexico occupies currently the 9th place in regards to exports of copper worldwide. Due to Mexico’s natural resources, different countries such as Canada, Germany, the United States, Japan, and Spain have been investing in this sector.

Source: (Trading Economics, 2020)

Mexico Imports

In September 2021, imports from Mexico totaled USD $44,078.46 million. In general, the main exported products are the following:

• Autoparts

The most imported goods in 2020 were autoparts with a value of USD$ 22 billion in 2020, and mainly imported from United States, China, Japan and Germany.

• Electrical and electronic Components

Within the second most imported category are electronic integrated circuits with a value of 18.8 billion, which main countries of origin are Malaysia, China, Taiwan and South Korea. Other relevant goods imported within this sector are:  telephones, computers, data processing machines, machinery parts, electrical wires and cables among others. 

• Petrleum Oil

The third most imported category in 2020 was composed by oils of petroleum or bituminous materials which more than 90% is imported from United States.

Mexico receives refined oil form the United States, as it cannot meet its demand and turns to foreign refined oil, since the Mexican economy is highly dependent on oil to run its industries and assembly plants.

Source: (Trading Economics, 2020)

The manufacturing industry in Mexico has widely promoted exports and both have helped drive the growth of the economy in Mexico. The forecast for the next few years is that exports will continue to grow.

Are you thinking of investing in Mexico?

If your company is interested in investing in Mexico and importing or exporting from our country, consult our foreign trade services, we facilitate your operations and guarantee 100% compliance with the obligations, and we use our knowledge of Mexico´s trade agreements in an effective strategy for your business, significantly reducing costs and streamlining logistics.

Sources:

• Data Mexico. (2021). Mexico. Retrieved from https://datamexico.org/en/profile/geo/mexico
• Trading Economics. (2020). Mexico Exports by Category. Retrieved from https://tradingeconomics.com/mexico/exports-by-category
• Trading Economics. (2020). Mexico Imports by Category. Retrieved from https://tradingeconomics.com/mexico/imports-by-category
• WTO. (2020). Mexico. Retrieved from Trade Profiles: https://www.wto.org/english/res_e/statis_e/daily_update_e/trade_profiles/MX_s.pdf

The Survey on the Economic Impact Generated by COVID-19 on Enterprises (ECOVID-IE) in its third edition 2021 estimates that, out of 1,873,564 businesses in Mexico, 85.5% indicated to be impacted economically due to the pandemic. (INEGI, 2020), in addition to the impact of a decrease in foreign direct investment (FDI) as companies considering investing in Mexico, decided to postpone it.   

As before mentioned,  the pandemic impacted greatly in Foreign Direct Investment (FDI), in which according to UNCTAD World Investment Report 2021, in 2020 flows of foreign direct investment worldwide fell by one third. Specifically Mexico, was more resilient compared with the rest of Latin America with a drop of 15% (UNCTAD, 2021). In Mexico FDI in 2020 concentrated in manufacturing including automotive industry, computer and electronic parts, machinery and equipment and medical equipment and supplies.  

Nevertheless, FDI has started to recover worldwide, and companies are setting eyes in Mexico again as a nearshoring strategy, to take advantage of shorter supply chain, lower labor costs, Mexico’s free trade agreements, strong protections in intellectual property rights,  among others. 

Are you thinking to invest in Mexico?   

Below are some aspects you should consider before investing in Mexico:  

1. Define Business Model Scheme 

One of the most important steps for investing in Mexico is to define the business model scheme. Among the most common schemes are:  

• Standalone: The foreign company creates a new entity in Mexico, with total control of all operations 
• Joint Venture: There is an equal partnership between a Mexican manufacturer and a foreign company. 
• Shelter: A company is hired by another to manage all administrative and legal tasks, while the other company can focus on its core business. 
• Contract manufacturing: A company is hired by another to produce goods or provide a service. 

Furthermore, if company decides to merge with or acquire a growing local company, it important to carry out a due diligence. In order to verify the information about the company to be acquired, obtain useful information to value the purchase, identify potential risks in the deal or investment opportunity, among others.  

2. Feasibility Study 

A feasibility study before investing in a different country is important to assess the viability of the investment, it provides you with information to make data- driven decisions and can be used to create a strategic business plan.  

There are different types of feasibility study, for a example a common study once a company has decided to invest in a country is to decide in which state or area to establish.   Within this study the experts evaluate and compare industrial costs, salaries, availability of skilled labor, public safety levels, logistic costs, connectivity, infrastructure, identification of potential suppliers, among others.  

Furthermore, there are important feasibility studies in regard to supply chain and logistics, or in foreign trade matters such as the importance of compliance with the rules of origin of a foreign trade treaty, when the investment project is focused on exports and looking for cost reduction.  

3. Get expert advice from Shared Business Services in Mexico 

Once you have decided to invest in a foreign country it is important to obtain local advice and guidance as laws and regulations vary per country and so the way business operate.  

A shared services company or shelter company combines a legal framework and comprehensive services to eliminate regulatory and tax burdens for foreign manufacturing investors. The best way to avoid risks, or expensive mistakes, paying expensive fees from different legal and administrative services firms, is to mitigate them through a shelter company.    

In Mexcentrix Shelter we offer a series of tailored professional and management services including: 

• Start-Up & Shelter Program. 
• Human Resources 
• Tax and Accounting 

• Foreign Trade and IMMEX 
• Consulting and Auditing 

If your company has future plans to invest in Mexico, contact us to receive a cost model analysis.   

Sources: 

UNCTAD. (2021). United Nations Conference on Trade and Development. Retrieved from World Investment Report 2021: https://unctad.org/system/files/official-document/wir2021_en.pdf 

INEGI. (2020). INEGI. Retrieved from Survey on the Economic Impact Generated by COVID-19 on Enterprises (ECOVID-IE): http://en.www.inegi.org.mx/programas/ecovidie/#Documentation