Foreign Investment in Mexico: Historic Record with Nuances and Challenges on the Horizon

Last week, the Ministry of Economy (SE) reported that Foreign Direct Investment (FDI) in Mexico reached a new historical high with the attraction of 20,313 million dollars (mdd) in the first quarter of 2024, representing a 9% increase compared to the same period in 2023. However, behind this record figure lie aspects that invite reflection on the outlook for foreign investments in the country. The most striking data is that 97% of FDI was motivated by profit reinvestment, while only 3% corresponded to new investments and 0% to loans and payments between parent companies. This suggests that foreign companies already established in Mexico are choosing to reinvest in the country instead of repatriating their profits, possibly influenced by the favorable exchange rate currently presented by the dollar against the Mexican peso. Regarding the origin of FDI, 52% came from the United States, followed by Germany (9%), Canada (8%), Japan (7%), and Argentina (4%). On the other hand, the manufacturing sector accounted for 42% of the investment, especially in industries such as transportation equipment, beverages and tobacco, food, chemicals, metals, plastics, rubber, and electric power generation equipment, among others. While profit reinvestment can be seen as a vote of confidence from foreign companies already established in Mexico, the limited attraction of new capital raises questions about the country's ability to attract investments from companies that do not yet have a presence in it. This outlook contrasts with the upward trend of Chinese investment in Mexico, which has generated over 222,000 jobs through 166 transactions totaling 22,470 mdd, according to the China OFDI Monitor in Latin America and the Caribbean 2024. However, China's absence among Mexico's main investing partners could be related to the growing tension between the United States and China, which has led the U.S. government to increase tariffs on Chinese products and pressure Mexico to clarify the origin of the content of its manufacturing exports. This situation puts Mexico in a delicate position, as it could become a collateral victim of the trade dispute between the two powers. The revision of the United States-Mexico-Canada Agreement (USMCA) in 2026 could be a turning point in Mexico's commercial relationship with its partners, especially regarding foreign investment. Pressure from the United States to impose stricter rules could force Mexico to reassess its position regarding Chinese investment and seek alternatives to maintain its attractiveness as a destination for foreign investment. In this context of increasing global protectionism, Mexico faces a challenging scenario in which it must balance its trade relations with different countries and protect its attractiveness as an investment destination. The evolution of the trade war between the United States and China, as well as the implications it may have for Mexico, are aspects that need to be closely monitored in the coming years to anticipate possible impacts on the economy and the flow of foreign investment in the country.