1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Mexico is open to foreign direct investment (FDI) in the vast majority of economic sectors and has consistently been one of the largest emerging market recipients of FDI. Mexico’s proximity to the United States and preferential access to the U.S. market, macroeconomic stability, large domestic market, growing consumer base, and increasingly skilled yet cheap labor combine to attract foreign investors. The COVID-19 economic crisis showed how linked North American supply chains are and highlighted new opportunities for partnership and investment. Still, recent policy and regulatory changes have created doubts about the investment climate, particularly in the energy and the formal employment pensions management sectors.
Historically, the United States has been one of the largest sources of FDI in Mexico. According to Mexico’s Secretariat of Economy, FDI flows for 2020 totaled USD 29.1 billion, a decrease of 11.7 percent compared to the preliminary information for 2019 (USD 32.9 billion), and a 14.7 percent decline compared to revised numbers. The Secretariat cited COVID’s impact on global economic activity as the main reason for the decline. From January to December 2020, 22 percent of FDI came from new investment. New investment in 2020 (USD 6.4 billion) was only approximately half of the new investments received in 2019 (USD 12.8 billion), and 55.4 percent came from capital reinvestment while 24.9 percent from parent company accounts. The automotive, aerospace, telecommunications, financial services, and electronics sectors typically receive large amounts of FDI.
Most foreign investment flows to northern states near the U.S. border, where most maquiladoras (export-oriented manufacturing and assembly plants) are located, or to Mexico City and the nearby “El Bajio” (e.g. Guanajuato, Queretaro, etc.) region. In the past, foreign investors have overlooked Mexico’s southern states, although the administration is focused on attracting investment to the region, including through large infrastructure projects such as the Maya Train, the Dos Bocas refinery, and the trans-isthmus rail project.
The 1993 Foreign Investment Law, last updated in March 2017, governs foreign investment in Mexico, including which business sectors are open to foreign investors and to what extent. It provides national treatment, eliminates performance requirements for most foreign investment projects, and liberalizes criteria for automatic approval of foreign investment. Mexico is also a party to several Organization for Economic Cooperation and Development (OECD) agreements covering foreign investment, notably the Codes of Liberalization of Capital Movements and the National Treatment Instrument.
The administration has integrated components of the government’s investment agency into other ministries and offices.
Limits on Foreign Control and Right to Private Ownership and Establishment
Mexico reserves certain sectors, in whole or in part, for the State, including: petroleum and other hydrocarbons; control of the national electric system, radioactive materials, telegraphic and postal services; nuclear energy generation; coinage and printing of money; and control, supervision, and surveillance of ports of entry. Certain professional and technical services, development banks, and the land transportation of passengers, tourists, and cargo (not including courier and parcel services) are reserved entirely for Mexican nationals. See section six for restrictions on foreign ownership of certain real estate.
Reforms in the energy, power generation, telecommunications, and retail fuel sales sectors have liberalized access for foreign investors. While reforms have not led to the privatization of state-owned enterprises such as Pemex or the Federal Electricity Commission (CFE), they have allowed private firms to participate. Still, the Lopez Obrador administration has made significant regulatory and policy changes that favor Pemex and CFE over private participants. The changes have led private companies to file lawsuits in Mexican courts and several are considering international arbitration.
Hydrocarbons: Private companies participate in hydrocarbon exploration and extraction activities through contracts with the government under four categories: competitive contracts, joint ventures, profit sharing agreements, and license contracts. All contracts must include a clause stating subsoil hydrocarbons are owned by the State. The government has held nine auctions allowing private companies to bid on exploration and development rights to oil and gas resources in blocks around the country. Between 2015 and 2018, Mexico auctioned more than 100 land, shallow, and deep-water blocks with significant interest from international oil companies. The administration has since postponed further auctions but committed to respecting the existing contracts awarded under the previous administration. Still, foreign players were discouraged when Pemex sought to take operatorship of a major shallow water oil discovery made by a U.S. company-led consortium. The private consortium had invested more than USD 200 million in making the discovery and the outcome of this dispute has yet to be decided.
