Economy: Foreign direct investment in Mexico grew 15% in the first quarter and set a record

Auto parts assembly plant in Puebla.Francisco Guasco / EFE

Foreign direct investment in Mexico grew by 14.8% in the first three months of the year compared to the same period in 2020, according to preliminary data released by the Economy Ministry on Thursday. The $ 11,864 million raised represents the largest volume for the first quarter since records began in 1999, although only a small portion of that flow is a new investment. A thermometer of confidence in the Mexican economy, the data adds some optimism to the panorama still dominated by the hit of the pandemic.

Most of the flow, 59%, comes from reinvesting profits and another 22%, from corporate transfers. Only 19% is a new investment. This third streak is losing ground compared to the same period in 2020, when its weight was over the total 22%. On the other hand, intra-firm movements, which were 1.9% a year ago, are seeing a strong increase.

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By sector, manufacturing accounts for 47% of investment, followed by financial services and insurance at 15%. Mining 14%; And trade, at 11.5%. At the end of the waiting list are the energy and temporary accommodation sectors, at just over 3% each. Both of them are going through a hard time. The attractiveness of the energy sector has been affected by a change in the rules promoted by the government to limit private sector participation and housing sharing, due to the decrease in tourism.

The countries that lead in foreign investment are the United States with 42.5%, Spain with 12%, and Luxembourg with 8%. This distribution shows an increase in the peso as the first investor in the United States, whose overall economy has started with a strong recovery, and a slight downturn in Spain. In the first quarter of 2020, North America got 39% and Spain 14%. Luxembourg was not on the list.

The amount released surpassed $ 10,334 million in the first quarter of 2020, when the unstoppable expansion of the pandemic had already begun to weaken growth prospects. Last year, Mexico suffered an 11.7% decrease in the inflow of foreign investment.

To explain the increase in recent months, Economy Minister Tatiana Klausher highlighted the importance of T-MEC with the United States and Canada. “This (…) tells us about the importance of the Mexican economy, the confidence, and the great opportunity represented by the ratification and implementation of the T-MEC,” he said at a press conference.

Added to T-MEC’s ​​good outlook is optimism about the end of the epidemic thanks to the advancement of vaccination on a global scale. In 2020, global GDP has contracted, but this year we are already seeing positive growth. Analyst Christopher Sirnichiaro of the Center for Economic Research and Budget (CIEP) points out that investment behavior and economic activity will go hand in hand with the development of the epidemic.

However, this preliminary data should be taken with caution, says Carlos Serrano, chief economist at BBVA. “They are not as exceptional as they seem to indicate. The appetite for new investments is not being reversed and reinvestment may be higher because banks have not distributed profits as they used to due to regulatory restrictions. In addition, we compare to a quarter that was historically low,” he says.

The Mexican economy has not left the recession yet. The growth in foreign direct investment contrasted with the rebound in spirit in the first quarter of the year. GDP increased by only 0.4% on a quarterly basis, after falling in 2020 by 8.5%. On the other hand, the implementation of T-MEC is surrounded by tensions. Representatives from Washington and Ottawa this week at a meeting with Clothier complained about the investment climate in the mining and energy sectors.

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