Mexico and Italy: Bilateral Cooperation for Growing EconomiesBy Alessa Flores | Tue, 04/28/2020 - 16:48
Q: How many Italian companies are in Mexico and what areas offer the greatest potential in the near term?
A: According to the Mexican Ministry of Economy, 1,600 Italian companies are working in Mexico, of which approximately 150 have production plants. The main Italian plants are situated in the manufacturing districts of the Bajio, covering the states of Queretaro, Guanajuato, Aguascalientes, San Luis Potosi and Jalisco, and in the north of the state of Nuevo Leon. The flow of Italian investments to Mexico has increased significantly, totaling more than US$1 billion, which makes Italy the fifth-leading source of FDI to Mexico after the US, Canada, Spain and Germany.
Italian companies operate in the most relevant sectors of the Mexican economy, including the manufacturing, automotive, food and pharmaceutical sectors. In recent years, Italy also has strengthened and developed its presence in other sectors like energy, especially in renewable energy and hydrocarbons. To date, ENI is the only foreign company extracting oil in the Gulf of Mexico. In addition, Enel Green power has built renewable energy plants in 13 Mexican states. The future of foreign investment in key segments such as energy supply will depend on the strategies and incentives that the López Obrador administration implements in the coming years.
Q: What conditions are necessary for Italian companies to invest further in Mexico?
A: The Mexican economy has many strong points, based on a solid macroeconomic foundation that includes a market made up of 130 million consumers, political and financial stability, and a good exchange rate around the peso, availability of credit for companies, low inflation, rigorous financial policies, as well as a stable debt and the Online Incubation Program (PIL) relationship. Traditional openness to international trade and the wealth of young and available labor at a competitive cost are other attractive factors. In addition, the increase in investments is linked to the strengthening of a trustworthy environment and collaboration between the public and private sectors. The entry into force of the USCMA with the US and Canada plays a very important role in this sense, as it enables companies present in Mexico to retain preferential access to the largest market in the world and to imagine greater investment and employment.
Another key element for Italian companies is the latest Global Agreement between the European Union and Mexico, which is set to come into force in 2020, thanks to which almost all trade in products will be tax-free. It should be noted that the new investment plans go hand in hand with the agenda of the government of President López Obrador to generate an evolution in security conditions and mitigate corruption, which naturally will be decisive for the Mexican economy’s ability to contain the most damaging consequences of the COVID-19 pandemic. Many Italian companies, including Pirelli, Ferrero, Enel Green Power and Eurotranciatura, have long had plans for new investments in the 2020-2021 period and are waiting to verify the economic picture in the second half of the year. The incentives to strengthen the Italian presence in Mexico are also connected to the possibilities for participating in the infrastructure development planned for Mexico’s southern region.
Q: What are the main commercial exchanges between Mexico and Italy and how does the embassy support these exchanges?
A: Bilateral trade relations are very dynamic, since Mexico represents the second-largest outlet market for Italian merchandise on the American continent, after the US. In 2019, exports totaled €4.4 billion (US$4. 8 billion) and in the same year, Mexico’s exported goods to Italy were valued at €872 million (US$947. 38 million), with a substantial increase of 8.44 percent compared to 2018. Mexico is also a great consumer of Made in Italy technology. In fact, approximately two-thirds of Italian exports are traditionally made up of machinery, automobiles, intermediate industrial goods and products with a high technological content. These are "virtuous" exports that strengthen Mexico's economy and its production capacity. Italy’s imports from Mexico include chemical products, plastic materials, machinery and precious metals.
Italian companies interested in internationalization and in the Mexican market can count on the support of the embassy and the other structures of the system – the Institute of Foreign Trade, SACE (credit insurance and protection of investments) and the Chamber of Commerce – that, together with the embassy, guarantee institutional and operational support to take advantage of the multiple investment opportunities and commercial promotion that the country offers. At the same time, the Italian system in Mexico provides support to Mexican companies that want to invest or open in the Italian market, either through exports or joint projects with Italian companies.
Q: What are some of the projects where Italy is seeking foreign investment and why would these projects be attractive to Mexican companies?
A: There are approximately 15,000 companies in Italy that employ more than 1.3 million workers and invoice €600 billion (US$651.87 billion) annually. Foreign investment is an important reality in Italy and most of the investment is concentrated in the manufacturing sector, where Italy is recognized for having a high chain of manufacturing and technology innovation. This is one reason why Italy is the second-leading manufacturing power in Europe, after Germany.