Telecommunications: Mexican law states telecommunications and broadcasting activities are public services and the government will at all times maintain ownership of the radio spectrum. In January 2021, President Lopez Obrador proposed incorporating the independent Federal Telecommunication Institute (IFT) into the Secretariat of Communications and Transportation (SCT), in an attempt to save government funds and avoid duplication. Non-governmental organizations and private sector companies said such a move would potentially violate the USMCA, which mandates signatories to maintain independent telecommunications regulators. As of March 2021, the proposal remains pending. Mexico’s Secretary of Economy Tatiana Clouthier underscored in public statements that President López Obrador is committed to respecting Mexico’s obligations under the USMCA, including maintaining an autonomous telecommunications regulator.
Aviation: The Foreign Investment Law limited foreign ownership of national air transportation to 25 percent until March 2017, when the limit was increased to 49 percent.
The USMCA, which entered into force July 1, 2020, maintained several NAFTA provisions, granting U.S. and Canadian investors national and most-favored-nation treatment in setting up operations or acquiring firms in Mexico. Exceptions exist for investments restricted under the USMCA. Currently, the United States, Canada, and Mexico have the right to settle any legacy disputes or claims under NAFTA through international arbitration for a sunset period of three years following the end of NAFTA. Only the United States and Mexico are party to an international arbitration agreement under the USMCA, though access is restricted as the USMCA distinguishes between investors with covered government contracts and those without. Most U.S. companies investing in Mexico will have access to fewer remedies under the USMCA than under NAFTA, as they will have to meet certain criteria to qualify for arbitration. Local Mexican governments must also accord national treatment to investors from USMCA countries.
Approximately 95 percent of all foreign investment transactions do not require government approval. Foreign investments that require government authorization and do not exceed USD 165 million are automatically approved, unless the proposed investment is in a legally reserved sector.
The National Foreign Investment Commission under the Secretariat of the Economy is the government authority that determines whether an investment in restricted sectors may move forward. The Commission has 45 business days after submission of an investment request to make a decision. Criteria for approval include employment and training considerations, and contributions to technology, productivity, and competitiveness. The Commission may reject applications to acquire Mexican companies for national security reasons. The Secretariat of Foreign Relations (SRE) must issue a permit for foreigners to establish or change the nature of Mexican companies.
Other Investment Policy Reviews
There has not been an update to the World Trade Organization’s (WTO) trade policy review of Mexico since June 2017 covering the period to year-end 2016.
According to the World Bank, on average registering a foreign-owned company in Mexico requires 11 procedures and 31 days. Mexico ranked 60 out of 190 countries in the World Bank’s ease of doing business report in 2020. In 2016, then-President Pena Nieto signed a law creating a new category of simplified businesses called Sociedad for Acciones Simplificadas (SAS). Owners of SASs are supposed to be able to register a new company online in 24 hours. Still, it can take between 66 and 90 days to start a new business in Mexico, according to the World Bank. The Government of Mexico maintains a business registration website: www.tuempresa.gob.mx. Companies operating in Mexico must register with the tax authority (Servicio de Administration y Tributaria or SAT), the Secretariat of the Economy, and the Public Registry. Additionally, companies engaging in international trade must register with the Registry of Importers, while foreign-owned companies must register with the National Registry of Foreign Investments.
Since October 2019, SAT has launched dozens of tax audits against major international and domestic corporations, resulting in hundreds of millions of dollars in new tax assessments, penalties, and late fees. Multinational and Mexican firms have reported audits based on diverse aspects of the tax code, including adjustments on tax payments made, waivers received, and deductions reported during the Enrique Peña Nieto administration.
Changes to ten-digit tariff lines conducted by the Secretariat of Economy in 2020 created trade disruptions with many shipments held at the border, stemming from lack of clear communication between government agencies that resulted in different interpretation by SAT.
Various offices at the Secretariat of Economy and the Secretariat of Foreign Affairs handle promoting Mexican outward investment and assistance to Mexican firms acquiring or establishing joint ventures with foreign firms. Mexico does not restrict domestic investors from investing abroad.
2. Bilateral Investment Agreements and Taxation Treaties
Bilateral Investment Treaties
The USMCA entered into force on July 1, 2020, containing an investment chapter.
Mexico has signed 13 FTAs covering 50 countries and 32 Reciprocal Investment Promotion and Protection Agreements covering 33 countries. Mexico is a member of Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which entered into force December 30, 2018. Mexico currently has 29 Bilateral Investment Treaties in force. Mexico and the European Union finalized a FTA in May 2020, but it still must undergo legal scrub and translation. Mexico and the United Kingdom (UK) also signed an agreement to continue trading under existing terms following the UK’s exit from the European Union in December 2020.
