Mexico attracts foreign investment despite challenges in politics.
Mexico is ranked tenth among the top destinations for foreign investment direct worldwide, a position that could continue to improve due to opportunities for investment relocation arising from the escalating political and geopolitical risks present in emerging and developed economies.
Undoubtedly, this is an important historical moment for Mexico, as it could lay the foundation for sustained long-term growth and address the low average growth rate of 2.0% recorded since 1980, which has been a consequence of a lack of investment.
While Mexico offers great opportunities for foreign investment, the escalation of risks generated by the U.S.-China trade war, the conflict between Russia and Ukraine, tensions in the Gulf, and disruptions to global supply chains, which are expected to persist for several years according to BlackRock’s geopolitical risk index, also pose significant challenges to the country’s economic policy, lack of investment in infrastructure, violence, and the upcoming federal elections in 2024.
The Mexican government’s economic policy has been controversial due to the cancellation of large strategic projects that are attractive to foreign capital in sectors such as oil & gas, energy, communication, and infrastructure, leading to concerns over the country’s investment grade status by Standard & Poor’s, Fitch Ratings, and Moody’s, and in some cases undermining the attractiveness of investment.
The lack of government projects and capital for infrastructure is also a major obstacle to attracting foreign investment that contributes to economic growth. Currently, Mexico ranks on average 58th out of 63 countries measured by the IMD World Competitiveness Center as part of its infrastructure competitiveness index, which is regrettable. Despite this, new investment continues to arrive, but the challenge of meeting growing demand for infrastructure remains.
Security and violence also represent a major challenge in generating greater attraction towards Mexico. According to the Global Peace Index, which measures the level of peace and absence of violence in a country, Mexico ranks 137th out of 163 countries, directly impacting the economic costs of businesses.
Regarding the 2024 presidential elections, they represent another important challenge to consider in order to avoid a slowdown in new investments. It is necessary to provide certainty to the succession process and avoid candidate uncertainties, internal fights, disqualifications, and electoral violence that could undermine investment attractiveness.
In conclusion, Mexico has great opportunities as an attractive destination for foreign investment, but it also faces significant challenges that the government and private sector must work together to address by taking measures, promoting and leveraging investment in infrastructure, establishing appropriate economic policies, generating mechanisms to reduce violence, and ensuring conditions for the 2024 elections.
Therefore, investors are advised to carefully evaluate the risks, opportunities, policies, and conditions presented by Mexico before making an investment decision in order to take advantage of the potential for diversification and relocation of company operations.