During the week of October 9, Mexican President Ernesto Zedillo Ponce de Leon met with several organizations in the United States. Following a meeting with U.S. business leaders, several key U.S. participants announced direct investment plans for approximately $12 billion in Mexico over the next five years. This is a sign of continued growing confidence in the Mexican economy.

The Mexican manufacturing sector has continually attracted the most foreign direct investment, 40.5%; followed by the service sector, 31%; transportation and telecommunications, 8.5%; and financial services, 8.5%.

Industries expected to receive the $12 billion include some of these sectors, such as manufacturing, financial services, and telecommunications. Other industries receiving this investment -- not considered major destinations in the past -- include energy, transportation and distribution of natural gas; environmental services; agriculture and food processing; and real estate. Some of these had been announced earlier.

The Mexican telecommunications sector has attracted the interests and capital of both large and small U.S. telecommunication service providers. Plans indicate that the Mexican sector will receive $3 billion over the next several years from well known companies such as AT&T and MCI.

An investment of almost $1 billion is anticipated to launch a joint venture between AT&T and the Mexican company, Grupo Alfa, to provide long distance services to Mexican customers. AT&T also confirmed a $40 million investment in cellular telephone manufacturing at the company's Guadalajara plant.

Avantel, a new communications services company forged by MCI and the Mexican bank, Banamex, is to receive an investment of $1.3 billion from MCI. Additionally, a group of smaller U.S. companies, including Nextel, LCC, Associated Communications, and the Carlyle Group, have teamed up with the Mexican firm Grupo Communications of San Luis Potosi. Together, they have invested over $110 million in Grupo Tricom of Mexico to provide wireless communications services in Mexico.

Other investments in the Mexican telecommunications sector include more than $325 million in digital wireless infrastructure by Tricom. GTE, in a three-way partnership with the Mexican bank, Bancomer, and Mexican firm of Grupo Visa, will invest a total of $320 million.

The Mexican energy sector and transportation and distribution of natural gasis expected to attract nearly $2 billion over the next five years. Amoco Corporation announced a $250 million investment with Mexico's Grupo Femsa. Dupont's Conoco division has established an office in Mexico and is expected to invest in the petrochemical sector as the regulatory and legal framework evolves. The firm also plans to continue with an additional $100 million in nylon over the next few years with its Mexican partner, Grupo Alfa.

In the manufacturing sector, General Electric announced the company is reinvesting about $100 million annually in its Mexican operations over the next four years. Eastman Kodak revealed additional investments in the company's CD media production facility at its Guadalajara plant and an already-completed water treatment recycling plant.

An investment of $75 million was announced by International Paper for the construction of a non-woven textile plant near Guanajuato, in addition to new projects in forestry and paperboard. In the apparel sector, Warnco, which currently has six facilities in Mexico, plans to invest over $10 million in the state of Puebla. And Guilford Mills, Inc. unveiled its strategy to establish a major apparel production facility with its partners, American Textile and Mexico's Grupo Alfa, in the state of Morelos.

Some U.S. companies plan to invest in several sectors. For example, a $1 billion infrastructure investment fund was announced by American International Group, a leading global insurance and financial services company, and General Electric. Areas to receive the capital include energy, telecom, transportation and environmental services. American International Group also announced the purchase of 51% of Seguros Interamericana for $35 million, and as a result will control a greater portion of its Mexican insurance and financial service interests.

Mexico's agribusiness industry has also been on the minds of U.S. investors. Pilgrim's Pride announced a $40 million poultry-breeding project in the states of Queretaro and Puebla. The U.S. giant, Philip Morris, announced an investment of $200 million in its Kraft Foods de Mexico plants. This is expected to double their production capacity.

Reichmann International Mexico plans to continue with three major real estate projects in Mexico. These projects represent a total investment of $1.1 billion. Additionally, Journey's End announced plans to build ten executive hotels there representing an investment of $35 million.

On October 11, President Zedillo met with President Clinton at the White House. Mr. Zedillo brought with him the first $700 million installment to begin repaying the United States with interest. This early repayment of a portion of the $12.5 billion that Mexico borrowed from the United States is yet another indication that the Mexican economy is bouncing back.

Stated by President Clinton, "Today's decision sends a positive signal to the financial markets that the tough financial measures Mexico has taken are succeeding and the American taxpayer is being paid ahead of schedule."

The latest figures indicate that Mexican inflation is expected to reach 45% - 50% this year and taper down to about 20% next year. Mexico's inflation for August was already down to 1.66% -- having continuously dropped from 8% in April. Its gross domestic product for this year is expected to fall by 4.5%, but rise to about 3% in 1996 -- indicating a short-lived crisis.

From January through July of this year, Mexico ran a $3.7 billion trade surplus with the rest of the world and a surplus with the United States. However, mid-year figures indicate that U.S. exports to Mexico are down by only 10% -- much less than had been projected.

As the situation in Mexico continues to stabilize and investor confidence grows, Mexican consumption will rise commensurably -- increasing the demand for U.S. exports. This is good news for U.S. companies.

This article appeared in The Exporter, December 1995.
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, emerging risks, and the latest economic trends. He's also founder of both the ManzellaReport.com and Manzella Trade Communications, Inc. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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