Bilateral Taxation Treaties
The United States-Mexico Income Tax Convention, which came into effect January 1, 1994, governs bilateral taxation between the two nations. Mexico has negotiated double taxation agreements with 55 countries. Recent reductions in U.S. corporate tax rates may drive a future change to the Mexican fiscal code, but there is no formal legislation under consideration.
In 2019, the administration approved a value-added tax (VAT) on digital services. Since June 30, 2020, foreign digital companies are required to register with SAT and to collect VAT on the majority of goods and services customers purchase online and remit the VAT and sales reports to SAT. SAT is authorized to block a foreign digital company’s internet protocol (IP) address in Mexico for non-compliance with tax requirements until the company complies. The administration also introduced a series of fiscal measures in 2019 to combat tax evasion and fraud.
4. Industrial Policies
Land grants or discounts, tax deductions, and technology, innovation, and workforce development funding are commonly used incentives. Additional federal foreign trade incentives include: (1) IMMEX: a promotion which allows manufacturing sector companies to temporarily import inputs without paying general import tax and value added tax; (2) Import tax rebates on goods incorporated into products destined for export; and (3) Sectoral promotion programs allowing for preferential ad-valorem tariffs on imports of selected inputs. Industries typically receiving sectoral promotion benefits are footwear, mining, chemicals, steel, textiles, apparel, and electronics. Manufacturing and other companies report it is becoming increasingly difficult to request and receive reimbursements of value-added tax (VAT) paid on inputs for the export sector.
Foreign Trade Zones/Free Ports/Trade Facilitation
The administration renewed until December 31, 2024 a program launched in January 2019 that established a border economic zone (BEZ) in 43 municipalities in six northern border states within 15.5 miles from the U.S. border. The BEZ program entails: 1) a fiscal stimulus decree reducing the Value Added Tax (VAT) from 16 percent to 8 percent and the Income Tax (ISR) from 30 percent to 20 percent; 2) a minimum wage increase to MXN 176.72 (USD 8.75) per day; and 3) the gradual harmonization of gasoline, diesel, natural gas, and electricity rates with neighboring U.S. states. The purpose of the BEZ program was to boost investment, promote productivity, and create more jobs in the region. Sectors excluded from the preferential ISR rate include financial institutions, the agricultural sector, and export manufacturing companies (maquilas).
On December 30, 2020, President Lopez Obrador launched a similar program for 22 municipalities in Mexico’s southern states of Campeche, Tabasco, and Chiapas, reducing the VAT from 16 to 8 percent and ISR from 30 to 20 percent and harmonizing excise taxes on fuel with neighboring states in Central America. Chetumal in Quintana Roo will also enjoy duty-free status. The benefits extend from January 1, 2021 to December 31, 2024.
Performance and Data Localization Requirements
Mexican labor law requires at least 90 percent of a company’s employees be Mexican nationals. Employers can hire foreign workers in specialized positions as long as foreigners do not exceed 10 percent of all workers in that specialized category. Mexico does not follow a “forced localization” policy—foreign investors are not required by law to use domestic content in goods or technology. However, investors intending to produce goods in Mexico for export to the United States should take note of the rules of origin prescriptions contained within USMCA if they wish to benefit from USMCA treatment. Chapter four of the USMCA introduce new rules of origin and labor content rules, which entered into force on July 1, 2020.
In 2020, the Mexican central bank (Bank of Mexico or Banxico) and the National Banking and Securities Commissions (CNBV – Mexico’s principal bank regulator) drafted regulations mandating the largest financial technology companies operating in Mexico to either host data on a back-up server outside of the United States—if their primary is in the United States—or in physical servers in Mexico. The draft regulations remain pending public comment and the financial services industry is concerned they could violate provisions of the USMCA financial services chapter prohibiting data localization.
Other Industrial Policy Aspects
Mexico’s government is increasingly choosing its military for the construction and management of economic infrastructure. In the past two years, the government entrusted the Army (SEDENA) with building the new airport in Mexico City, and sections 6, 7, and part of section 5 of the Maya Train railway project in Yucatan state. The government announced plans to give to the Navy (SEMAR) the rights for construction, management, and operations of the Trans-Isthmic Train project to connect the ports of Coatzacoalcos in Veracruz state with the Salina Cruz port in Oaxaca state. The government is also in the process of transferring responsibilities for managing land and sea ports from the Secretariat of Communications and Transportation (SCT) to SEDENA and SEMAR respectively.
