Background on Foreign Direct Investment (FDI) in Mexico
Foreign Direct Investment (FDI), also known as Foreign Direct Investment, refers to the investment made by multinational corporations or firms to establish operations or acquire assets in a foreign country. In Mexico, FDI has been a significant driver of economic growth and development for decades.
Decline in FDI as a Percentage of Fixed Capital Formation (FKF)
Despite continuous growth since 2020 and setting new records, FDI in Mexico has lost ground within the country’s investment ecosystem compared to domestic capital. In 2024, FDI as a percentage of the total Gross Fixed Capital Formation (FKF) fell to 8.2%, its second-lowest level since 1999, only surpassed by the 7.3% observed in 2012, according to calculations based on data from Mexico’s Secretariat of Economy and the National Institute of Statistics and Geography (Inegi).
FDI and FKF Trends
In 2024, FDI grew by 1.1% to reach USD 36,872 million, while FKF amounted to MXN 8,195,255 million (approximately USD 447,008 million at the average exchange rate of MXN 18.33 per USD in 2024).
Since 2020, the FDI-to-FKF ratio has been declining steadily. In 2020, it was 12.5%; in 2021, it dropped to 12%; in 2022, it fell further to 11% (excluding nearly USD 6.9 billion from Aeromexico’s financial restructuring and Televisa-Univision merger, the figure would be 8.9%); and in 2023, it reached 8.5%.
Rising Role of Domestic Investment in Mexico’s Economy
In contrast, domestic investment has played a more significant role in Mexico’s Gross Domestic Product (GDP). In 2024, the FKF-to-GDP ratio reached a maximum of 24.2% (compared to 21.7% in 2019, at the beginning of the six-year term), primarily due to domestic capital.
However, despite the increased role of investment in GDP, economic growth slowed down, dropping from 3.2% in 2023 to 1.5% in 2024.
FDI Growth
In the first quarter of 2024, FDI flows to Mexico grew by 5.4% to a new high of USD 21,400 million.
“FDI has accumulated in previous periods (neoliberal era), creating a high depreciation base. Today, we have a ‘high floor’ for this variable, resulting in limited new investments and high maintenance (reinvestment) rates. This is positive as it indicates a stable trajectory moving forward,” explained economist Alexis Milo, founder of Telekonomics and former chief economist at HSBC Mexico, in a tweet.
Key Questions and Answers
- What is FDI, and why is it important for Mexico’s economy?
FDI refers to investments made by multinational corporations or firms in Mexico to establish operations or acquire assets. It has been crucial for economic growth and development in Mexico.
- Why has FDI as a percentage of Fixed Capital Formation (FKF) dropped since 2020?
The decline in the FDI-to-FKF ratio is due to continuous growth in FDI since 2020, creating a high depreciation base. This results in limited new investments and high reinvestment rates, indicating a stable trajectory for FDI.
- How has domestic investment impacted Mexico’s economy?
Domestic investment has played a more significant role in Mexico’s GDP, with the FKF-to-GDP ratio reaching a maximum of 24.2% in 2024. This growth is primarily due to domestic capital.
- What is the current state of Mexico’s economic growth?
Although investment has increased its role in the economy, Mexico’s economic growth slowed down from 3.2% in 2023 to 1.5% in 2024.
