Three areas for the improvement of the Mexican foreign direct investment regime in 2021
In the coming year, the Mexican foreign direct investment regime can improve its legal framework by concentrating on bolstering national security, strengthening the nation’s economy, and by the government engaging in greater dialogue with the private sector.
It is a fact that Mexico is one of the most preferred destinations in the Americas for foreign direct investment (FDI). Despite this being the case, both the government and the country’s private sector should intensify their efforts work jointly to take action that is focused on strengthening the Mexican foreign direct investment regime. For instance, greater capital inflows to the country can be achieved by improving the nation’s competitiveness and by taking steps to guarantee investors and environment of legal certainty.
In mid-2020, according to the Kearney Confidence Index, Mexico achieved a ranking second only to Brazil as the most popular Latin American destination for foreign direct investment.
Despite a mostly positive assessment, three main factors were observed that require improvement to make the Mexican foreign direct investment regime a more attractive one. These include a more stable macroeconomic environment; greater regulatory transparency — especially in the energy sector, where changes have been made to contracts—and better use of public resources to bring highly productive infrastructure works to completion.
In order to move up further in ranking in the Kearney Confidence Index in the coming years, the Mexican foreign direct investment regime must be improved by offering three main things:
1.- Clear rules
In order to be attractive, the Mexican foreign investment regime will have to provide certainty that the rules of the game will not change. For this to be achieved and maintained, there has to be coordinated work done amongst the Executive, Legislative and Judicial branches of the country’s government
In the first and most important instance, the rule of law must be conscientiously preserved and fully respected by all parties. The message must be sent that there are tangible legal conditions that are conducive to the capture of medium- and long-term investment projects, which influence demand behavior. This is a factor that is also key to stimulating the investment decisions that companies will venture to make.
2.- Economic value
As a result of the 2020 global pandemic spread of the Covid-19 virus, investors have dedicated greater attention to the resources that governments spend to address the current health emergency, as well as to health and education budgets in the coming years.
The fate of public resources is therefore of great importance to instilling confidence in the Mexican foreign direct investment regime. Additionally, broadly accepted actions must be taken that are aimed at reducing things such as poverty and official corruption. A further use of public resources must be associated with economic value decisions. Such decisions will result in the promotion of better education and training opportunities for workers and the implementation of infrastructure connections for the transport of people and goods that are needed to catalyze the nation’s economy.
The Mexican foreign direct investment regime has only just begun to feel the first effects of the entering into force of the new United States-Mexico-Canada Free Trade Agreement (USMCA). Today, as a result of the pandemic, countries are looking for levers such as this one to boost economic growth. There has always been a very fierce competition for the attraction of investment, and Mexico must continue to implement policy such as this that is aimed at attracting capital.
With the implementation of the USMCA, it is vital for Mexico to increase the domestic content of its exports through import substitution, the development of local suppliers, and the installation of foreign companies in the country.
3.- Public-private dialogue
A key to furthering the country’s competitiveness is the restoration of a healthy and active dialogue between the public and private sectors. It will only be to the detriment of the Mexican foreign direct investment regime should communication between both sides be curtailed.