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International Location Report: Mexican Economy on the Upswing

One of the biggest recipients of FDI, Mexico has attracted a range of industrial investments in recent years, with its exports rebounding strongly.

Directory 2015
A solid recovery is well under way in Mexico, according to analysis from the Organization for Economic Cooperation and Development (OECD). The OECD’s November 2014 forecast summary notes that “a strong rebound of exports, improved confidence, and fiscal stimulus have driven a recovery, with manufacturing leading other sectors.”

GDP growth was expected to be 2.6 percent in 2014, and the expectation is that it’ll hit 3.9 percent in 2015 and 4.2 percent in 2016. That kind of growth would add a bit of downward pressure to an already-low unemployment rate — after peaking at 5.4 percent in 2009, joblessness in Mexico slid to 4.9 percent by 2014, and is expected to drop further to 4.7 percent by 2016, according to OECD forecasters. Inflation picked up a bit in 2014 in Mexico, hitting 4.0 percent, but the OECD expects it’ll be back down to 3.5 percent in 2015 and 3.1 percent in 2016.
Mexico is the eighth-largest motor vehicle producer, and as of the first quarter of 2014, its auto industry moved into second place among vehicle exporters to the U.S.
Both the OECD and the U.S. State Department expect activity in the Mexican energy and telecommunications sectors in the foreseeable future. Those expectations are driven by recent constitutional reforms, as the State Department explains in its 2014 investment climate statement. Prior to the reforms, the state-controlled oil company enjoyed a monopoly, but it’s now being allowed to partner with private firms, and Mexico will open up some oil fields to outside development.

“In telecommunications, reforms are intended to improve competition and diminish concentration in the sector through the creation of a new, constitutionally autonomous regulator,” the State Department report notes. That regulatory body will be able to impose sanctions on companies that it decides are too dominant, and order divestitures if it seems necessary.

Open to FDI
The World Bank Group ranks Mexico 39th in terms of the ease of doing business. Mexico is quite open to foreign direct investment, and among emerging markets has been among the biggest recipients in recent years. The most recent full-year FDI figures are from 2013, when the tally was $35.2 billion, according to Mexico’s Secretariat of the Economy. About a third of that was from U.S. investors.

Generally speaking, U.S. and Canadian investors are given “most favored nation” treatment, although the vast majority of foreign investments don’t require governmental approval. “Foreign investment in Mexico has largely been concentrated in the northern states close to the U.S. border where most maquiladoras are located, and in the Federal District (Mexico City) and surrounding states, where most corporate headquarters are located,” according to the State Department.

What kinds of investments are landing in Mexico? Aerospace manufacturing investments are high on the list, according to the Mexican government, which claims the country has been the world leader in that kind of investment for the past four years. Mexico is the eighth-largest motor vehicle producer, and as of the first quarter of 2014, its auto industry moved into second place among vehicle exporters to the U.S. (Japan had held that No. 2 spot previously). Beyond automotive investments, Mexico has enjoyed significant FDI activity in financial services and electronics.

Recent Headlines
Mexico has benefited from a steady stream of economic development headlines throughout the past year. Examples include the $110 million expansion announced in October by off-road vehicle maker Polaris Industries, growing the capacity of its plant in Nuevo León; a $600 million solar power plant that Chinese solar module maker Risen Energy is planning in Durango; and Kellogg’s plans to invest $52 million over the next three years at its cereal manufacturing plant in Querétaro.

The state of Querétaro also was the site of an October announcement by Huawei, a Chinese information technology equipment and services provider. Its $1.5 billion plan includes R&D and training facilities as well as a network operations center. And Kia made big headlines in August when it announced a billion-dollar plan to build a factory in Monterrey to produce small cars for markets including the U.S. Word in the industry is that Toyota is scouting locations for a major Mexican operation, too, though the news in September was that the Japanese automaker was being extra cautious in its plans.
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