Invitalia (the National Agency for Inward Investment and Economic Development) is designated to help foreign companies seeking to launch or expand their economic activities in Italy. The agency offers information and monitoring services. Italy is increasingly attractive for Mexican companies. Gruma, Bimbo, Mexichem and Omnilife are among those that already have operations in the country, providing an opportunity to take advantage of the mutual benefit of other Mexican companies coming to develop and invest in Italy. To that end, the Mexican Embassy in Rome is exploring the possibility of setting up a Mexican Chamber of Commerce in Italy to potentiate investments and formalize information channels for companies to prosper. This potential opening not only speaks to the larger investment plans but also to the increasing value for Mexican SMEs in Italy.
Q: How is the relationship between Italy and Mexico different from that between Italy and other countries of the European Union?
A: Italy and Mexico have always been united by a sense of friendship and cultural closeness. While Italians do not always have an in-depth understanding of Mexico’s complex reality and variety, they love Mexico and increasingly value it as a trading partner and a privileged place to invest. The established Italian companies in Mexico are distinguished by an ethical approach to development, as well as by the numerous projects of social responsibility that they fund to benefit the communities of the states in which they are guests. A clear example is Ferrero, which is engaged in the rehabilitation of two schools in the indigenous community of Nueva Esperanza, Oaxaca, and in the reconstruction of four housing units for families in precarious circumstances in Lomas de Tesistan, Zapopan.
Second, our companies are generally willing to share technology and industrial know-how with Mexican partners. The goal is not to create relationships based on dependency but rather to develop together on an equal footing. This is the case of Magaldi, which, together with Mitsubishi, is planning a renewable energy plant in Baja California using highly innovative technology. If the project is confirmed, the technological patent would be shared with CFE.
Q: What are some of embassy’s plans or projects in Mexico in the medium term?
A: Since the beginning of the year, we have worked intensively with the ministries of the government of Mexico to plan two very important political events, scheduled for 2020 in Mexico. These will assess the state of bilateral relations and promote new collaborations in all sectors. The Binational Commission meets every two years and is divided into four subcommittees dedicated to political relations, economic cooperation, scientific and cultural cooperation and judicial cooperation. Second, Italy has named Mexico as one of three countries to receive a business mission, which will comprise the key organizations and the most important companies in our country involved in the Mexican market. Likewise, we expect to continue to cooperate fully with the Mexican government in the growth of the energy sector, in which Italian companies have made substantial investments in both hydrocarbons and renewables in recent years.
Q: What are the most successful strategies that Italy has implemented in the fight against COVID-19?
A: Italy was the first country in Europe to be hit hard by the COVID-19 pandemic. The government has been and continues to be very engaged in emergency management through the immediate strengthening of the capacity of the healthcare system, the increase in the number of places available to deliver intensive care and the construction of new medical care facilities in a very short time. Hygiene and prevention measures were accompanied by mobility restrictions and suspension of non-essential economic activities. Given the high number of infections, the response mechanisms are in place and have allowed the pandemic to be contained, with the prospect of a phased return to normality by the end of April. The measures taken in response to the emergency in Italy are considered an example in Europe and for the countries in which the epidemic arrived two to three weeks later. Italian research institutes, in collaboration with other international centers, are committed to making a vaccine available as soon as possible.
Q: What strategies and stimuli has Italy implemented to mitigate the impact on small and medium-sized companies in Italy?
A: Unfortunately, all economies will have to deal with the effects of the pandemic, in terms of reduced production, PIL, demand for goods, investment and unemployment. Some sectors, such as the tourism industry, will be particularly damaged. The projections of the World Labor Organization foresee, at this moment, that the COVID-19 epidemic could lead to an increase of 25 million unemployed in the world. According to the International Monetary Fund, the global PIL will decrease by 3 percent in 2020.
The Italian government has prepared a series of measures to support and reactivate the economy, among which is the "Italian Cure" decree of March 17 that provides, among other things, a net compensation of €600 (US$651.87) per month for all self-employed workers and the strengthening of a €3.2 billion (US$ 3.48 billion) fund, known as the “Cassa Integrazione Straordinaria” (Extraordinary Integration Fund). This second initiative considers the salaries of workers who are experiencing a suspension or reduction of work activity, and includes the suspension of payment of taxes and tax collection until June 30, as well as the strengthening of the Public Guarantee Fund for loans to companies and a fund for the Promotion of the Italian agri-food sector abroad
To support the recovery of production, including that of small and medium-sized companies that make up the backbone of the Italian productive fabric, on April 6 an extraordinary plan was approved that makes available €400 billion in financial guarantees for companies, which will therefore be able to access bank credit under favorable conditions during the crisis. The loans are intended for companies in the Federal Taxpayer Registry and the maximum amount that can be requested is a loan equivalent to 25 percent of what was billed in 2019 or double the cost of staff. So, guaranteed bank loans can be used to pay salaries and other fixed costs. In the case of default, the state will pay the bank, protecting the SMEs with visibly beneficial conditions.