The year 2020 has proven to be a very difficult period for almost all the world’s economies. Global economic activities will slow down and are expected to shrink by approximately 4.5% this year, and there are consequences for Foreign Direct Investment (FDI) from corporations as well. FDI in 2020 is expected to decrease by 40% compared to 2019. A moderate recovery is also anticipated in 2021. Investment typically proceeds with caution following an economic contraction, and recovery is dampened by a bleak forecast for potential rebound.
Enough bad news! We’ve been hearing it for the past 8 months. Is there any good news? The short answer is yes! There is an ongoing economic shift globally, especially in the stream of technology and innovation that connects markets and consumers. The emerging ways of doing business—such as e-commerce, remote work, shared economy, and digital payment systems—have created new paths for wealth creation.
In addition, the growing regionalization between global economic blocs—such as Asia, North America, and Europe—is generating new value chains and the relocation of production sites by region, or nearshoring. This is expected to attract Foreign Direct Investment to countries with a potential advantage in supplying any of these markets. Mexico is a preferred location for this, but the work is not done yet! Mexico must further ease the arrival of Foreign Direct Investment into its territory and foster a business environment for newcomers.
Foreign Direct Investment (FDI) statistics for the first 3 quarters of 2020 report a 9% drop, which is moderate compared to global data. The most important element for FDI this year is related to reinvestment of profits, which signals confidence in the country and gives Mexico a strong position in the North American market. Exports for the third quarter are nearly back to pre-pandemic levels, following the significant recovery of the U.S. market. This shows that the value chain is working, and we are adapting to the new environment and gaining or regaining momentum.
Therefore, FDI is expected to return to its pre-pandemic level next year. However, Mexico cannot afford to sit idle; it must act aggressively to achieve this by implementing bold policies to welcome new investors.
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