MEXICO IS REGION’S SECOND LARGEST RECIPIENT OF FOREIGN DIRECT INVESTMENT

- NAFTA connection is strong, says ECLAC report -

Between 1985 and 1995, Mexico was the region’s principal recipient of foreign direct investment (FDI), but in 1996 Brazil took the lead and kept it in absolute terms the following year, reports the 1998 edition of ECLAC’s annual study, Foreign Investment in Latin America and the Caribbean. However, FDI in Mexico was very important in sustaining structural adjustments in the country’s economy. The approximately US$8,000 million received during 1994-97 played a central role in this transformation and, in particular, in Mexico’s integration into the continental economy as part of the North American Free Trade Agreement (NAFTA).

*/ the 1998 figure is estimated by ECLAC

The main focal points for FDI in Mexico are manufacturing - both assembly-based operations for export (such as apparel and electronic equipment) and production for the domestic market (such as food, beverages and tobacco products) - and, more recently, services. About 60% of total flows come from a single country, the United States. While the creation of new assets was the principal form taken by FDI in the 1990s, especially in the automobile industry, more recently mergers and acquisitions of private assets have come to the fore, particularly in the food, beverage and tobacco industries and in services such as retailing and banks. In most cases, the main focuses of FDI are related to NAFTA, through the establishment of continent-wide systems of integrated production or strategic positioning in the domestic market.

The principal corporate strategies of foreign investors in Mexico can be summarized as follows:

• The creation of continent-wide systems of integrated production, to improve efficiency and competitiveness in the export of manufactures to the US. This strategy tends to take the form of the creation of new assets in the apparel (Burlington, Dupont), electronics (Compaq, Daewoo, Sony) and automotive (Chrysler, Ford, GM, VW, Nissan) industries. Key ingredients of the strategy are relatively low wages and preferential access to the US market under HTS 9802 or NAFTA arrangements. This strategy is used particularly by US companies under pressure from Asian competitors in the US market itself.

• A new or expanded presence in the Mexican market for manufactures. This strategy is common among US companies in food (PepsiCo), beverages (Anheuser Busch, Labatt. PepsiCo, Coca Cola) and tobacco (Philip Morris, BAT), and is often based on the acquisition of private assets. In these cases, FDI often responds to the strategic dynamics in oligopolistic markets.

• A new or expanded presence in the Mexican market for services. This is increasingly common for the new globalizing services, such as telecommunications (Bell Atlantic, Bell Canada, Lorel, Hughes) and finance (HSBC, BBV, Santander). It is also evident in the retail trade (Wal-Mart). Some FDI is used to open up previously restricted sectors. Again, the strategic behavior of firms in the internal market often determines FDI initiatives.

In 1998, Mexico is likely to receive a total level of FDI similar to previous years, as by mid-year over US$5,000 million had already been registered by national authorities. The principal areas for which major investments have been announced for coming years include automobiles (US$8,600 million), energy (US$2,800 million), electronics (US$2,4000 million), transport (US$1,500 million), chemicals (US$1,300 million), telecommunications (US$1,200 million), food, beverages and tobacco products (US$1,000 million), and textiles and apparel (US$900 million).

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