5. Protection of Property Rights
Mexico ranked 105 out of 190 countries for ease of registering property in the World Bank’s 2020 Doing Business report, falling two places from its 2019 report. Article 27 of the Mexican Constitution guarantees the inviolable right to private property. Expropriation can only occur for public use and with due compensation. Mexico has four categories of land tenure: private ownership, communal tenure (ejido), publicly owned, and ineligible for sale or transfer.
Mexico prohibits foreigners from acquiring title to residential real estate in so-called “restricted zones” within 50 kilometers (approximately 30 miles) of the nation’s coast and 100 kilometers (approximately 60 miles) of the borders. “Restricted zones” cover roughly 40 percent of Mexico’s territory. Foreigners may acquire the effective use of residential property in “restricted zones” through the establishment of an extendable trust (fideicomiso) arranged through a Mexican financial institution. Under this trust, the foreign investor obtains all property use rights, including the right to develop, sell, and transfer the property. Real estate investors should be careful in performing due diligence to ensure that there are no other claimants to the property being purchased. In some cases, fideicomiso arrangements have led to legal challenges. U.S.-issued title insurance is available in Mexico and U.S. title insurers operate here.
Additionally, U.S. lending institutions have begun issuing mortgages to U.S. citizens purchasing real estate in Mexico. The Public Register for Business and Property (Registro Publico de la Propiedad y de Comercio) maintains publicly available information online regarding land ownership, liens, mortgages, restrictions, etc.
Tenants and squatters are protected under Mexican law. Property owners who encounter problems with tenants or squatters are advised to seek professional legal advice, as the legal process of eviction is complex.
Mexico has a nascent but growing financial securitization market for real estate and infrastructure investments, which investors can access via the purchase/sale of Fideicomisos de Infraestructura y Bienes Raíces (FIBRAs) and Certificates of Capital Development (CKDs) listed on Mexico’s BMV stock exchange.
Intellectual Property Rights
Intellectual Property Rights (IPR) in Mexico are covered by the the Mexican Federal Law for Protection of Industrial Property (Ley Federal de Protección a la Propiedad Industrial) and the Federal Copyright Law (Ley Federal del Derecho de Autor). Responsibility for the protection of IPR is spread across several government authorities. The Prosecutor General’s Office (Fiscalia General de la Republica or FGR) oversees a specialized unit that prosecutes intellectual property (IP) crimes. The Mexican Institute of Industrial Property (IMPI), the equivalent to the U.S. Patent and Trademark Office, administers patent and trademark registrations, and handles administrative enforcement cases of IPR infringement. The National Institute of Copyright (INDAUTOR) handles copyright registrations and mediates certain types of copyright disputes, while the Federal Commission for the Prevention from Sanitary Risks (COFEPRIS) regulates pharmaceuticals, medical devices, and processed foods. The Mexican Customs Service’s mandate includes ensuring illegal goods do not cross Mexico’s borders.
The process for trademark registration in Mexico normally takes six to eight months. The registration process begins by filing an application with IMPI, which is published in the Official Gazette. IMPI first undertakes a formalities examination, followed by a substantive examination to determine if the application and supporting documentation fulfills the requirements established by law and regulation to grant the trademark registration. Once the determination is made, IMPI then publishes the registration in the Official Gazette. A trademark registration in Mexico is valid for 10 years from the date of registration and is renewable for 10-year periods. Any party can challenge a trademark registration through an opposition system, or post-grant through a cancellation proceeding. IMPI employs the following administrative procedures: nullity, expiration, opposition, cancellation, trademark, patent and copyright infringement. Once IMPI issues a decision, the affected party may challenge it through an internal reconsideration process or go directly to the Specialized IP Court for a nullity trial. An aggrieved party can then file an appeal with a Federal Appeal Court based on the Specialized IP Court’s decision. In cases with an identifiable constitutional challenge, the plaintiff may file an appeal before the Supreme Court.
To improve efficiency, in 2020 IMPI partnered with the United States Patent and Trademark Office (USPTO) to launch the Parallel Patent Grant (PPG) initiative. Under this new work-sharing arrangement, IMPI will expedite the grant of a Mexican patent for businesses and individuals already granted a corresponding U.S. patent. This arrangement allows for the efficient reutilization of USPTO work by IMPI. The USPTO also has a Patent Prosecution Highway (PPH) agreement with IMPI. Under the PPH, an applicant receiving a ruling from either IMPI or the USPTO that at least one claim in an application is patentable may request that the other office expedite examination of the corresponding application. The PPH leverages fast-track patent examination procedures already available in both offices to allow applicants in both countries to obtain corresponding patents faster and more efficiently.
