A 23% drop in Foreign Direct Investment in Mexico complicates its economic outlook.

The Economic Commission for Latin America and the Caribbean (ECLAC) has reported a significant decline of 23% in Foreign Direct Investment (FDI) in Mexico during 2023, a decrease that places the country in a complex position within the regional landscape. This report, which analyzes investment flows in Latin America and the Caribbean, reveals that Mexico, despite being the second-largest recipient of FDI in the region, has experienced a drastic reduction in flows, reaching a total of $30.19 billion, which represents approximately $8.912 billion less than the previous year. This decrease contrasts with the report from Mexico's Ministry of Economy, which estimates FDI at $36.281 billion for 2023, suggesting discrepancies in the methodologies used to measure these flows. ECLAC bases its analysis on the sixth edition of the Balance of Payments Manual, which is the standard adopted by most countries in the region, while some others, including Mexico, may use earlier methods that complicate data comparability. José Manuel Salazar-Xirinachs, ECLAC's executive secretary, emphasized that the notable increase in FDI in 2022, which had been driven by the merger of Televisa and Univision and the restructuring of Aeroméxico, created a high base that now affects year-on-year comparisons. This year, without those extraordinary factors, the decline has become more evident, with capital contributions down an alarming 72%, reaching their lowest level since 2012. Despite this drop, the phenomenon of nearshoring, which refers to relocating supply chains closer to consumers in the United States and Canada, remains a glimmer of hope. Salazar-Xirinachs indicated that Mexico is positioning itself as one of the most suitable countries to benefit from this trend, thanks to its robust free trade agreement and productive integration with North America across various industries, from automotive to technology. The impact of nearshoring on FDI is still difficult to measure due to its recent emergence, although the signs are positive. In 2023, the manufacturing sector notably benefited, capturing 50% of FDI flows, which could indicate a shift in investment dynamics in the country. In a broader context, Latin America and the Caribbean as a whole also face challenges. The region recorded a 9.9% decline in FDI, totaling $184.304 billion, with Brazil and Mexico leading this downward trend. Brazil, while still the largest recipient of FDI, experienced a 14% decrease, reflecting a general slowdown in interest in investing in the region. Both countries have seen a reduction in foreign investment inflows from the United States, with declines of 30% in Mexico and 21% in Brazil, indicating a possible cooling of economic and trade relations that could have long-term consequences. Nevertheless, ECLAC has also noted that the outlook for future investment is more optimistic. The amount of new projects announced has increased by 16%, reaching a total of $115 billion, compared to $99 billion the previous year. This increase suggests that, despite current challenges, there is potential for foreign investment to recover in the medium term. The key will be how Mexico and other countries in the region can adapt to the new realities of the global market, taking advantage of the opportunities offered by nearshoring and economic integration with their closest trading partners. The ability to attract foreign investment depends not only on internal conditions but also on the evolution of the global environment and the competitiveness they can offer compared to other investment destinations. Thus, while Mexico faces significant challenges in its pursuit of foreign investment, adaptability and innovation will be crucial to reversing the negative trend and fostering sustainable growth that benefits its economy in the future.