Mexico enters the top 10 as a recipient of foreign direct investment

Mexico managed to climb positions in the world ranking, going from 14th in 2019 to 9th in 2020, according to UNCTAD.

Mexico was the ninth country in the world that received the highest amount of foreign investment during 2020, which represented an improvement compared to the fourteenth place that was obtained in the 2019 ranking, revealed a report from the United Nations Conference on Trade and Development ( UNCTAD).

This result is relevant since, due to the Covid-19 pandemic, Foreign Direct Investment (FDI) flows were reduced by 35 percent worldwide, going from 1.5 to 1 trillion dollars.

Despite the improvement that was presented in the general ranking, the country was not immune to the adversities generated by the pandemic, since the foreign flows that Mexico received were 14.7 percent lower than those observed in 2019, since during that year the country raised 34 billion dollars, while a year later, the figure rose to 29 billion dollars.

For Jesuswaldo Martínez, economic researcher at the Belisario Domínguez Institute, Mexico's entry into the Top 10 was due more to the fact that other countries suffered significant drops in their receipt of FDI, the United Nations (UN) is that Mexico knew better contain the situation than other countries, "he said.

He explained that there were economies that registered significant falls in the reception of FDI, "foreign investment in Brazil fell about 60 percent, in the United States it decreased by 40 percent and in China, the fall was 5 percent," he said.

They reinvest

On the other hand, Jorge Molina Larrondo, specialist in public policies and international trade at Tec de Monterrey, explained that reading the UNCTAD report should be taken with caution, since only 22 percent of foreign investments registered with the Secretariat of Economy were classified as new investments, while 55.4 percent were reinvestment of profits and another 22.6 percent were accounts between companies.

“During the pandemic, the federal government did not support the private sector, so foreign companies operating in Mexico faced scarce and expensive credits, and since their sales were very restricted and scarce, they found the only alternative to resort to funds from its own portfolio and its parent company abroad, "he said.

In this way, the foreign investments that Mexico received during the pandemic year were used to maintain the operations of the companies that were already installed in the country, but there was no announcement of new large projects, added Larrondo.

However, as a point in favor, the specialist added that the Treaty between Mexico, the United States and Canada (T-MEC) granted legal certainty and certainty, which created an environment of tranquility for companies to continue trusting in the country.

Recovery at the door

Luis Güemez, professor at the CETYS Graduate School of Business, pointed out that Mexico was attractive for receiving FDI in 2020, which will be a good sign for the future, and recalled that the Organization for Economic Cooperation and Development (OECD) placed Mexico within the Top Ten of nations that received the highest FDI during 2020.

“Although, the Covid-19 pandemic has caused various negative effects on the global economy, decrease, high inflation rates and even deflation, being part of this Top Ten is an incentive for the economic recovery of the country, but a favorable ecosystem for investment and the rule of law ”, indicated Güemez.

He added that Mexico's entry into the Top Ten was due to the economic crisis in a globalized system and large-scale financial estimates.

The countries that surpassed Mexico were the United States (156 billion dollars), China (149), Hong Kong (119), Singapore (91), India (64), Luxembourg (62), Germany (36) and Ireland ( 33).

FDI trends in 2020 varied significantly by region. Developing regions and economies in transition were relatively more affected by the impact of the pandemic on investment in resource-based and GV-intensive activities.

The asymmetries in the fiscal space for the deployment of economic support measures also generated regional differences.

FDI flows to Europe fell by 80 percent, while those to North America fell less sharply (40 percent).

The decline in FDI flows in developing regions was uneven, with 45 percent in Latin America and the Caribbean and 16 percent in Africa.

By contrast, flows to Asia increased by 4 percent, with East Asia being the main recipient region, accounting for half of global FDI in 2020.

UNCTAD estimated that this year could be a more encouraging outlook, as foreign flows worldwide could rise between 10 and 15 percent. This would still leave FDI 25 percent below the 2019 level.

"The outlook is very uncertain and will depend, among other factors, on the pace of economic recovery and the possibility of pandemic relapses, the potential impact of recovery spending packages on FDI and political pressures," said the UN agency.
 

Source: El Financiero