Wednesday, November 29, 2023

Foreign investment breaks a record but only a small portion is new money

Foreign direct investment (FDI) reached a record high in the first quarter of 2021, preliminary data shows, but less than 20% of the money that flowed into Mexico was destined for new investment.

The Economy Ministry (SE) reported Thursday that FDI was worth US $11.86 billion between January and March, a 14.8% increase compared to the first quarter of 2020, for which preliminary data showed that investment totaled $10.33 billion.

The preliminary data FDI figure for the first quarter of this year is the highest since record keeping began in 1999. It will almost certainly be revised upward once companies have formally reported all foreign investment in the period to the SE.

But there is no guarantee that the preliminary data FDI record will translate into a record figure.

The revised FDI figure for the first quarter of last year – which coincided with the beginning of the coronavirus pandemic when the global economy had begun to contract but had not yet gone into free fall – was $16.75 billion, a 62% increase compared to preliminary data.

Achieving a similar increase this year could be difficult given that the global economy remained significantly affected by the pandemic in the first quarter.

The 14.8% uptick based on preliminary numbers is undoubtedly good news for the Mexican economy but the makeup of the $11.86 billion figure provides less cause for celebration. Data showed that 59% of FDI in the first quarter was the result of reinvestment of profits and 22% was movement of funds between companies. Only 19% of first quarter FDI represented new investment, a 3% decline compared to the same period of 2020.

Almost half of all FDI – 47% – went to Mexico’s manufacturing sector, while 15% went to the finance and insurance industry and 14% went to mining. The energy and hotel/accommodation sectors only attracted 3% each of the total. The former sector has been affected by the federal government’s move to overhaul it to favor state-owned energy companies while the latter remains affected by the tourism downturn.

The United States was the biggest investor in Mexico during the first quarter, with 42.5% of FDI coming from that country. Spain was the second largest source with 12.1% followed by Luxembourg (8.2%); United Kingdom (5.5%); and Canada (4.8%).

Carlos Serrano, chief economist at BBVA México, warned that the FDI figures for the first quarter are not as “extraordinary” as they seem because, among other reasons, they “don’t reflect an appetite for new investment.”

Source: El País (sp) 

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