Mexico sees rise in foreign investments

Multinationals pumped in $18.9 billion in 2006, up 6.4%, according to government projections.

By Marla Dickerson, Times Staff Writer

February 22, 2007

MEXICO CITY — Foreign direct investment in Mexico probably increased 6.4% last year as U.S. manufacturers continued to ship production south of the border, the government said Wednesday.

But the infusion of $18.9 billion by multinational companies paled in comparison with the economic contributions of another set of "investors": immigrant workers who sent home $23 billion from their mostly low-wage jobs in the U.S.

"It's an OK number. Not spectacular," said Alberto Ramos, emerging-markets analyst at Goldman Sachs in New York, referring to foreign companies' spending on factories, equipment and real estate in Mexico last year. The preliminary figure released by the Economy Ministry was identical to the foreign direct investment recorded by the Bank of Mexico in 2005.

Officials said they expected an upward revision in the 2006 figure in coming weeks, leading them to project an increase from the previous year. The manufacturing sector accounted for 61.3% of the inflows in 2006.

The Big Three U.S. automakers and Toyota Motor Corp., in particular, have invested heavily in Mexico in recent years to take advantage of its lower labor costs and proximity to the U.S., the world's No. 1 automobile market. U.S. companies remain far and away the largest foreign investors in Mexico, providing nearly 64% of direct investment last year. Mexico has attracted more than $200 billion in foreign direct investment since the North American Free Trade Agreement was implemented in 1994.

The Economy Ministry said in a statement that the projected uptick in 2006 reflected "the confidence that international capital has in [Mexico's] economic and political direction."

Analysts such as Ramos characterized the performance as respectable but said Mexico needed to make changes to its tax code, labor laws and energy sector to garner significantly higher levels of investment. Indeed, the importance of remittances to the economy is considered a sign of weakness.

Meanwhile, investors increasingly are looking to the dynamic economies of Asia to build factories and set up businesses. As recently as 2000, the countries of Latin America and the Caribbean nabbed 41% of all foreign direct investment in the developing world, according to figures from the United Nations Conference on Trade and Development.

In 2005, that share had fallen to 31%; Asia's share jumped to 60% from 55% during the same period. "Latin America is losing importance and relevance," Ramos said. "Populism and political instability have eroded the region's appeal for foreign investors to commit capital."