Mexican foreign direct investment, an opportunity for Europe

Baltic Rim Economies

Francisco Javier Ortiz de Artiñano
Honorary Consul of Mexico in Estonia
Republic of Estonia

Javier@ftrconsultants.ee

The potential of Mexico as a direct investor country has been truly underestimated for many years. Mexico´s GDP has reached 1.07 trillion in 2020 (World Bank data). To put it into perspective, this is a little less than Spanish GDP, of 1.20 trillion, or higher than the one of the Netherlands (0.93). Usually, and unfortunately, only news about the violence arrive to Europe, but there are also other types of news, of an economic nature, not so well known. For example, there are currently more than a hundred Mexican companies in Spain, which have created nearly 50,000 jobs in this country alone, making it the sixth largest investor country.

It cannot be denied that for many years, Mexican companies did not consider investing in other countries, but in the last years. There has been a clear change of attitude. The reasons are many, but among them we can highlight.

  • The large increase in funding available for investment. In recent years, many Mexican companies have had a large increase in their capital reserves, but have not had the opportunity to reinvest them.
  • The lack of opportunities in the Mexican market, with very low profitability in rental products, and a risk that does not suit with the profitability offered. As an example, an A+ building in the financial area of Mexico City has a lower return than an equivalent building in Paris, Madrid or London.
  • A very local vision of the Mexican business community, who did not consider investments abroad, since starting business or investments in other states was considered equivalent to foreign investment by many Mexican entrepreneurs, due to the size of the country and the market (Do not forget that Mexico is a country of almost 2 million km2, equivalent to almost 50% of the European Union). I experienced this situation in 2013, with a family office, from a quite wealthy and known Mexican family, to whom I offered the possibility of investing in Europe. When meeting with them, I was told that they had never done anything outside of Mexico, and that they were considering doing something in New York for the first time. Europe was too far away for a first step.
  • A strong development of new start-ups, with a globalist vision, starting with their foreign expansion from the very first moment. Today there are already a dozen unicorns in Mexico and the number keeps growing. Kavak (car sales), Bitso (crypto exchange), Clara (fintech), Clip (electronic payments), Konfío (revolving cards), Incode (authentication platform), Merama (e-commerce) show the great development of the Mexican technology sector.
  • The political situation within Mexico, with many bureaucratic difficulties, that make investment abroad an easier and smarter opportunity for many companies.

As expected, Mexican investments in Europe have taken Spain as its gateway, due to the previous economic, political and affective ties. However, an irradiative effect is already beginning to be felt in the rest of the European Union. Cemex has plants throughout Europe; Sigma has already acquired 100% of Campofrío, and has begun to use the entire distribution and commercial network that this company has, to develop new lines of business, such as Better Balance vegetable sausages, another one of its brands; Bimbo has increased its sales in Europe by more than 7%, Carso has acquired a control package in FCC and has recently issued a takeover bid for 24% of Metrovacesa. And this is only the beginning, since once a country begins an internationalization process, and a critical mass is achieved, a multiplying effect starts and direct investments skyrockets, so in the coming years we are going to see an even greater growth of Mexican companies and funds interested in the European market.

And how could European companies attract such capital and companies? For this it would be important:

  • Greater development of direct and inverse missions with Mexico. Unfortunately, Promexico no longer exists, which means that the weight of these missions falls in the countries interested in receiving said capital: Finnpro, Enterprise Estonia, Exportradet, Nordtrade. …
  • Greater involvement of the chambers of commerce assisting entrepreneurs and investors from Mexico. A common complaint is the lack of help at the beginning, and very often they come into contact with law firms that charge them a very high bill, with very poor results. I have personally heard complaints regarding Ireland and the Netherlands.
  • When working with Mexican businessmen, patience is necessary. Usually you will find a high level of professionalization in the business community in Mexico, but long delays on decisions are common, a consequence of the problems in the country and that makes them hesitate a lot before taking decisions.

Just to end this article, I should mention again the family office case aforementioned 3. Before the pandemic, they had already bought their first building in Spain. And now they are searching for more assets to buy. So there is a wonderful opportunity waiting for governments and companies that decide to seize the opportunity.

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