Economics: FDI plunge continues unabated as additional hurdles loom

MEXICO - Report 07 Jun 2021 by Mauricio Gonzalez and Francisco González

Foreign Direct Investment entering Mexico fell 29.1% at the first quarter of 2021 compared to the same quarter a year prior. A particularly noteworthy aspect of the Foreign Direct Investment result for the first quarter was how reinvested profits increased in relative terms to 60% of total FDI during January-March of 2021, coming precisely during the period in which major companies decide how much in the way of dividends to distribute to shareholders for the year. Inter-company accounts rebounded strongly to represent 22% of the total, while new investments, which have trending lower for three years and took a brutal beating since 2Q21, represented the remaining 18.6%.

But despite reinvested profits accounting for the lion’s share of FDI, they were actually 51% lower than a year earlier at the same time as new investments narrowed 15.4% and there was a major recovery in inter-company accounts. Despite such setbacks, Mexico was the world’s seventh highest recipient of FDI inflows during full year 2020, though that accomplishment largely reflects a disproportionate weakening of such investment flows into comparable countries like Brazil.

For its part, the National Palace appears to have engaged in a bit of creative accounting to claim a 14.8% yoy increase in FDI that also supposedly marked the most significant percentage rise in any first quarter since 1999. That sleight of hand was achieved by making comparisons against past years using preliminary figures, which are notoriously inaccurate.
With Mexican investors’ direct investment flows abroad having increased 135% in the most recent quarter, net direct investment for the first quarter fell more than a third from 1Q20.

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