Mexico has undertaken significant legislative reform over the past year to comply with the USMCA. The Mexican Federal Law for Protection of Industrial Property (Ley Federal de Protección a la Propiedad Industrial) went into effect November 5, 2020. The decree issuing this law was published in the Official Gazette on July 1, 2020, in response to the USMCA and the CPTPP. This new law replaced the Mexican Industrial Property Law (Ley de la Propiedad Industrial), substantially strengthening IPR across a variety of disciplines. Mexico amended its Federal Copyright Law and its Federal Criminal Code to comply with the USMCA. The amendments went into effect July 2, 2020. These amendments should significantly strengthen copyright law in Mexico. Still, there are concerns that constitutional challenges filed against notice and takedown provisions as well as TPMs in the amendments may weaken these. provisions.
Still, Mexico has widespread commercial-scale infringement that results in significant losses to Mexican, U.S., and other IPR owners. There are many issues that have made it difficult to improve IPR enforcement in Mexico, including legislative loopholes; lack of coordination between federal, state, and municipal authorities; a cumbersome and lengthy judicial process; relatively widespread acceptance of piracy and counterfeiting, and lack of resources dedicated to enforcement. In addition, the involvement of transnational criminal organizations (TCOs), which control the piracy and counterfeiting markets in parts of Mexico and engage in trade-based money laundering by importing counterfeit goods, continue to impede federal government efforts to improve IPR enforcement. TCO involvement has further illustrated the link between IPR crimes and illicit trafficking of other contraband, including arms and drugs.
Mexico remained on the Watch List in the 2021 Special 301 report published by the U.S. Trade Representative (USTR). Obstacles to U.S. trade include the wide availability of pirated and counterfeit goods in both physical and virtual notorious markets. The for Piracy and Counterfeiting listed several Mexican markets: Tepito in Mexico City, La Pulga Rio in Monterrey, and Mercado San Juan de Dios in Guadalajara. Mexico is a signatory to numerous international IP treaties, including the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works, and the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights.
Resources for Rights Holders
Intellectual Property Rights Attaché for Mexico, Central America and the Caribbean
U.S. Trade Center Liverpool No. 31 Col. Juárez
C.P. 06600 Mexico City
Tel: (52) 55 5080 2189
National Institute of Copyright (INDAUTOR)
Puebla No. 143
Col. Roma, Del. Cuauhtémoc
06700 México, D.F.
Tel: (52) 55 3601 8270
Fax: (52) 55 3601 8214
Mexican Institute of Industrial Property (IMPI)
Periférico Sur No. 3106
Piso 9, Col. Jardines del Pedregal
Mexico, D.F., C.P. 01900
Tel: (52 55) 56 24 04 01 / 04
(52 55) 53 34 07 00
Fax: (52 55) 56 24 04 06
For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .
6. Financial Sector
Capital Markets and Portfolio Investment
The Mexican government is generally open to foreign portfolio investments, and foreign investors trade actively in various public and private asset classes. Foreign entities may freely invest in federal government securities. The Foreign Investment Law establishes foreign investors may hold 100 percent of the capital stock of any Mexican corporation or partnership, except in those few areas expressly subject to limitations under that law. Foreign investors may also purchase non-voting shares through mutual funds, trusts, offshore funds, and American Depositary Receipts.
They also have the right to buy directly limited or nonvoting shares as well as free subscription shares, or “B” shares, which carry voting rights. Foreigners may purchase an interest in “A” shares, which are normally reserved for Mexican citizens, through a neutral fund operated by one of Mexico’s six development banks. Finally, Mexico offers federal, state, and local governments bonds that are rated by international credit rating agencies. The market for these securities has expanded rapidly in past years and foreign investors hold a significant stake of total federal issuances. However, foreigners are limited in their ability to purchase sub-sovereign state and municipal debt. Liquidity across asset classes is relatively deep.
