While numerous sectors and constituent companies worldwide seek FDI for growth, or else to mitigate the challenges of a weakened local economy, others are looking abroad for identical reasons. In Mexico, the agencies that promote investment in the country have worked well down the years as the country opened up its economy and legislative framework to facilitate international presence.
Mexico is heavily reliant on business with its northern neighbor, which absorbs 80% of its exports. In truth, the 2019 signing of the US-Mexico-Canada Agreement (USMCA) could in part promote better worker conditions that have long suffered in the interest of remaining internationally competitive. However, it can do little to immediately boost Mexico’s economic growth as foreign trade in total already accounts for over 70% of GDP.
Foreign commercial relations, then, come to the fore. It cannot be denied that certain recent developments have given would-be investors some pause and added urgency to companies keen to expand abroad. A cloud partially cast its shadow over Mexico’s pro-foreign-business commitments with the closure of investment promotions agency ProMexico. All 46 ProMexico offices, including addresses in Shanghai, New York, Tokyo, London, and Madrid, were officially closed after being deemed as “doing nothing.” Instead, savings accrued from rent and staffing were used to support the government’s austerity drive. Many firms have since voiced the opinion that with no official agency to approach, instrumental and actionable information was no longer available.
A 2013 World Bank study indicates that only four nations lacked an investment agency, and now Mexico is almost alone in closing ProMexico. This suggested that Mexico is adopting a more populist and insular stance regarding its economy—a rejection of the hitherto more globalized position, and one that could even jeopardize FDI flows. Indeed, sector data reveals that aside from the predictable slump in global FDI during the pandemic, Mexico’s FDI rate has all but halved in recent years. From an average 450-500 annual projects, in 2020 there were just 270.
Héctor Villarreal Muraira, Managing Director of COMCE Noreste, a not-for-profit organization that promotes Mexican foreign trade, was unequivocal about the closure of ProMexico. “ProMexico should not have been closed down,” he tells us. “The image and positioning that Mexico had achieved was too important to leave vacant, [and we] have been trying to fill the void […] not only within our membership, but also with any company or person who approaches us for assistance.”
Regarding the expansion of a business beyond Mexico, he notes that the challenge is to remain competitive across the entire sales process, including transportation logistics given that “if you do not calculate your logistics costs well, when you reach the market you might end up with a much higher final price than anticipated.” Also of note, he added that “China has become more expensive lately, [obliging certain firms] to turn to Mexico and other countries to become more competitive.” Asian business has shown particularly keen interest, and only time will tell if this is a blip or indication of a loss in national competitiveness.
A Spur to Growth and Economic Advancement
Rodrigo Montemayor is a partner in Baker Mckenzie, which boasts a long pedigree in assisting clients with M&A activity, and can “seamlessly coordinate complex cross-border transactions in combination with our global and local expertise.” Notably, he reports a steep rise in interest in investment abroad from “private equity funds, venture capital funds, and family offices.”
The latter category, the family business, is worth considering here. Research from the Swiss center for Family Businesses at the University of St. Gallen in Switzerland reveals that family businesses comprise between 80 and 90% of all enterprises worldwide, and hence a huge contributor to GDP, employment growth, and, by extension, economic development. It is also a no-brainer that GDP growth enables a more equitable nationwide economic advancement and increase in the standard of living beyond the major conurbations. Mexico ranks fifth worldwide for its share of family concerns. What is more, over 90% of companies listed on the Mexican Stock Exchange feature a prominent family participation regarding capital and business control, including household names such as Grupo Carso, Cemex, Grupo Bimbo, and Grupo Bal, among others.
Everything said and done, Mexico still merits applause for its hard-won international footprint. So let’s close on a brighter observation from Andrés Ochoa-Búnsow, President of Invest Monterrey—the official Investment Promotion Agency of the State of Nuevo León—who was rather optimistic about Mexico’s commercial momentum. “I sense a renewed optimism among investors to get started on projects that were on hold for a period, or where decisions were difficult for them.” Doubtless, too, among those firms will be those looking further afield.