Mexico-manufacturing-fdi
Mexico’s manufacturing sector covers a wide array of produce, from cars to footballs. However, the country has been hit badly by the Covid-19 pandemic and its output looks set to dip. (Photo by Pedro Pardo/AFP via Getty Images)

According to the Mexican government’s Comision Nacional de Inversiones Extranjera, foreign direct investment (FDI) into the country in the first quarter of 2020 amounted to a total of $10.3bn.

The sector that attracted the highest level of FDI in the period was manufacturing, with $4.5bn in FDI inflows, followed by financial services with $2.5bn.

As measured by region, North America was the largest investor in the country in 2019, contributing to $4.7bn of the total, followed by the EU with $3.9bn, $1.5bn of which came from Spain alone.

While the figures seem in line with the average in 2019, the UN Conference on Trade and Development (UNCTAD) states in its World Investment Report 2020 that FDI flows to Mexico are typically the highest in the first trimester when reinvested earnings are registered.

“Thus, the total FDI inflows actually grew by 23% with respect to the average in 2019, driven by a 78% increase of reinvested earnings,” says the report.

UNCTAD predicts that the whole of Latin America will suffer from the slowdown in global demand, and in particular from its main trade partners China and the US.

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Mexico is projected to be one of the countries worst-hit by Covid-19 because of its reliance on the US manufacturing sector (especially in the automotive value chain), tourism, remittances and oil.

FDI inflows saw a 5% dip in 2019 compared with 2018, posting a total of $33bn. More than half of that (53%) came from reinvested earnings, according to the UNCTAD report.

Mexico’s automotive dip

The automotive industry has been one of the sectors worst-hit by the Covid-19 pandemic on a global scale, and UNCTAD reports that in the first quarter of 2020 announced greenfield projects to set up new factories in the sector decreased by more than 73%. Mexico, it says, will be among the most-affected by this dip, as FDI in this industry in 2019 accounted for more than 20% of inflows.

Overall, data on announced greenfield investments in Mexico shows a decline of 36% in the number of projects in the first quarter of 2020. New equity inflows also dropped, by 31%.

UNCTAD highlights that investor confidence was negatively affected by a public vote to stop a $1.4bn brewery project involving the US’s Constellation Brands that was already two-thirds complete.

In order to contain the impact of Covid-19 on FDI flows to the country, Mexico’s government has launched a new energy plan worth about $13bn that foresees the participation of private investors in selected projects and the acceleration of public expenditure on infrastructure.