Identifier
Created
Classification
Origin
06MEXICO574
2006-02-02 12:16:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Mexico
Cable title:  

HE'S GOT MEXICO'S FDI IN HIS HANDS

Tags:  EINV EFIN ETRD ELAB KTDB PGOV MX 
pdf how-to read a cable
VZCZCXRO9988
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #0574/01 0331216
ZNR UUUUU ZZH
R 021216Z FEB 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 8698
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHFR/AMEMBASSY PARIS 0314
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 03 MEXICO 000574 

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EB/IFD/OIA, WHA/EPSC AND WHA/MEX
PARIS FOR USOECD
DEPT PASS TO USTR

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB KTDB PGOV MX
SUBJECT: HE'S GOT MEXICO'S FDI IN HIS HANDS

Sensitive But Unclassified, Entire Text

UNCLAS SECTION 01 OF 03 MEXICO 000574

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EB/IFD/OIA, WHA/EPSC AND WHA/MEX
PARIS FOR USOECD
DEPT PASS TO USTR

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB KTDB PGOV MX
SUBJECT: HE'S GOT MEXICO'S FDI IN HIS HANDS

Sensitive But Unclassified, Entire Text


1. (SBU) SUMMARY. Mexico received USD 17.6 billion in
Foreign Direct Investment (FDI) in 2005 and is forecast to
receive USD 18 billion in 2006 due to large investments in
the automotive and auto parts, real estate, housing
development, pharmaceutical, food processing and electronics
sectors. 2006 FDI may be affected by Mexico's election. An
incident free election and smooth transition of power should
help keep FDI on track, while any major disagreements over
the results could derail planned investment. Although both
U.S. FDI in Mexico and Mexican competitiveness have declined,
Mexico still remains a strong destination for FDI worldwide.
END SUMMARY.

2005 NOT AS GOOD AS 2004
--------------


2. (SBU) Econoff met on January 23 with Gregorio Canales
Ramirez, Director General for FDI for the Secretariat of the
Economy (Economia). According to Canales, Mexico received
USD 17.9 billion of FDI investment in 2004. Through September
of 2005 Mexico had received USD 12.9 billion. Figures are not
yet final for the last quarter of 2005, but the government
expects that FDI for 2005 will be USD 17.6 billion. Mexico
typically receives 21 to 22 percent of its annual FDI in the
first quarter, 23 to 24 percent in each of quarters two and
three, and the remaining 27 percent in quarter four.
Normally 15 to 20 percent of each quarter's FDI is reported
later (see para. 9). Using this formula the government is
confident that it will reach the USD 17.6 billion figure for

2005.

FDI TO REBOUND IN 2006
--------------


3. (SBU) Sergio Garcia de Alba, Mexico's Secretary of
Economy, has publicly predicted FDI will reach USD 18 billion
in 2006. Economia expects several large investments in the
auto and auto parts sector because of Mexico's lower
transportation costs to the U.S. market, logistical benefits
from Mexico's proximity to the U.S. and rule of origin laws
under NAFTA that encourage production in Mexico. Investments

in real estate (such as Puerto Penasco, in northern Sonora on
the Sea of Cortes. and other beach destinations in the states
of Jalisco, Guerrero and Oaxaca),housing development,
pharmaceuticals, food processing, and the electronics sector,
particularly kitchen appliances, should also rise. While
refusing to name specific projects, Economia expects at least
three USD one billion projects in the automotive sector and
between USD two and a half and five billion in investments in
the auto parts sector.

THE U.S. - THE BIG PLAYER IN MEXICAN FDI
--------------


4. (SBU) The U.S. has continually been the largest source
country for FDI in Mexico. While the percentage of Mexican
FDI that originates in the U.S. has remained quite high, the
monetary value has dropped dramatically. USD 21.4 billion or
77 percent of Mexico's total FDI came from the U.S. in 2001.
In 2005 (through September) although FDI of U.S. origin still
accounted for 66 percent of total Mexican FDI, the value had
shrunk to USD 5.9 billion. USD 53.3 billion or 63 percent of
Mexico's FDI has come from the U.S. over the last five years.