Mexico established a fiscally transparent trust structure known as a FICAP in 2006 to allow venture and private equity funds to incorporate locally. The Securities Market Law (Ley de Mercado de Valores) established the creation of three special investment vehicles which can provide more corporate and economic rights to shareholders than a normal corporation. These categories are: (1) Investment Promotion Corporation (Sociedad Anonima de Promotora de Inversion or SAPI); (2) Stock Exchange Investment Promotion Corporation (Sociedad Anonima Promotora de Inversion Bursatil or SAPIB); and (3) Stock Exchange Corporation (Sociedad Anonima Bursatil or SAB). Mexico also has a growing real estate investment trust market, locally referred to as Fideicomisos de Infraestructura y Bienes Raíces (FIBRAS) as well as FIBRAS-E, which allow for investment in non-real estate investment projects. FIBRAS are regulated under Articles 187 and 188 of Mexican Federal Income Tax Law.
Money and Banking System
Financial sector reforms signed into law in 2014 have improved regulation and supervision of financial intermediaries and have fostered greater competition between financial services providers. While access to financial services – particularly personal credit for formal sector workers – has expanded in the past four years, bank and credit penetration in Mexico remains low compared to OECD and emerging market peers. Coupled with sound macroeconomic fundamentals, reforms have created a positive environment for the financial sector and capital markets. According to the National Banking and Stock Commission (CNBV), the banking system remains healthy and well capitalized. Non-performing loans have fallen 60 percent since 2001 and now account for 2.1 percent of all loans.
Mexico’s banking sector is heavily concentrated and majority foreign-owned: the seven largest banks control 85 percent of system assets and foreign-owned institutions control 70 percent of total assets. The USMCA maintains national treatment guarantees. U.S. securities firms and investment funds, acting through local subsidiaries, have the right to engage in the full range of activities permitted in Mexico.
The Bank of Mexico (Banxico), Mexico’s central bank, maintains independence in operations and management by constitutional mandate. Its main function is to provide domestic currency to the Mexican economy and to safeguard the Mexican Peso’s purchasing power by gearing monetary policy toward meeting a 3 percent inflation target over the medium term.
Mexico’s Financial Technology (FinTech) law came into effect in March 2018 and administration released secondary regulations in 2019, creating a broad rubric for the development and regulation of innovative financial technologies. The law covers both cryptocurrencies and a regulatory “sandbox” for start-ups to test the viability of products, placing Mexico among the FinTech policy vanguard. The reforms have already attracted significant investment to lending fintech companies and mobile payment companies. Six fintechs have been authorized to operate in the Mexican market and CNBV is reviewing other applications.
Foreign Exchange and Remittances
The Government of Mexico maintains a free-floating exchange rate.
Mexico maintains open conversion and transfer policies. In general, capital and investment transactions, remittance of profits, dividends, royalties, technical service fees, and travel expenses are handled at market-determined exchange rates. Mexican Peso (MXN)/USD exchange is available on same day, 24- and 48-hour settlement bases. In order to prevent money-laundering transactions, Mexico imposes limits on USD cash deposits. Businesses in designated border and tourism zones may deposit more than USD 14,000 per month subject to reporting rules and providing justification for their need to conduct USD cash transactions. Individual account holders are subject to a USD 4,000 per month USD cash deposit limit. In 2016, Banxico launched a central clearing house to allow for USD clearing services wholly within Mexico to improve clearing services for domestic companies with USD income.
There have been no recent changes in Mexico’s remittance policies. Mexico continues to maintain open conversion and transfer policies.
Sovereign Wealth Funds
The Mexican Petroleum Fund for Stability and Development (FMP) was created as part of 2013 budgetary reforms. Housed in Banxico, the fund distributes oil revenues to the national budget and a long-term savings account. The FMP incorporates the Santiago Principles for transparency, placing it among the most transparent Sovereign Wealth Funds in the world. Both Banxico and Mexico’s Supreme Federal Auditor regularly audit the fund. Mexico is also a member of the International Working Group of Sovereign Wealth Funds. The Fund received MXN 197.3 billion (approximately USD 9.9 billion) in income in 2020. The FMP is required to publish quarterly and annual reports, which can be found at www.fmped.org.mx .
7. State-Owned Enterprises
There are two main SOEs in Mexico, both in the energy sector. Pemex operates the hydrocarbons (oil and gas) sector, which includes upstream, mid-stream, and downstream operations. Pemex historically contributed one-third of the Mexican government’s budget but falling output and global oil prices alongside improved revenue collection from other sources have diminished this amount over the past decade to about 8 percent. The Federal Electricity Commission (CFE) operates the electricity sector. While the Mexican government maintains state ownership, the latest constitutional reforms granted Pemex and CFE management and budget autonomy and greater flexibility to engage in private contracting.
