Owner’s Insight: Mexico Real Estate: Increasingly Attractive for Business & Foreign Investment

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Mexico Real Estate: Increasingly Attractive for Business & Foreign Investment

Last update 05 May, 2012
Mexico Real Estate: Increasingly Attractive for Business & Foreign Investment
Manufacturing, technology, aerospace, automotive and energy sectors are all setting record numbers here in Mex...

The European Union is currently coming in as Mexico’s third largest trading partner, with more than $50 billion in trade each year.


Bloomberg Businessweek recently reported that Mexico attracted an impressive $19.4 billion in foreign direct investment money in 2011, a number that is projected to increase dramatically in 2012.

These momentous numbers are thanks in large part to the Mexican government’s continued efforts to work with investors and large corporations that are headquartered around the world. The efforts have paid off. The European Union is currently coming in as Mexico’s third largest trading partner, with more than $50 billion in trade each year. And the Bank of Mexico announced that government securities held by foreigners grew from more than $16.7 billion in 2009 to more than $80.9 billion in early 2012.

Mexico Increasingly Attractive for Business & Foreign Investment Capital

Rising Business & Foreign Investment Capital in Mexico 

Mexico Increasingly Attractive for Business & Foreign Investment Capital

Mexico has made important strides in opening up to foreign investment capital in recent years by reducing tariffs on imports and exports, which allows corporations to make a larger profit on goods that are manufactured here. In addition, the government has opened up public services to private companies, and has worked to establish important trade agreements with other Latin and South American Countries.

Between 1999 and 2011 Mexico received a total of $102 billion in foreign direct investment from the EU – a number that is expected to continue growing thanks to broad opportunities in green technology, as well as in the automobile and aerospace industries, among others. In fact, according to the country’s German ambassador, Francisco Gonzalez Diaz, Germany is planning to invest more than $3.3 billion in Mexico throughout 2012, mainly in the aeronautics, automotive, chemical, pharmaceutical, and metal-mechanics sectors.

Mexico Increasingly Attractive for Business & Foreign Investment Capital

France is also ramping up its investments in Mexico, reaching more than $157 million between January and November of 2011. Pierre Lellouche, French Minister of the Economy, Finance and Industry, cited opportunity for growth as the main reason for the increase, which focuses largely on emerging markets. All told, 400 French companies have invested more than 13 billion Euros in Mexico, creating at least 90,000 jobs.

“Large investment groups of French, Germans and Koreans, among others, are looking to Mexico as a market opportunity, not only for this country, but to reach out to other nations of Latin America,” stated Lellouche.

Mexico Increasingly Attractive for Business & Foreign Investment CapitalOne of the main reasons behind Mexico’s growing appeal for global investors is also due to its increased competitiveness as a production center, thanks to a structural decrease in the exchange rate and improvements in the country’s exports manufacturing industry. According to the CIA World Factbook, although many economies worldwide experienced slow or no growth in 2011, Mexico’s exports rose 13%, hitting an impressive $336 billion.

“Mexico has a productive capacity sustained by low operating costs arising from their geographical location, low wage levels, recent investments, and the advantages of the North American Free Trade Agreement (NAFTA), which makes it very efficient for industry worldwide,” stated Banamex-Accival analysts.

Mexico Increasingly Attractive for Business & Foreign Investment Capital

The fact that many major manufacturers have been pulling out of China recently is also good news for Mexico, which still offers a low-cost environment for manufacturers. China’s rising minimum wage and stronger currency means it can no longer offer the enormous bargains of yesteryear, which has increased the appeal of Mexico worldwide. For the first time in recent history, it is cheaper to manufacture in Mexico than China for companies targeting the U.S. market. Also, since it takes only five days to ship from Mexico to Canada, compared to 46 days from China to Canada, companies can save time and money on shipping costs.

Mexico’s Rapidly Growing Economy

Mexico Increasingly Attractive for Business & Foreign Investment Capital

In 2010 Mexico’s economy grew by 5.5%, which is the largest jump in the last decade according to Bloomberg, CNBC and Reuters, while its trade deficit was reduced by 32%. This increased imports and exports, encouraging a renewed interest among foreign businesses considering Mexico as a viable place to invest. This points to a strong momentum for business investment in Mexico in 2012 and beyond. According to one conservative estimate by private consultancy firm CAPEM, there is a projected annual growth rate of at least 7% in 2011. Furthermore, according to analysts with Banorte-Ixe, the investment capacity of many global corporations is now back up to the highest levels since 2006.

Mexico Increasingly Attractive for Business & Foreign Investment Capital

Looking to the future, Goldman Sachs has predicted that Mexico’s rapidly advancing infrastructure, growing middle class and swift decline in poverty rates will create a higher GDP per capita than all but three European countries by the year 2050. Mexico Increasingly Attractive for Business & Foreign Investment CapitalSome analysts believe this could even be a conservative estimate, considering that Forbes magazine already named Mexico’s GDP the 11th largest in the world as of 2010.

