Economics: External and internal risks weigh on historically high FDI over the medium term

MEXICO - Report 17 Jun 2024 by Mauricio González and Francisco González

FDI remained high through 1Q24, but new investment flows have slowed to a trickle, and we look for both internal and external factors to seriously limit inflows over an intermediate time horizon. At 20.313 billion dollars, foreign direct investment in Mexico in the aggregate turned in a favorable performance for the first quarter of 2024. However, 96.5% consisted of reinvestment of earnings as new investments’ proportion shrank to a paltry 2.9% or 599 million dollars.

By sector, in January-March 2024 FDI was concentrated in the manufacturing industry, accounting for 42% of the total, followed by mining (12%). A full 43% of manufacturing FDI was channeled into capacity for the production of transportation equipment, followed by the chemicals industry (11%) and basic metals (8%).
FDI performance shows that the much-heralded nearshoring or relocation of investments will, at best, prove to be a much slower process and one that will ultimately lure less investment into the country than previously expected. This is true not only because of the trends of recent months, but also because of internal and external factors, which upon materializing, would constitute clear FDI disincentives. Among the internal factors are the risk of proposed legal and regulatory changes being ratified, especially in relation to the Judiciary; the elimination of autonomous bodies; the Mexican State's reasserting control over the electric power sector and curbs on water use for mining and other industrial purposes.

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