04 August 2010

FDI in Mexico in 2009 drops by 50% from 2008: What to do?

FT's Adam Thompson cites a UN study showing that Mexico has dropped out of the top 20 destinations for foreign direct investment.

With the safety valve of emigration closing month-by-month, what can Mexico's federal and state governments do to attract more investment? Bombardier's happen once in a generation (viz Queretaro). It is the medium-size foreign enterprises that struggle with bureaucratic jungles and CFE.

The one industry that offers seemingly unlimited job opportunities is the one that Mexico is trying to shut down: the narco-cartels.

1 comment:

  1. An anonymous reader asked me about this FT blog post earlier, wondering whether I was seeing a drop in FDI in response to the drug violence. I'll answer that here.

    Anecdotally, not yet, by which mean that my contacts in Mexico City who work directly with foreign companies relocating here report, if anything, a surge of interest in coming to Mexico. Especially among automotive companies.

    Be careful of year-to-year percentage changes. FDI fell worldwide during the crisis, as did all risk taking.

    Colombia is doing well now and I think that investors who entered Colombia or stayed there during the worst of the wars against both narcos and guerrillas are glad that they did so.

    My sense is that the delay in Mexico's fiscal and labor reforms and the weakness of our last energy reform are stronger reasons today than the security violence in discouraging FDI.

    Also, Mexico's trade dependence on the USA and the weakness of the U.S. economy. I have not read the U.N. report yet, but I would bet that the countries drawing the most FDI are those doing the best overall: emerging Asia and economies tied to them.

    Brazil is well diversified spatially in trade and is a major supplier of commodities to emerging Asia. Mexico is neither.

    I do think that violence in Mexico is causing geographical patterns in FDI to change. In other words, the decision as to where in Mexico to produce is certainly being influenced by security concerns. But not yet whether. Or at least not that I can perceive.

    I certainly do not rule out that drug-related violence can discourage FDI eventually.

    Genevieve Signoret