TOTAL 2008 FDI IN MEXICO MEETS PREDICTIONS

UNCLAS MEXICO 000790 SIPDIS SIPDIS, SENSITIVE STATE FOR WHA/MEX AND EB/IFD/OIA STATE PLEASE PASS TO USTR (EINSSENSTATE/MELLE) USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GERI WORD TREASURY FOR IA (ALICE FAIBISHENKO, ANNA JEWEL) E.O. 12958: N/A TAGS: EINV ECON PGOV MX SUBJECT: TOTAL 2008 FDI IN MEXICO MEETS PREDICTIONS REF: MEXICO 142 ¶1. Summary: Bancomext, the Mexican export finance organization, and the Secretariat of Economy have released total 2007 inward foreign direct investment (FDI) flows. As predicted, total FDI was USD 23.2 Billion. First time direct investments continued to make up the bulk of FDI inflows. The financial sector increased its share investment while the manufacturing industry's share decreased. The United States is still the primary investor but its overall share decreased in favor of EU countries. End Summary 2007 Round Up -------------- ¶2. For the 2007 calendar year, FDI equaled USD 23.2 billion, an increase of 22.7% over 2006 (USD 18.9 billion). Of this amount, 43.5% (USD 10.1 billion) went towards new investments, 17.7% (USD 4.1 billion) towards reinvestment, and 38.8% (USD 9 billion) towards transfers between company accounts. New investments, 34.8% larger than last year, accounted for the majority of the increase. According to Gregorio Canales Ramirez, Director General for Foreign Direct Investment at the Secretariat of Economy, this year's figures are especially significant as they are not the result of large acquisitions. ¶3. The manufacturing sector suffered last year likely due to the U.S. deceleration and concerns about the IETU tax. The industry saw growth of only 9% and its share of FDI inflows drop from 61.3% in 2006 to 49.7% in 2007. The financial services sector, conversely, grew by 112% and accounted for 24.3% of inflows in 2007, compared to its 15.4% share in 2006. ¶4. The U.S. was the source country for 47.3% of FDI inflows, only the second time since NAFTA that the U.S. has accounted for less than half of FDI to Mexico. The Netherlands accounted for 15.1%, Spain for 9.6 percent and France for 7.2%. In total, European Union (EU) countries accounted for 40% of FDI in 2007, compared to only 36% in 2006. Total EU investment increased by 25% over last year. Changes Needed to Investment Law; NAFTA Good for FDI -------------- -------------- ¶5. Secretary of Economy Sojo used the press conference announcing the 2007 figures to highlight the need for substantive changes to the investment law. He said that in order to increase FDI in future years, the legislature will need to amend the law to allow for investment in fixed telephony, LP gas, energy, and education. ¶6. He also linked FDI increases to NAFTA. He said that, before NAFTA, Mexico's yearly FDI inflow was only USD 3.7 billion. He called on farmers' groups to meet with the government discuss ways to increase their competitiveness now that agriculture markets are open under NAFTA.. Conclusion -------------- ¶7. Mexico's ability to increase FDI from non-U.S. sources will be essential to its weathering a U.S. slowdown. The Calderon Administration is quite aware of this and has increased its outreach dramatically. ProMexico (the government's investment and export promotion organization) in particular has sponsored shows on Mexican investment opportunities in England, Spain, Italy, Brazil, China, France, and Denmark. If Mexico is in fact able to maintain and/or increase FDI growth from non-U.S. countries it will be better able to north of the border. GARZA