Foreign direct investment (FDI) in Mexico

FDI in Figures

Mexico is one of the emerging countries most open to foreign direct investment, the world's eleventh-largest FDI recipient. In 2022, Mexico was the second largest recipient of FDI in Latin America. According to UNCTAD's World Investment Report 2023, FDI inflows increase by 11.9% to USD 35.3 billion. In the same year, the total stock stood at USD 649.2 billion, equivalent to around 45.9% of the country’s GDP, witnessing an increase in fresh equity investment and reinvested earnings. Net cross-border M&A sales soared to USD 8.2 billion, a significant leap from the less than USD 1 billion recorded in 2021. A notable transaction included Univision Communications (United States) acquiring the media, content, and production assets of Grupo Televisa for USD 4.8 billion. The announced value of greenfield investment more than doubled, reaching USD 41 billion. Tesla (United States) has intentions to invest USD 5 billion in a manufacturing facility in Mexico. According to the latest governmental figures, investments mostly come from the United States (46.7%), Spain (13.7%), Canada (7.4%), Japan (4.6%), and Germany (4.5%). The manufacturing sector holds 47.6% of FDI stock, followed by financial services (14.6%), trade (7.5%), and mining (5.9% - data National Commission of Foreign Investments). Data from the OECD show that, in the first semester of 2023, FDI flows to Mexico totalled USD 29 billion, down from USD 31 billion recorded in the same period one year earlier.

As a member of USMCA, OECD, G20, and the Pacific Alliance, Mexico is very well integrated into the world economic order, making it an attractive country for FDI. Additionally, Mexico enjoys a strategic location, a big domestic market, a wide variety of natural resources, a relatively well-qualified workforce and a diversified economy. However, in recent years, Mexico's competitiveness has suffered from the rise of organised crime and a lack of reforms in the energy sector and in tax regulations. Corruption and administrative inefficiency have also been major issues and the business climate continues to suffer from safety risks in the country. Foreign investments are mostly concentrated in towns neighbouring the U.S. border (where many assembly factories are located), as well as in the capital. Thanks to its robust tourism industry, the Yucatan Peninsula also receives substantial foreign investment. FDI flows to the country fluctuate strongly depending on the arrival and departure of large international groups. The current Mexican FDI framework, primarily governed by La Ley de Inversion Extranjera and its regulations, mandates a pre-approval process for direct and indirect investments by foreign investors obtaining a majority share in Mexican companies engaged in "strategic activities" or holding assets valued around USD 1.1 billion. On December 7, 2023, the U.S. and Mexican governments signed a Memorandum of Intent ("MOI") to collaborate on enhancing foreign investment screening. Both nations have committed to forming a bilateral working group to share information and best practices, aiming to assist Mexico in establishing a CFIUS-like screening system and enhancing the collective security of the United States and Mexico. According to the Economist Business Environment, Mexico ranks 42 out of the 82 countries reviewed for their investment climate. Furthermore, the country ranks 58th among the 132 economies on the Global Innovation Index 2023 and 68th out of 184 on the 2023 Index of Economic Freedom.

What to consider if you invest in Mexico

Strong Points

Mexico attracts the most FDI in Central and South America:

• In addition to being very open to foreign direct investment, the country is very well integrated into the world economic order: it is a member of NAFTA, OECD, G20 and the Pacific Alliance. 
• It enjoys a strategic geographic location and acts as a transit platform to North America and Latin America. 
• The country has a wide variety of natural resources, which allows the development of all types of industries at very competitive prices. 
• The cost of labour (a young and abundant labour force) is not very high and is relatively well qualified. 
• The country is the seventh biggest  tourist destination in the world and has in parallel a large and important industrial base.

Weak Points

There are still many obstacles to investment in Mexico:

• The country relies heavily on its partnership with the United States and is therefore vulnerable to any changes to the free trade agreement
• The level of corruption is high and the crime rate is rising
• The country faces important structural problems (economic and social)
• Some sectors are reserved for the Mexican state or Mexican citizens
• Very strong competition in certain sectors
• An economy vulnerable to fluctuations in the oil prices
• Infrastructure (transport and oil sector in particular) and a system of education that are generally deficient and ineffective
• Drug gang violence is a major danger, both socially and economically in many areas, especially in border areas with the US.

Government Measures to Motivate or Restrict FDI

The Mexican government has created an open and secure environment for foreign investors. The ‘Invest in Mexico’ Business Center was established in 2022 to facilitate investments. Land grants or discounts, tax deductions, and technology, innovation, and workforce development funding are commonly used incentives.
Other incentives to encourage foreign investment include:

• Special Economic Zones (SEZs) were created to attract investment to the economically underdeveloped areas in the southern states of the country. Companies setting up in these SEZs will receive various incentives, trade facilities, duty-free customs benefits, infrastructure development prerogatives and easier regulatory processes.
• Free trade zones (FTZ), where goods directed to foreign markets can leave Mexico duty free.
• Refund of import duty paid on definitive imports. This incentive establishes a benefit for importers, who can obtain a refund of the import duty paid on the definitive import of raw materials or finished goods when exported within 12 months of being imported.
• The IMMEX program, formally known as the IMMEX maquiladora program, allows foreign manufacturers to import raw materials and components into Mexico, tax and duty free, under the condition that 100% of all finished goods will be exported out of Mexico within a government mandated timeframe
• New certified companies programme (NEEC). NEEC certification allows companies to move goods in and out of Mexico quickly and with less paperwork.
• Real estate investment funds (REITs)

Bilateral investment conventions signed by Mexico

Mexico has signed onto bilateral investment treaties with over 35 countries. The UNCTAD website allows you to visualise the list of conventions signed by Mexico.