Mexico's Investment Magnet: Exploring The Country's Attractiveness For Global Capital

Mexico is an attractive prospect for investors, with a growing GDP, a higher level of foreign direct investment than any other Latin country, and a stable political climate. It has a strong economy, ranking as the largest in Latin America (after Brazil) and one of the 20 largest in the world. Mexico is also the biggest trading partner of the US and has free trade agreements in place with 44 countries.

The country has a diverse economy, with a large industrial base and a robust tourism industry. It is also a major agricultural producer, providing over 25% of the fruits and vegetables imported by the US.

However, there are also challenges to investing in Mexico. The country faces high levels of corruption, organised crime, and gang violence, which have impacted its competitiveness. There are also concerns about economic and social instability, and the country's economy is vulnerable to fluctuations in oil prices.

Mexico's economy is one of the largest in Latin America

Mexico has the second-largest economy in Latin America, with Brazil being the only country ahead of it. Mexico's economy has been growing at an average rate of 2.1% over the last decade, despite the challenging international environment. The country's strong economic performance is underpinned by its responsible economic, financial, and commercial policies, which aim to bolster the domestic market. Mexico's economic development strategy includes enhancing consumption through social programs and greater financial inclusion, encouraging private investment in strategic sectors, increasing public investment, and fostering trade relations with other countries.

Mexico's Gross Domestic Product (GDP) is approximately $1,269 billion, with a nominal GDP of $9,946. The country is ranked 15th in the world by GDP and is considered an emerging global economic player. Mexico has a Foreign Direct Investment of $29.3 billion, placing it 19th in the World Export Ranking. The country is transitioning into a predominantly middle-class society, with 50% of its population belonging to the middle class and 30% to the upper class.

Mexico is recognised as one of the most open economies worldwide, boasting limited restrictions on trade. The country has access to 50 countries through its Free Trade Agreements (FTAs). Notably, Mexico's FTA with the Pacific Alliance accounts for 41% ($2,707 billion) of Latin America and the Caribbean's GDP. Additionally, Mexico's FTA with the European Union (EU) represents 22.9% ($19,974 billion) of the world's GDP. The country's manufacturing sector is well-integrated into global value chains.

Mexico's economic stability and positive attitude towards foreign investment make it an attractive destination for investors seeking to diversify their portfolios. The country's strong institutions, diversified manufacturing base, and robust trade partnerships contribute to its economic resilience and potential for sustainable growth.

Mexico's stock market is highly correlated with the US market

Mexico's economy is among the largest in Latin America and the world, with a GDP of USD 1.4 trillion, making it the 12th or 14th largest economy globally. It is also the second-largest economy in Latin America, after Brazil. Mexico's economy has been growing, and while it suffered a setback during the pandemic, it has largely bounced back.

Mexico is the largest trading partner of the US, and the two countries have close economic ties. The US is Mexico's biggest customer, and Mexico provides more than 25% of imported fruits and vegetables to the US. The US accounts for over 80% of Mexico's export trade, and the two countries have a free trade agreement, the United States-Mexico-Canada Agreement (USMCA), which has brought additional trade benefits.

Given these close economic ties, it is not surprising that Mexico's stock market is highly correlated with the US market. This correlation is something US investors should be aware of when considering investing in Mexico. Mexico's economy is also affected by its political situation, and the upcoming presidential elections may impact its economic growth.

Mexico's stock market, the Mexican Stock Exchange (BMV), is located in Mexico City and is the nation's only full-service stock exchange. The main market index is the S&P/BMV IPC, which lists about 148 of the country's largest and most liquid stocks, with a market capitalization of over $400 billion. Some of these stocks have US counterparts, such as Walmex and America Movil, and are also traded on US exchanges.

There are several ways for US investors to invest in the Mexican market, including through American Depository Receipts (ADRs), exchange-traded funds (ETFs), or by working directly with Mexican or international brokers. However, it is important for investors to do their research and be aware of the risks involved, including currency risk, geopolitical risk due to drug cartels, and the potential impact of economic slowdowns.

Mexico's strong tourism industry

Mexico's tourism industry is a pivotal sector of the country's economy. The country has consistently ranked among the world's most frequented nations for tourism activities, and as of 2017, it was the sixth-most visited country globally.