NASDAQ has also chimed in, calling Mexico “one of the world’s largest developing economies,” in response to the fact that it is already larger than the economies of China, India and Brazil. Furthermore, the UK is currently one of Mexico’s biggest investors, and the UK Trade & Investment has announced that it expects Mexico Increasingly Attractive for Business & Foreign Investment CapitalMexico’s economy to surpass the UK’s by the year 2040. All of this could explain why a report last year by the Financial Times compared Mexico’s current economic state to that of Spain 20 years ago.

Tourism has long provided a boost for Mexico’s economy; a trend that promises to continue throughout 2012 and beyond. In March of 2012, Carnival Cruise Lines announced that it would invest more than $150 million in Mexico’s major ports along the Caribbean and Pacific coasts. NASDAQ reported that Carnival currently accounts for around 80% of the cruise business coming in to Mexico, which is an important destination for the company.

Mexico Increasingly Attractive for Business & Foreign Investment Capital

Mexico’s Aerospace Industry

Over the past 20 years Mexico’s aerospace industry has grown dramatically and caters to the U.S., Canadian, German and FrenchMexico Increasingly Attractive for Business & Foreign Investment Capital markets. Today Mexico is ranked 6th in the world for development investment and research in the aerospace field. Between 2002 and 2008, the industry’s exports tripled, reaching $3 billion, and by the end of 2010, it had reached more than $3.27 billion, with 241 companies employing more than 30,000 people.

In 2011, Luis Oliva, who is head of the Promotion of Foreign Investment Unit of Promexico, announced that Mexico’s aerospace industry would receive more than $100 million over the course of the next 12 months alone, with much of the money coming from the British firm Rolls Royce. Furthermore, Mexico Increasingly Attractive for Business & Foreign Investment Capital2011 saw more than $3.5 billion in aerospace exports from Mexico – a number that is expected to increase in 2012.

Mexico’s growing popularity in the aerospace industry is due to a variety of factors, including its geographical position in North America, and the established success of the automotive and electric-electronic sectors in the country, which have helped to create a solid supply chain. The pro-investment policies that are in place in Northern Mexico have also bolstered the country’s appeal for the aerospace industry, helping the sector to consistently achieve annual growth rates of 17%. In turn, many universities in Mexico have begun to offer state of the art engineering programs to meet the industry’s labor demands. As a result, Mexico Increasingly Attractive for Business & Foreign Investment CapitalMexico now has a large number of graduates with degrees in engineering and technology, and nearly every component of a plane can be manufactured here.

Companies like Boeing, ITR, Honeywell, EATON Corporation, Cessna, Bombardier Aerospace, Raytheon Goodrich, GKN Aerospace and General Electric – to name only a few – have begun to utilize the opportunities presented by Mexico, which has signed the Bilateral Aviation Safety Agreement (BASA) with more than 40 countries. This effectively streamlines the supply-chain, allowing products to be shipped off for assembly without first undergoing an international inspection. In addition, since many of the world’s more than 20,000 commercial planes are now over 18 years old, they will need replacement at some point during the next ten years, virtually guaranteeing that Mexico’s aerospace industry will continue to grow.

Mexico Increasingly Attractive for Business & Foreign Investment Capital

The Automotive Industry in Mexico

One of the sectors currently commanding the largest amount of foreign investment capital in Mexico is the automotive industry. Major automotive manufacturers like Ford, Chrysler, BMW, Toyota, Volvo, Mercedes Benz Honda, Mazda, General Motors, Volkswagen and Nissan have invested heavily in recent years, with the industry bringing in more than $2.5 billion in new foreign direct investment money in 2011 and creating more than 500,000 new jobs. Mexico is currently the largest vehicle producer in Latin America and the 10th largest in the entire world, exporting to more than 100 countries.

Mexico Increasingly Attractive for Business & Foreign Investment Capital

Throughout 2011, Mazda, Nissan, Volkswagen and Honda announced plans to invest a combined $2 billion in Mexico’s automotive sector, while Audi and Toyota are also rumored to be following suit. Mexico Increasingly Attractive for Business & Foreign Investment CapitalFord also recently announced plans to invest around $1.5 billion in its existing manufacturing facility in Mexico, while Mercedes Benz will invest an additional $10 million in 2012. Also of note, the Chinese automotive assembly giant JAC Motors has announced plans to start operations in Mexico this year , and in a recent statement Audi announced it will build a new factory in Mexico by 2016, instead of the U.S. as some previously believed. "As an established carmaking location, Mexico offers an excellent economic basis for Audi production operations," said Rupert Stadler, Audi's chairman, in a statement. "Mexico is one of the world's top ten automotive locations and offers a blend of tradition and experience."