As a result of Mexico’s historic energy reform, the private sector is now able to compete with Pemex or enter into competitive contracts, joint ventures, profit sharing agreements, and license contracts with Pemex for hydrocarbon exploration and extraction. Liberalization of the retail fuel sales market, which Mexico completed in 2017, created significant opportunities for foreign businesses. Given Pemex frequently raises debt in international markets, its financial statements are regularly audited. The Natural Resource Governance Institute considers Pemex to be the second most transparent state-owned oil company after Norway’s Statoil. Pemex’s ten-person Board of Directors contains five government ministers and five independent councilors. The administration has identified increasing Pemex’s oil, natural gas, and refined fuels production as its chief priority for Mexico’s hydrocarbon sector.
Changes to the Mexican constitution in 2013 and 2014 opened power generation and commercial supply to the private sector, allowing companies to compete with CFE. Mexico has held three long-term power auctions since the reforms, in which over 40 contracts were awarded for 7,451 megawatts of energy supply and clean energy certificates. CFE will remain the sole provider of distribution services and will own all distribution assets. The 2014 energy reform separated CFE from the National Energy Control Center (CENACE), which now controls the national wholesale electricity market and ensures non-discriminatory access to the grid for competitors. Still, legal and regulatory changes adopted by the Mexican government attempt to modify the rules governing the electricity dispatch order to favor CFE. Dozens of private companies and non-governmental organizations have successfully sought injunctions against the measures, which they argue discriminate against private participants in the electricity sector. Independent power generators were authorized to operate in 1992 but were required to sell their output to CFE or use it to self-supply. Those legacy self-supply contracts have recently come under criticism with an electricity reform law giving the government the ability to cancel contracts it deems fraudulent. Under the reform, private power generators may now install and manage interconnections with CFE’s existing state-owned distribution infrastructure. The reform also requires the government to implement a National Program for the Sustainable Use of Energy as a transition strategy to encourage clean technology and fuel development and reduce pollutant emissions. The administration has identified increasing CFE-owned power generation as its top priority for the utility, breaking from the firm’s recent practice of contracting private firms to build, own, and operate generation facilities. CFE forced several foreign and domestic companies to renegotiate previously executed gas supply contracts, which raised significant concerns among investors about contract sanctity.
The main non-market-based advantage CFE and Pemex receive vis-a-vis private businesses in Mexico is related to access to capital. In addition to receiving direct budget support from the Secretariat of Finance, both entities also receive implicit credit guarantees from the federal government. As such, both are able to borrow funds on public markets at below the market rate their corporate risk profiles would normally suggest. In addition to budgetary support, the CRE and SENER have delayed or halted necessary permits for new private sector gas stations, fuel terminals, and power plants, providing an additional non-market-based advantage to CFE and Pemex.
Mexico’s 2014 energy reforms liberalized access to these sectors but did not privatize state-owned enterprises.
Corruption exists in many forms in Mexican government and society, including corruption in the public sector (e.g., demand for bribes or kickbacks by government officials) and private sector (e.g., fraud, falsifying claims, etc.), as well as conflict of interest issues, which are not well defined in the Mexican legal framework.
Complicity of government and law enforcement officials with criminal elements is a significant concern. Collaboration of government actors with criminal organizations (often due to intimidation and threats) poses serious challenges for the rule of law. Some of the most common reports of official corruption involve government officials stealing from public coffers or demanding bribes in exchange for awarding public contracts. The current administration supported anti-corruption reforms (detailed below) and judicial proceedings in several high-profile corruption cases, including former governors. However, Mexican civil society asserts that the government must take more effective and frequent action to address corruption.
Mexico adopted a constitutional reform in 2014 to transform the current Office of the Attorney General into an Independent Prosecutor General’s office in order to shore up its independence. President Lopez Obrador’s choice for Prosecutor General was confirmed by the Mexican Senate January 18, 2019. In 2015, Mexico passed a constitutional reform creating the National Anti-Corruption System (SNA) with an anti-corruption prosecutor and a citizens’ participation committee to oversee efforts. The system is designed to provide a comprehensive framework for the prevention, investigation, and prosecution of corruption cases, including delineating acts of corruption considered criminal acts under the law. The legal framework establishes a basis for holding private actors and private firms legally liable for acts of corruption involving public officials and encourages private firms to develop internal codes of conduct. The implementation status of the mandatory state-level anti-corruption legislation varies.
