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 
 
¶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