Mexico Increasingly Attractive for Business & Foreign Investment Capital

90% of the world’s top auto part companies can be found in Mexico, including Delphi, Nemak, Magna International, Continental, Lear, Siemens and Bridgestone, among many others. In 2010, this sector experienced 45% growth from 2009, bringing in more than $60 billion. In 2012 German auto parts manufacturer Hella will open a new plant in Mexico at a cost of $97 million, while Japanese automotive components manufacturer DENSO will build a new $57 million production facility.

“Production in Mexico is absolutely being driven by exports, and exports continue to grow,” stated the Mexican Automobile Industry Association (AMIA) president Eduardo Solis to Dow Jones Newswires via FOX Business.

Mexico’s Booming Manufacturing Sector

Mexico has managed to maintain a strong manufacturing and industrial sector by reducing tariffs on imports and exports, while retaining fixed production prices that are around 25% less than what can be found in other Western countries. Combine this with the growing number of skilled workers, and it’s easy to see why many experts predict this trend will continue throughout 2012 and beyond.

“Mexico’s state and federal governments are supporting foreign manufacturers with financial and other incentives for inbound companies,” stated Maricio Reyes, who is economic development manager at www.MexicoGov.org. “As economies have weakened, foreign companies are investigating manufacture in Mexico options at a pace we haven’t seen in years. We have received more requests for incentive estimates and other information in the last few months than in several prior years combined.”

Thanks to the low labor costs in Mexico’s off-border cities and the large amount of available industrial real estate, the country is becoming increasingly attractive as a manufacturing hub for global corporations like the US-based trucking and logistics firm Celadon Group, as well as Texas companies like Baker Hughes and supermarket giant H-E-B, which accounted for around $3.5 billion in new investment dollars pumped into Mexico over the last five years alone.

Mexico Increasingly Attractive for Business & Foreign Investment Capital

According to a recent article written by the Wall Street Journal online, Coca-Cola plans to invest more than $1 billion this year in Mexico as part of the beverage giant’s five-year $5 billion investment plan for the country.

Mexico Increasingly Attractive for Business & Foreign Investment Capital“Without a doubt, this important investment will boost our economy and will create more and better jobs for Mexican workers,” stated president Felipe Calderon, who cited the country’s growing economy and per capita income as major factors that have helped Mexico attract large corporations such as Coca-Cola.

Other notable investments in Mexico’s manufacturing sector include a $190 million planned investment by Italian chocolatier Ferrero Rocher to build a new plant, and a new $900 million container terminal that will be built by Danish group AP Moller-Maersk in the Mexican port of Lazaro Cardenas. In addition, DuPont will invest around $300 million annually in its Mexico plants, totaling almost $1 billion by 2014.

Mexico Increasingly Attractive for Business & Foreign Investment Capital

The Expanding Mexican Energy Sector

Mexico Increasingly Attractive for Business & Foreign Investment CapitalMexico has also successfully encouraged innovation in its growing energy sector, particularly in the development of alternative sources of clean energy, such as wind power. The Mexican government has created a $3 billion peso fund for renewable energy projects, promote biofuel production and protect the environment. In addition, Mexico’s natural geography gives it excellent potential for development of geothermal power sources, and the government hopes to produce at least 2.5GW of wind-powered electricity by 2013. Mexico is also rapidly moving ahead with plans to increase its oil production and could produce up to 220 million barrels of oil per day in the coming years.

According to a recent report by Bloomberg Businessweek, Morgan Stanley is planning to invest between $35 and $110 million in a number of Mexico’s top energy companies as the nation continues to open up the industry to private capital. In addition, investment in Mexico’s wind energy sector has already hit $2 billion as of early 2012, according to Leopoldo Rodriguez, who is president of the Mexican Association of Wind Energy (AMDEE), while the country’s geothermal energy capacity is set to benefit from a $39 million investment by the French corporation Alstom.

Mexico’s Technology Giants

Mexico Increasingly Attractive for Business & Foreign Investment CapitalMexican telecom giant America Movil is planning to invest $9 billion in 2012, with total capital expenditure plans over the next four years projected to reach $35 billion. The investments will integrate the company’s mobile and fixed networks, and copper cables will be upgraded to fiber optics to improve the speed at which information can travel.

Forbes magazine also reported that IT exports surpassed $3.5 billion in 2011, while exports of cell phones reached more than $8.5 billion in recent years. Also of note, NI Holdings, formerly known as Nextel International, is a major wireless phone provider in Mexico with big plans for the future, while Swedish telecom giant Ericsson has invested more than $20 million in a new network operations center located in Mexico City.

For more information about Mexico’s foreign investment potential, please visit http://www.promexico.gob.mx/en_us/promexico/Empresario_Extranjero

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