The new laws mandate a redesign of the Secretariat of Public Administration to give it additional auditing and investigative functions and capacities in combatting public sector corruption. Congress approved legislation to change economic institutions, assigning new responsibilities and in some instances creating new entities. Reforms to the federal government’s structure included the creation of a General Coordination of Development Programs to manage the newly created federal state coordinators (“superdelegates”) in charge of federal programs in each state. The law also created the Secretariat of Public Security and Citizen Protection, and significantly expanded the power of the president’s Legal Advisory Office (Consejería Jurídica) to name and remove each federal agency’s legal advisor and clear all executive branch legal reforms before their submission to Congress. The law eliminated financial units from ministries, with the exception of the Secretariat of Finance, the army (SEDENA), and the navy (SEMAR), and transferred control of contracting offices in other ministries to the Hacienda. Separately, the law replaced the previous Secretariat of Social Development (SEDESOL) with a Welfare Secretariat in charge of coordinating social policies, including those developed by other agencies such as health, education, and culture. The Labor Secretariat gained additional tools to foster collective bargaining, union democracy, and to meet International Labor Organization (ILO) obligations.
Mexico ratified the OECD Convention on Combating Bribery and passed its implementing legislation in May 1999. The legislation includes provisions making it a criminal offense to bribe foreign officials. Mexico is also a party to the Organization of American States (OAS) Convention against Corruption and has signed and ratified the United Nations Convention against Corruption. The government has enacted or proposed strict laws attacking corruption and bribery, with average penalties of five to 10 years in prison.
Mexico is a member of the Open Government Partnership and enacted a Transparency and Access to Public Information Act in 2015, which revised the existing legal framework to expand national access to information. Transparency in public administration at the federal level improved noticeably but expanding access to information at the state and local level has been slow. According to Transparency International’s 2020 Corruption Perception Index, Mexico ranked 124 of 180 nations. Civil society organizations focused on fighting corruption are increasingly influential at the federal level but are few in number and less powerful at the state and local levels.
Business representatives, including from U.S. firms, believe public funds are often diverted to private companies and individuals due to corruption and perceive favoritism to be widespread among government procurement officials. The GAN Business Anti-Corruption Portal states compliance with procurement regulations by state bodies in Mexico is unreliable and that corruption is extensive, despite laws covering conflicts of interest, competitive bidding, and company blacklisting procedures.
The U.S. Embassy has engaged in a broad-based effort to work with Mexican agencies and civil society organizations in developing mechanisms to fight corruption and increase transparency and fair play in government procurement. Efforts with specific business impact include government procurement best practices training and technical assistance under the U.S. Trade and Development Agency’s Global Procurement Initiative.
UN Anticorruption Convention, OECD Convention on Combatting Bribery
Mexico ratified the UN Convention Against Corruption in 2004. It ratified the OECD Anti-Bribery Convention in 1999.
Resources to Report Corruption
Contact at government agency:
Secretariat of Public Administration
Miguel Laurent 235, Mexico City
Contact at “watchdog” organization:
Dulce Olivia 73, Mexico City
10. Political and Security Environment
Mass demonstrations are common in the larger metropolitan areas and in the southern Mexican states of Guerrero and Oaxaca. While political violence is rare, drug and organized crime-related violence has increased significantly in recent years. Political violence is also likely to accelerate in the run-up to the June 2021 elections as criminal actors seek to promote election of their preferred candidates. The national homicide rate remained stable at 29 homicides per 100,000 residents, although the number of homicides fell slightly from 35,618 to 35,498. For complete security information, please see the Safety and Security section in the Consular Country Information page at https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Mexico.html. Conditions vary widely by state. For a state-by-state assessment please see the Consular Travel Advisory at https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/mexico-travel-advisory.html.
Companies have reported general security concerns remain an issue for those looking to invest in the country. The American Chamber of Commerce in Mexico estimates in a biannual report that security expenses cost business as much as 5 percent of their operating budgets. Many companies choose to take extra precautions for the protection of their executives. They also report increasing security costs for shipments of goods. The Overseas Security Advisory Council (OSAC) monitors and reports on regional security for U.S. businesses operating overseas. OSAC constituency is available to any U.S.-owned, not-for-profit organization, or any enterprise incorporated in the United States (parent company, not subsidiaries or divisions) doing business overseas (https://www.osac.gov/Country/Mexico/Detail ).