CHINA - THE NEW INVESTOR ON THE BLOCK
--------------


5. (SBU) China's FDI in Mexico has been relatively small
accounting for less than one percent of the annual FDI for
each of the last five years and less than one percent of the
five year total. China had single digit (USD 2 million) FDI
investment in 2001 and 2005 (through September),and double
digit FDI in 2003 and 2004 (USD 16 and 12 million
respectively). China had negative USD 2 million in FDI
caused by sales of FDI stock that outweighed new FDI.
Economia expects Chinese FDI to increase dramatically if the
two countries eventually complete a trade and investment
agreement.

MEXICO IN THE WORLD FDI MARKET
--------------


6. (SBU) While Mexico's declining competitiveness and

MEXICO 00000574 002 OF 003


upcoming elections may affect FDI in Mexico, fears that FDI
may shift from Mexico to elsewhere may not necessarily be
justified. Comparing Mexico to Brazil, Canada, South Korea,
Poland, the Russian Federation, Spain, Thailand and Turkey
reveals data that indicates Mexico is still viewed as a good
FDI recipient. In 2004, according to the United Nations,
Mexico received more FDI than any of the other nations except
for Brazil. From 2000 to 2004, Mexico was always among the
top four FDI recipients of the group (three of five years in
2nd place and twice in fourth). Mexico's purchasing power
GDP for the years 2000 to 2003 was typically the fourth
highest among the nations, yet FDI as a percentage of
purchasing power parity GDP was higher in Mexico than any
other country in 2004 (1.4 percent in Mexico versus 1.3
percent in Brazil and 1 percent in Canada).

FDI'S REACTION TO ELECTIONS
--------------


7. (SBU) Canales does not expect changes to typical FDI
levels during the first quarter of 2006. FDI in the second
quarter may be affected by the presidential election
campaign. If the results are uncontested, he foresees a rapid
return to Mexico's normal FDI trend, while a contested
election will reduce FDI in the second and third quarters.

OUTSIDE ESTIMATES OF FDI
--------------


8. (SBU) Canales explained the varying FDI estimates for
Mexico, (such as the International Institute of Finance's USD
13 billion estimate, and UNCTAD's USD 17 billion estimate),
result from the other groups' lack of direct access to needed
information. Economia takes its data directly from company
books and represents official figures. Third party groups do
not have access to this information and several organizations
obtain FDI data by surveying companies. Canales said
competing the data lacked integrity because other
organizations did not verify who completed the survey, and no
effort was made to ensure that all companies with FDI were
included in the surveys.

MODIFYING THE NUMBERS
--------------


9. (SBU) Canales noted that Economia's current 2004 and
2005 FDI totals show significant modifications. For example
in 2004 Economia reported the 2003 FDI inflow was USD 11.0
billion and in 2005 the same figure was USD 12.75 billion.
Canales explained that every trimester companies that have a
certain level of FDI are required to provide documentation to
his office. Economia has one month to compile statistics and
present a report to the Congress. The report estimates that
15 to 22 percent of the FDI for a given period will be
reported at a later date. Companies frequently present
information late because federal and private accounting
schedules differ. For tax purposes many companies modify
their FDI reporting at the end of the year and are content to
be fined. Canales estimates that the Ministry's numbers do
not change after 18 months have passed from the quarter
reported.

SURVEYING THE TOP 500 INVESTORS
--------------


10. (SBU) The FDI office at Economia surveys the top 500
companies with FDI and the 32 state economic development
offices to determine trends for the next year. Last year
respondents noted fear of bureaucracy, high energy costs, tax
complexity, lack of local financing and lack of qualified
supplies as the top problems with investing in Mexico.
Investors did not identify political unrest or economic
stability as risks.


11. (SBU) COMMENT. Given these standards, Embassy Mexico
will continue to use Economia's FDI figures when we report to
Washington agencies. FDI figures are notoriously unstable as
"big-ticket" items (e.g. Citigroup's takeover of Banamex) can
cause big fluctuations year-to-year. Economia reports net FDI
for the year causing one big ticket to tremendously impact
its reporting particularly FDI by country. Mexico's
macroeconomic stability, its large market, its natural
attractions (beaches),and its proximity to the U.S. will
continue to make it an attractive place to invest. However,
its declining competitiveness may steer some potential

MEXICO 00000574 003 OF 003


investors away. END COMMENT.


Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity

GARZA