As part of the series of events associated with the publication of TMF Group's Global Business Complexity Index 2021, I had the privilege of hosting a webinar aimed at discussing not only the complexity of doing business in Mexico but also the opportunities that Mexico presents. My guests were Jose María Zertuche (CIO for Infrastructure in Latin America at Blackrock), Larry Rubin (president of the American Society of Mexico), Miguel Angel Leaman (executive director of the Mexico Trade and Investment Consulting Agency) and Mark Weil (CEO of TMF Group). In this article, I want to highlight important conclusions from our conversation.
Mexico – Land of Opportunities
Third place in the index’s ranking responds to the combination of three elements, namely: Mexico is an attractive market for investors, but complex for operations and potentially punitive if procedures and regulations are not followed. Its ability to attract comes from its countless natural and human resources. Its move from a farming economy to a manufacturing economy and a highly productive workforce has put it on the map of investors in highly complex industries as a very desirable destination.
Mexico's geographical location is strategic, connecting the Americas from North to South and Europe and Asia from East to West. Its large population gives it innumerable advantages: a young and very large workforce, a very attractive domestic market and a growing middle class. Its proximity to the US makes it an excellent candidate to meet the high demand of that North American country and an invaluable source of human resources.
Despite current political controversies, Mexico has been a solid democracy since the early ‘90s and its institutions and counterweights are robust. In addition, as a commercial player in the world, Mexico has signed several trade agreements that, in addition to promoting exchange, also provide a regulatory framework that conveys confidence for investors, as is the case of the USMCA.
Mexico Needs to Pave the Way
Even with all these positive aspects, Mexico must work on other areas that allow it to eradicate complexity and reduce the risk perceived by investors.
To get benefits from the wide array of opportunities that exist in Mexico, it is necessary for the Mexican government to provide the ground for investment to flow since the growth of a nation requires private businesses to commit to invest. The state must recognize the contribution and mutual benefit generated by a collaborative activity with private industry in the productive fields. Under the current administration, private investors are questioning the true commitment to this collaboration and, therefore, are expecting clear signs of a change of direction, by this and any other future administration.
Among the elements that contribute to the complexity of doing business in Mexico are the basic processes of the operation. Aspects of legal, tax and labor compliance become intricate activities that distract the focus of investors. The need to carry out procedures in person and exclusively in Spanish add to the already laborious processes. In the era of digital transformation, the ubiquity of e-commerce and even the pandemic, Mexico should focus on simplifying and facilitating procedures, favoring the attraction and rapid implementation of foreign direct investments.
One aspect that was highlighted several times during the conversation was the recognition of the need for a robust rule of law, which allows all investments and investor initiatives to have predictable results. As we mentioned earlier, Mexico has signed numerous cooperation treaties that allow us to argue that such a rule of law exists, but it is necessary to work to eradicate the perception that laws and rules are not properly observed.
As important as the observance of the rule of law is local knowledge. It is not enough to know the rules but to understand the way to navigate the system, transparently and strictly following norms, but also in an agile way. Understanding the needs and culture of the communities in which the investment is made is as crucial as having the right infrastructure.
Although Mexico has good infrastructure, the existing one is definitely not sufficient to realize the development potential offered by all the resources available to the country. More safe roads, train systems, ports and airports must proliferate to interconnect all the country's development poles and with potential buyers of the Mexican product.
What the Future Holds
Where the opinions of my guests converged was in the permanence of the Mexican opportunity. All the potential that this great nation presents will be maintained throughout different governments and political situations. The advantages of its demographics, geography and culture will continue through different leaderships. There is no doubt that investment in Mexico will pay off because the fundamental elements are there.
The closer investors get to the local reality, whether it is demographics and culture or regulations and their enforcement, the greater their chances of getting returns on their investment