More Opportunities for Canada on the Mexican HorizonWed, 10/16/2019 - 18:06
Q: What is the investment environment like in Mexico and how will the ratification of USMCA impact business?
A: Export Development Canada (EDC) is in the unique position to open multiple markets for Canadian companies and there are many products crossing the Mexican, Canadian and US borders. From an EDC point of view, we are happy to see that Mexico ratified the trade agreement and is taking advantage of the opportunities that could ensue for both Canadian and Mexican companies. Mexico is one of the most important markets for EDC and relationships that we already hold in the country will only be strengthened by the ratification of this agreement. The negotiations of new trade agreements have opened up possibilities to explore other markets and we want to leverage our Canadian Direct Investment Abroad (CDIA) strategy to that end. In 2018, EDC supported more than CAD$16 billion (US$12.03 billion) in CDIA, a 12 percent increase from 2017, to help Canadian companies gain access to new customers and supply chains around the world. Of this, more than a quarter of a billion was facilitated in Mexico.
Q: What are the main challenges Canadian mining companies are encountering in the Mexican market?
A: Like any other international venture, Canadian companies and exporters must enter any new market with eyes wide open. In Mexico, two main challenges remain: security and corruption. On the security side, companies need to understand that the dynamics are considerably different here than they are in Canada. In general, security costs, in terms of the companies’ premises and personnel, will be higher and will require a deeper level of due diligence. Regarding corruption, historically it’s been one of the top challenges for businesses. But on a more positive note, there have been marked improvements since the inception of NAFTA, and they’re expected to continue as the USMCA comes into effect. Regardless, our advice to companies will always highlight the importance of being vigilant—as they should be when brokering deals anywhere, including Canada because no jurisdiction is immune to this business threat.
Q: How does EDC assess risk within the Mexican market for Canadian companies wanting to invest?
A: We assess risk for investors in other countries through our Commercial Country Ceiling (CCC), which is an internal rating that measures the sovereign probability of default and includes political risks. Something that greatly impacted the country’s rating was the cancelation of the NAICM. But since the government was able to respect the financial agreements it had with investors and companies when it canceled the airport, the perception of the country is slightly more positive. We are looking at a market that has a great deal of potential and we are optimistic; nevertheless, we remain cautious. We are monitoring how the government manages social and environmental issues and will continue to do, applying high standards.
Q: What does EDC look for in companies to provide them with financial support to expand their business into Mexico?
A: In the case of the mining sector, EDC is still optimistic but prudent and we have been paying close attention to any potential changes in the business environment of the country that may affect our risk appetite. Whenever we consider providing financial support under our Connections Financing program to any foreign company, the first thing we evaluate is the extent to which our support can bring added benefits to Canadian exporters. We want to ensure that foreign companies will have the ability and interest in working with Canadian companies and leverage our knowledge of international supply chains and our understanding of Canadian capabilities. Second, EDC is a self-sustained financial organization and our loans are not grants or subsidies but commercial loans. This is what in 2018 allowed us to pay a dividend of CAD$969 million (US$729 million) to the Government of Canada. It shows that we are committed to bringing benefits back to Canada. Finally, since CSR is directly linked to sustainable financial performance over the long term, EDC focuses its efforts to make sure prospective and existing clients are leaders in sustainable and responsible business practices.