Foreign direct investment in Mexico grew by 14.8% in the first three months of the year compared to the same period in 2020, according to preliminary data released by the Economy Ministry on Thursday. The $ 11,864 million raised represents the largest volume for the first quarter since records began in 1999, although only a small fraction is a new investment. A thermometer of confidence in the Mexican economy, the data adds some optimism to the panorama still dominated by the hit of the pandemic.
The amount released exceeds the $ 10334 million reported as preliminary numbers in the first quarter of last year, when the unstoppable expansion of the pandemic was already starting to weaken growth prospects. However, an increase of 14.8% could be misleading. For its account, the Economy Ministry compares this year’s preliminary figure with the preliminary figure for the same period last year. On the other hand, if the final figure for the first quarter of 2020, which is $ 16,750 million, is taken, the influx for the first three months of this year represents a 29% decrease. We have to wait for the final figure to be published to understand precisely the behavior of the investment in relation to 2020.
Most of the flow, 59%, comes from reinvestment of profits and another 22%, from corporate transfers. Only 19% is a new investment. This third streak is losing ground in terms of raw data for the same period in 2020, when it weighed above the total 22%. On the other hand, intra-firm movements, which were 1.9% a year ago, are seeing a strong increase.
By sector, manufacturing accounts for 47% of investment, followed by financial services and insurance at 15%. Mining 14%; And trade, at 11.5%. At the end of the waiting list are the energy and temporary accommodation sectors, at just over 3% each. Both of them are going through a hard time. The attractiveness of the energy sector has been affected by a change in the rules promoted by the government to limit private sector participation and housing participation, due to the decrease in tourism.
The countries that lead in foreign investment are the United States with 42.5%, Spain with 12%, and Luxembourg with 8%. This distribution shows an increase in the peso as the first investor in the United States, whose overall economy has started with a strong recovery and a slight downturn in Spain. In the first quarter of 2020, North America got 39% and Spain 14%. Luxembourg was not on the list.
Economy Minister, Tatiana Clauther, highlighted the importance of T-MEC with the United States and Canada. “This (…) tells us about the importance of the Mexican economy, the confidence, and the great opportunity represented by the ratification and implementation of the T-MEC,” he said at a press conference. In 2020, Mexico experienced an 11.7% decrease in the inflow of foreign investment.
Added to T-MEC’s good outlook is optimism about the end of the epidemic thanks to the advancement of vaccination on a global scale. In 2020, global GDP has contracted, but this year we are already seeing positive growth. Analyst Christopher Sirnichiaro of the Center for Economic Research and Budget (CIEP) points out that investment behavior and economic activity will go hand in hand with the development of the epidemic.
However, this preliminary data should be taken with caution, says Carlos Serrano, chief economist at BBVA. “They are not as exceptional as they seem to indicate. The appetite for new investments is not being reversed and reinvestment may be higher because banks have not distributed profits as they used to due to regulatory restrictions. In addition, we compare to a quarter that was historically low,” he says.
The Mexican economy has not left the recession yet. The growth in foreign direct investment contrasted with the rebound in spirit in the first quarter of the year. GDP increased by only 0.4% on a quarterly basis, after falling in 2020 by 8.5%. On the other hand, the implementation of T-MEC is surrounded by tensions. Representatives from Washington and Ottawa this week at a meeting with Clothier complained about the investment climate in the mining and energy sectors.
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