Foreign Direct Investment (FDI) plays a crucial role in the Mexican economy, influencing job creation and economic growth. Carlos Serrano Herrera, chief economist at BBVA in Mexico, analyzes these effects in his article “How Is Foreign Direct Investment Doing?” published in El Financiero. According to Serrano, in addition to its contribution to job creation, FDI offers other significant advantages, such as financing current account deficits, improving the adoption of efficient technologies, and strengthening foreign investors’ long-term confidence in the country.
During the first quarter of 2019, Mexico received 10,162 million dollars in FDI, a 20% decrease compared to the same period in 2018, when 12,644 million dollars were recorded, according to data from the Ministry of Economy. However, Serrano points out that this decline may be relative, since comparing the preliminary figure for the first quarter of 2019 with that of the previous year (9,502 million dollars) shows an increase of 6.9%. Even so, Serrano stresses that this comparison may be misleading and suggests that preliminary figures may be subject to future revisions, whose magnitude and direction are uncertain.
FDI is made up of new investments, reinvested earnings, and intercompany accounts. These components are essential from a macroeconomic perspective, as they represent foreign currency that helps finance current account deficits and can generate employment and economic growth. New investments in particular are vital, since they include investment projects and inflows of resources. In the first quarter of 2019, new investments reached 2,280 million dollars, a 21% increase over the same period in 2018, although it is important to consider that 2018 was a year of low new FDI.
According to the Bank of Mexico, FDI fell 20% in the first three months of 2019. However, Serrano warns that it is premature to determine whether this drop will be temporary or persistent. To counter these declines, the Mexican government should take strategic measures such as reviving the Texcoco airport project, resuming Pemex’s private partnerships, and canceling the construction of the Dos Bocas refinery. In addition, domestic uncertainty and tariff threats from the United States may negatively affect local and foreign investment levels, impacting the Mexican economy as a whole.
REFERENCES:
del Carmen Peña Álvarez, M. (2019, June 21). El impacto de la inversión extranjera directa en la economía mexicana. BBVA. https://www.bbva.com/es/mx/el-impacto-de-la-inversion-extranjera-directa-en-la-economia-mexicana/
