Auto Sector Sets FDI Record
The Mexican automotive industry set a record for attracting investment during 2021, when it amassed US$3.96 billion in foreign direct investment (FDI). 2021 was the first year to see the full impact of the USMCA on FDI.
In 2021, the industry amassed over US$139 billion from local and foreign investment, a rise of 13.8 percent after 2020’s US$122 billion. The industry saw in 2020 a disastrous 16.8 percent contraction, according to data from the Mexican Automotive Industry Association (AMIA).
According to FDI data published by the Ministry of Economy, despite the ongoing semiconductor shortage the automotive industry faced during 2021, the sector remained the main source of foreign currency. Remittances were the second largest generator of investments for the country during 2021, as the country received a record of US$52 billion due to the various stimulus checks US residents got from the federal government.
Mexico received a total of US$31 billion in FDI during 2021, showing an increase of 8.7 percent from 2020’s US$29 billion, which in turn represented a decrease of 11.7 percent from 2019. The 2020 contraction was a result of the COVID-19 pandemic temporarily shutting down mobility and manufacturing.
As a whole, manufacturing made up 39.7 percent of FDI, the largest contribution. It is followed by the mining industry at 15.2 percent and financial and insurance services in third at 15 percent. Globally, the largest investor in the country continues being the US, which made up almost half of foreign investment with 47.5 percent. Following the US is Spain with 13.7 percent, Canada with 6.5 percent, the UK with 5.7 percent, Germany with 5.2 percent and Japan with 5.0 percent.
Already, USMCA’s enactment is having an undeniable impact on the industry’s global performance by enhancing relations with two of its three main foreign investors. However, the positive results from the first year of its enactment also come with ongoing disputes between all three countries regarding the Agreements’ interpretations. The yet-to-be-resolved dispute concerning auto parts origin could largely shift this performance if the US’ interpretation is agreed as the rightful one.
Although Mexico and Canada are likely to come out of the conflict victorious in having their preferred interpretation upheld, US President Joe Biden’s suggested tax credits for the domestic purchase of EVs manufactured by US unions also threaten to harm these relations. Mexico’s Minister of Economy Tatiana Clouthier has urged Mexican US residents to ask their elected officials to reject the proposal due to the harm it would bring the Mexican economy.
Exportations of Mexican auto parts to the US increased by 16.7 percent in 2021 at US$61 billion. Exports were one of the only sectors that did not contract due to the pandemic, as they increased by 0.4 percent from 2019 to 2020. However, much of the future performance of these exports will be decided by the resolution of USMCA-related disputes throughout 2022.