Wading Through the Legislative WatersSat, 12/01/2018 - 16:12
Q: What challenges do foreign companies face when establishing operations in Mexico?
A: There are several conditions that impact them. We have come across many investors who have experience with investment in foreign countries. Working with them is easy because they already know the general rules, how the money is going to flow into the country, how to handle taxes, how to move the money back to their country or to other investments and import and export rules. This country can be more bureaucratic than others, that is why it is important to partner with firms such as Sánchez Devanny that have the experience to navigate and see things through.
Unfortunately, many investors believe all the bad publicity Mexico sometimes gets in foreign media. It is true that Mexico has a sizable level of corruption that needs to be tackled but this does not mean you cannot do business in Mexico or that you need to be involved in corruption to operate in Mexico. Doing business in Mexico effectively, without engaging in corruptive practices, is possible. The firm has been involved in several public biddings, where we have counseled companies and they have won the bidding processes fair and square. Mexico also has a highly skilled and specialized workforce. This sometimes comes as a shock for investors who believe that Mexico only has untrained blue-collar workers.
I believe there are several misconceptions of what Mexico is and this is the most important challenge we face: convincing companies and investors that Mexico can offer certainty despite all the unfortunate situations the country sometimes faces.
Q: What has been the extent of legislative change since the present administration’s structural reforms were approved?
A: We have had significant changes in Mexico but I would not say they have been as disruptive as NAFTA was. I believe that the intentions of the reforms were to increase the investment in the country but they have not worked out that way. The country is ready for a change, so in this regard the attempts of the US political administration to renegotiate NAFTA might not be as bad as they seem.
There are several aspects of the treaty that could be better for Mexico, which could improve commercial relations. The important thing is for Mexico to maintain a strong position in front of other negotiators. Our country has the most number of free trade agreements and for several years Mexico has taken important steps to establish diplomatic relationships with other countries, so now is the time to focus on those relationships as well.
Q: Does the current legislative framework offer the needed certainty for foreign companies to invest in Mexico?
A: Definitely yes. Investing in Mexico has become more bureaucratic than it used to be. Several of the rules that apply are well intentioned and were drafted with the hope of providing benefits for Mexico and providing more certainty for investors. However they have not had the desired effect. In practice, Mexican legislation is contradictory. In spite of all the flaws the Mexican system might have, the legal-judicial system works and there is certainty regarding the security of investments. Mexico would not continue to have the amount of foreign investment it has if this certainty did not exist.
Q: What measures should the government implement to attract more investment?
A: The current international scenario has put Mexico in an excellent position to make legislative changes that can boost companies’ productivity. For instance, in terms of taxes, the current fiscal scheme has not made the country more competitive so there is an opportunity there. Another example relates to the strategies states use to attract investment, which most of the time take a short-term view. A long-term plan would be beneficial. For instance, Guanajuato was promoted heavily as an automotive hub but now it is facing a shortage of specialized labor for the automotive industry. Investors have no clear plan on how to tackle that issue.