Nota Destacada

Mexico increases FDI inflows 1.7% in 1Q20

Mexico received 10,334.0 million dollars of Foreign Direct Investment (FDI) in the first quarter of 2020, according to preliminary figures from the Ministry of Economy released this Friday.

This amount represented an increase of 1.7% year-on-year compared to the preliminary amount collected in the same period of 2019.

In general, Mexico’s Foreign Investment Law establishes a legal framework designed to encourage Foreign Direct Investment and establish certain limited restrictions on foreign investment in the country.

For example, the Foreign Investment Law allows foreign investors to own 100% of the capital stock of a Mexican company if certain conditions are met. It details which economic activities are reserved exclusively for the government or for Mexican investors.

The amount of the first quarter of 2020 was a net result per company or trust, of the difference of $ 15,601.5 million recorded as inflows and $ 5,267.5 million in outflows.

The increase was concentrated in the item of accounts between companies, although the subsequent adjustment of the figures could modify this result.

FDI and subdivisions

By type of investment (source of financing), 76.1% of Foreign Direct Investment corresponded to reinvestment of profits; 22% to new investments, and 1.9%, to accounts between companies.

New investments include those in fixed assets and working capital for the regular conduct of commercial acts in Mexico; the contribution to the capital stock of Mexican companies by foreign investors; the transfer of shares by Mexican investors to direct investors, and the initial amount of the consideration in trusts that grant Foreign Direct Investment rights.

Meanwhile, reinvestment of profits corresponds to the part of profits that is not distributed as dividends and that is considered FDI because it represents an increase in capital resources owned by the foreign investor. And intercompany accounts are transactions originated by debts between Mexican companies with FDI in their capital stock and other related companies residing abroad.

By sector: manufacturing comprised 44.1%; financial and insurance services, 24.9%; trade, 8.3%; generation of electrical energy, water and gas, 5.1%; mining, 4.8% and construction 4.4%. The remaining sectors captured 8.4 percent.

Finally, by country of origin, the United States was the source of 38.9%; Spain, 14.3%; Germany, 9.4%; Canada, 7.2%; Netherlands 4.6%; and, other countries contributed the remaining 25.6%.

Indicator considerations

To date, there are preliminary Foreign Direct Investment figures for the first quarter of 2020. As usual with this type of information, this figure will be adjusted as new operations corresponding to the first quarter of the current year are reported to the National Registry of Foreign Investments.

The FDI registered to date for the first quarter of 2020 came from 1,803 companies with foreign capital participation, 556 trust contracts and 10 foreign legal entities.

The amounts reported only consider investments made and formally notified to the National Registry of Foreign Investments of the Ministry of Economy; hence its preliminary nature and the fact that they undergo updates in the following quarters.

The methodology for determining FDI is based on international standards, contained both in the Balance of Payments Manual of the International Monetary Fund (IMF) and in the Framework Definition of Foreign Direct Investment of the Organization for Economic Cooperation and Development (OECD).

The FDI figures were jointly reviewed by the Ministry of the Economy and Banco de México and will be integrated into the latter’s Balance of Payments Report.

New investments include those in fixed assets and working capital for the regular conduct of commercial acts in Mexico; the contribution to the capital stock of Mexican companies by foreign investors; the transfer of shares by Mexican investors to direct investors, and the initial amount of the consideration in trusts that grant FDI rights.

Meanwhile, reinvestment of profits corresponds to the part of profits that is not distributed as dividends and that is considered FDI because it represents an increase in capital resources owned by the foreign investor. And intercompany accounts are transactions originated by debts between Mexican companies with FDI in their capital stock and other related companies residing abroad.

 

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