In the post-World War II period, as the globalization of businesses and economies increased rapidly, countries began to put in place incentives to attract foreign direct investment (FDI).

These incentives included tax breaks for foreign companies, free or subsidized public land, R&D allowances and funds for worker training. By attracting FDI, countries have benefited from new development, new capital flowing to their borders and the creation of well-paying jobs for their citizens.

In its quest to industrialize its northern border and employ returning citizens after the United States canceled the bracero farm work program, which employed Mexican laborers on American farms, Mexico established its program of maquiladora.

This program benefited from changes in the US tariff code, which made it easier for companies to manufacture in foreign countries in order to better compete with foreign competition. Often referred to as the “twin factory program,” the maquiladoras allowed foreign companies to manufacture in Mexico, with only the value added to the product in that country subject to tariffs. In other words, if an American company manufactures a cell phone using a Mexican maquiladora factory and all the materials are exported to Mexico for assembly, only the value of the Mexican labor would be taxable. after the phone is shipped to the United States. Marlet.

Programs such as Mexico’s maquiladora program have been very successful in attracting foreign direct investment. One only needs to walk through border towns such as Juárez, Mexico, to see the factories of the Fortune 500 and Fortune 100 companies scattered across huge industrial parks.

Mexican President Andrés Manuel López Obrador has tried to unravel energy reform and put the energy sector back into the hands of the Mexican government. (Luis Barron / Eyepix / ABACAPRESS.COM / TNS)

Today, more than 6,000 foreign companies operate in the Mexican maquiladora industry, employing approximately 3.2 million people. The maquiladora industry now accounts for 53% of Mexico’s total exports.

However, we have now entered a new era, in which a country’s policies and practices are just as important in attracting FDI as the incentives established. There are companies that will not establish operations in Brazil, due to this country’s failure to tackle deforestation in its Amazon region. Other companies refuse to expand their operations in China due to human rights violations committed there.

And now, the periodical Economista reports that President and CEO of General Motors of Mexico Francisco Garza has said: “If Mexico does not have renewable energy and a legal framework focused on sustainability, it will cease to be. a short-term investment destination. and in the medium term for General Motors and other companies. Mexico passed landmark energy reform laws under former President Enrique Peña Nieto, which allowed foreign companies to enter this once nationalized sector. The objective was to attract FDI in order to modernize Mexico’s energy sector and allow the country to move towards renewable energies.

Since taking over as President of Mexico from Peña Nieto, Andrés Manuel López Obrador (AMLO) has attempted to roll out energy reform and put the energy sector back into the hands of the Mexican government. AMLO proposes to ban the market for the marketing of electricity to foreign investors and to limit private energy production to 46%. Priority would also be given to existing Federal Electricity Commission power plants, which run on petroleum and coal. AMLO also wants to cancel all current production permits / contracts and do away with the self-sufficiency of electricity that companies are turning to, using wind and solar options. The new policy focuses on the use of petroleum fuels and coal as the main sources of energy for the country. Of course, this goes against the trend of countries and companies towards zero emissions in the coming decades.

In January, GM announced it would shift production to build only electric vehicles by 2035. By 2025, the company will offer 30 new electric vehicles around the world. GM’s all-electric strategy is estimated to require an investment of $ 35 billion. This is a huge investment that countries around the world will want to convert into FDI by attracting GM’s power generation plants.

By committing to a quantum shift in strategy, GM will want to locate its factories in countries that are committed to reducing future carbon emissions. Mexico’s retreat in energy reform appears to take the country off the table for GM’s future investment prospects. Mexico’s precarious energy strategy may not only have repercussions on itself.

Since the economies of the United States and Mexico are so closely linked, the loss of investments in Mexico could result in the loss of sourcing opportunities on behalf of American suppliers. It would be a lose-lose situation.

Jerry Pacheco is the Executive Director of the International Business Accelerator, a nonprofit business advisory program of the New Mexico Small Business Development Centers Network. He can be reached at 575-589-2200 or [email protected]

About The Author

Related Posts