Mexico's allure to tourists is largely attributed to its temperate climate and distinctive cultural amalgamation, blending European and Mesoamerican influences. The country boasts a noteworthy array of UNESCO World Heritage Sites, encompassing ancient ruins, colonial cities, and natural reserves, alongside modern architectural marvels.

Tourism in Mexico has been vigorously endorsed by the Mexican government, often promoted as "an industry without smokestacks," highlighting its non-polluting and economically beneficial nature. The government has actively developed beach resorts and archaeological sites, and promoted cultural exchanges, to attract foreign visitors.

Mexico is the number one destination for tourists from the United States, and it also attracts significant numbers from Canada, various Latin American countries, Europe, and Asia. In 2018, the tourism industry contributed about 8.7% of Mexico's GDP, bringing in 215.5 billion Mexican pesos (approximately 10.8 billion US dollars) in export earnings.

The most popular investment destinations in Mexico include Mexico City, Riviera Maya, Los Cabos, Cancun, Puerto Vallarta, and Riviera Nayarit. These areas attract visitors from the United States, Colombia, the United Kingdom, Spain, and France.

While the tourism industry in Mexico faces challenges due to issues of violence and crime, it continues to show strong growth potential, with the government committed to upgrading infrastructure and encouraging foreign investment in the sector.

Mexico's free trade agreements

Mexico has 13 free trade agreements (FTAs) with 50 countries. These agreements reduce barriers to trade, including tariffs and import quotas, for the exchange of goods, services, and resources.

• The United States-Mexico-Canada Agreement (USMCA), which replaced the North American Free Trade Agreement (NAFTA) in 2020.
• The European Union (since 2000)
• Colombia (G-3, since 1995)
• Nicaragua (since 1995)
• European Free Trade Association
• The Pacific Alliance, a trade bloc formed in 2011 by Mexico, Chile, Colombia, and Peru
• The Comprehensive and Progressive Agreement for Trans-Pacific Partnership
• Japan
• Israel
• 10 countries in Latin America

Mexico is also a member of several multilateral forums and trade blocs, including the World Trade Organization (WTO), the Asia-Pacific Economic Cooperation (APEC), the Group of 20 (G20), and the Organization for Economic Co-operation and Development (OECD).

Mexico's economic stability and openness to foreign investment

Mexico is Latin America's second-largest economy and is considered an emerging market. It has a robust economy, with a strong recovery from the pandemic, and is open to foreign direct investment (FDI) in most sectors. Mexico's economy averaged 2% GDP growth from 1994 to 2020, and in 2022, it recovered to pre-pandemic levels, growing at 3.1%. The country has a large domestic market, a growing consumer base, and a skilled yet inexpensive labour force. Mexico's proximity to the United States, preferential access to the US market, and macroeconomic stability also attract foreign investors.

Mexico has consistently been one of the largest emerging market recipients of FDI, with the United States being its top source of FDI. In 2020, FDI inflows totalled USD 29.1 billion, a decrease of 11.7% from 2019, largely due to the impact of COVID-19 on the global economy. The automotive, aerospace, telecommunications, financial services, and electronics sectors typically receive large amounts of FDI. Most foreign investment flows to northern states near the US border or to Mexico City and the nearby "El Bajio" region.

Mexico's economic stability is closely tied to that of the United States, as it has an export-based economy and the US is its biggest customer. Mexico's economic recovery from the pandemic was also dependent on its vaccination program and private investment. While Mexico's economy is stable, it faces challenges such as uncertainty about contract enforcement, insecurity, informality, and corruption, which hinder its economic growth.

Mexico's openness to foreign investment is demonstrated by its participation in various trade agreements and its commitment to reducing trade barriers. The country has signed 13 free trade agreements (FTAs) covering 50 countries and has 32 Reciprocal Investment Promotion and Protection Agreements covering 33 countries. It is also a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Mexico's Foreign Investment Law, last updated in 2017, governs foreign investment and provides national treatment, eliminates performance requirements for most foreign investment projects, and liberalizes criteria for automatic approval of foreign investment.

However, recent regulatory changes and policy reversals, particularly in the energy and formal employment pensions management sectors, have created doubts about the investment climate. Additionally, the financial health of the state-owned oil company Pemex and the perceived weak fiscal response to the COVID-19 crisis have contributed to ongoing uncertainties. Despite these challenges, Mexico remains a stable and attractive destination for foreign investment due to its strong economic fundamentals and close ties with the United States.

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