Foreign Investment in Mexico

This past week, I began the great data hunt.  Right now I'm working on a profile of the financial market in Zacatecas. The goal is to describe the level of access to financial services, both rural and urban, and the types of financial services offered here.  In my past research, I've learned that poring through different data sets can be quite over-whelming, especially when dealing with regional or national indicators.  Especially difficult is learning to handle the different software and data storage systems for each department, each survey, and even for each topic.  Yesterday, I quickly found myself swimming in a sea of tabs, windows, foreign file endings and a very cluttered desktop. It was like Tron 4D. 

Nevertheless, I've started to find some useful data sets and am learning how to navigate the Mexican systems.  I'm primarily looking for data to describe the financial market in Zacatecas, but in the process, have come across some interesting economic data sets. As an exercise, and to reacquaint myself with my old buddy Excel, I put together a few graphs.  I hope you enjoy them.  The data comes from INEGI, the Instituto Nacional de Estadística y Geografia, which is the primary Mexican census and data collection agency.  They have some excellent resources for sifting through the stacks and reams and mountains of data. You can search for data by region, by theme, or by the specific survey or census you're interested in.  My favorite online tool I've found so far is the Directorio Estadístico Nacional de Unidades Económicas (National Statistical Directory of Economic Entities). DENUE is a new geo-mapping tool that uses data from the Economic Census.  You can search for any business or organization by type or name and build maps based on that. Little did I know I live kitty-corner to the Association of Writers and Composers! Most importantly, DENUE will be a useful tool for deciding which banks to interview and finding relevant finance organizations in my field work. I'll write more about my research progress soon. 


On to the data! Here are graphs of two data sets from INEGI on foreign investment in Mexico.  There were a few surprises that become clear in the graphs.   In all the graphs it is easy to see the impact of the global financial crisis in Mexico (2007-2009).  Here are a few interesting questions to preface the graphs: 

• What countries are the primary investors in Mexico?
• What sectors of the economy receive the largest investments from foreigners?
• What sectors of the economy should be most impacted by the 'credit crunch'?

 In looking at overall investment, it was no surprise to see that the USA is the largest investor in Mexico. With NAFTA, Mexico is the US's largest and most important trade partner.  What was surprising was that both Spain and Holland are larger investors in Mexico than Canada (our other NAFTA partner).  Spain's investment makes sense because of the large presence of Spanish banks in Mexico and all of Latin America (such as Santander and BBVA).

The largest investors in Mexico in 2008 were USA (42%), Spain (19%), Canada (12%), Holland (6%), UK (4%), all other countries (17%).  I looked at 2008 because there were some dramatic drops from 2008-2009 (described below). The whole list, averaged from 2000-2009, is as follows: USA, Spain, Holland, Canada, UK, Switzerland, Germany, Japan, Italy, Sweden, France.                                           

From this dataset, it is also interesting to see how foreign investors behaved in the global financial crisis (2007-2009). The data set shows that Mexico experienced a serious decrease in investment from 2007-2009, about a 50% decrease. The greatest change was from 2008 - 2009 which is broken down below by country.  Interestingly, the largest (relative) withdrawal of investment was generally by the smallest absolute investors.  You can almost see an inverse relationship between the size of investment and the percentage decrease in investment during the crisis.  

This suggests that a few things.  One is that countries are financially committed to their large economic partners.  Financial ties between the US and Mexico are deep and long term, so it makes sense the US decrease would be the smallest negative change.  This trend could also suggest that investors from certain countries develop economies of scale as investment levels increase.  That is to say, the more money a country as a whole invests in another country, the more people and resources there will be to collect information on the country, monitor changes, and make 'smart investments',  The smaller investors (like Italy, Sweden and Germany) might be making riskier investments because of poor information and as a result, withdraw their finances more quickly.  

However, there are three countries which buck this trend: France, japan, and Holland.  All of these countries invested more money in 2009 than in 2008. Why is this?  Well, looking at the data, all three of these countries made significant, sharp withdrawals of investment from 2007-2008.  It could be that investors were too quick to react in 2008, pulling out more money than they needed to, and than reinvested their liquid capital as the relative risk of investing in Mexico became clearer. 

Impact of global financial crisis on foreign investment in Mexico

It is also interesting to look at which economic sectors foreign investors most prefer in Mexico.  The order of investment can be seen in the adjacent donut graph, which is like a pie graph but lower in calories.  I was a bit surprised to see that financial services rank number two, ahead of mining and extractive industries.  Agricultural falls last claiming less than 1% of foreign investment. 

In the graph below, Foreign Direct Investment in Mexico by Sector, you can see the pronounced decrease in investment after 2007. 

Foreign Investment in Mexico by Sector, 2000-2009

We can do the same sort of number comparisons as in the analysis above, looking at the relative changes during the global financial crisis.  Interestingly, the sectors where financial investment was concentrated - commerce, manufacturing, and financial services - experienced the smallest relative decreases. Granted, the decreases still weren't small (25% - 40%), but relatively less.  Again, why these changes?  I would guess that the same line of logic holds as above. The sectors where most investment is directed are those that are most strongly linked to the U.S. economy, and where investors can build economies of scale based on experience.  Mining had a large increase, but if you look at the history of investment above, there was a spike in investment that corresponded to a gold and silver boom in Mexico 2007-2009. Right here in Zacatecas, there are several gold companies seeking to re-open, mines. A canadian company, Goldcorp, recently opened a new gold mine.  Interest in precious metals, such as gold and silver, are a reaction to the global financial crisis as more people are turning to metals as a store of value, over riskier stocks and mutual funds.  However, it's possible that there was an investment bubble, or logistics didn't work out, so funds had to be withdrawn.