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Nordic investment in Mexico
The purpose of this document is to be only a general reference on certain areas of interest. The application and effect of the law may vary depending on the specific data included herein. Omissions or inaccuracies are possible due to the changing nature of the laws, rules and regulations. This document is distributed based on the understanding that the authors and editors are not bound to offer legal, accounting and tax advice, nor other professional services. Therefore, this document cannot replace direct accounting, tax or legal professional advice, or any other type of advice. Before making any decision or taking any action, we recommend calling upon a professional of PwC Mexico. Even though we made our best effort to base the contents of this document on reliable sources, PwC Mexico is not responsible for any mistake or omission resulting from the use of this information. The data included in this document is provided “as found” in the original source, without guaranteeing its integrity, precision, accuracy or assuming the responsibility for the results obtained through its application; and without any other kind of guarantee, expressed or implicit, including but not limited to performance, commercialisation and convenience guarantees to reach an specific goal. PwC Mexico, its affiliated companies/firms, partners, agents or employees cannot be held accountable for any decision or measure implemented by you or any other person based on this information, as well as for any resulting damage or harm, specific or similar, including a notification about the possibility of such damage.
PwC Mexico Content table Iceland Denmark Norway Sweden Finland Foreword Acknowledgements Introduction to Mexico Tax and legal framework Macro-economic analysis Nordic investment in Mexico CEO interviews Conclusion Contact information Sectors • Telecommunications • Manufacturing • Infrastructure & Logistics • Automotive • Healthcare • Mining • Retail • Energy Directory of Nordic companies
Nordic investment in Mexico4 Acknowledgements
PwC Mexico 1 Susanne Rumohr Hækkerup, Ambassador of Denmark in Mexico Anne Lammila, Ambassador of Finland in Mexico Merethe Nergaard, Ambassador of Norway in Mexico José Ignacio Madrazo, Ambassador of Mexico in Denmark Norma Pensado Moreno, Ambassador of Mexico in Finland Ambassador of Mexico in Norway Ambassador of Mexico in Sweden Jörgen Persson, Ambassador of Sweden in Mexico Ivar Gundersen, ABC Communications Jakob Sjölander, Business Sweden Mayra Mateos, Business Sweden Marit Hvithamar, Confederation of Danish Industy Tore Myhre, Confederation of Norwegian Enterprise Katarina Sætersdal, Confederation of Norwegian Enterprise Allan Leest, Embassy of Denmark in Mexico Jakob Tvede, Embassy of Denmark in Mexico Marco Thomas Lund, Embassy of Denmark in Mexico Kaisa Koivisto, Embassy of Finland in Mexico Simen Ekblom, Embassy of Norway in Mexico Adam Boltjes, Embassy of Sweden in Mexico Jakob Holthuis, Embassy of Sweden in Mexico Erna Takala, Finpro Nina Jaakkola, Finpro Alenica Staniewski, International Business Centre PwC Mexico Anthony Armand, International Business Centre PwC Mexico Caroline Tissot, International Business Centre PwC Mexico Lisamaria Markula, International Business Centre PwC Mexico Margarida Costa, International Business Centre PwC Mexico Maria Alejandra Urrea, International Business Centre PwC Mexico Pia Maria Lustig, International Business Centre PwC Mexico Raehyun Im, International Business Centre PwC Mexico Shravan Thampi, International Business Centre PwC Mexico Thibaut Buat, International Business Centre PwC Mexico Walter Heredia, International Business Centre PwC Mexico Yan Zhang, International Business Centre PwC Mexico Per Hagen, INTSOK Sergio Rivas, INTSOK Board and Directors 2013-2014, Nordic Chamber of Commerce in Mexico Estrellita Fuentes, Nordic Chamber of Commerce in Mexico Hanna Arnby, Nordic Chamber of Commerce in Mexico Richard Scarborough, Norwegian Shipowners’ Association Carlos Pérez-Cirera Langenscheidt , ProMexico Berta Rendón, PwC Mexico Carlos Méndez, PwC Mexico Carlos Montemayor, PwC Mexico Carlos Morales Rozo, PwC Mexico Cesar Lara, PwC Mexico Eduardo De La Pena, PwC Mexico Eduardo Reyes Bravo, PwC Mexico Fredy Muñoz, PwC Mexico Gabriel Muñozcano, PwC Mexico Ivan Diáz-Bárreiro, PwC Mexico José Almodovar, PwC Mexico José Antonio Quesada, PwC Mexico Juan Luís Garcia, PwC Mexico Luis Sánchez Gonzalez, PwC Mexico Marco Hernandez, PwC Mexico Moises Cisneros, PwC Mexico Norma Gascon, PwC Mexico Tove Ulmanen, PwC Mexico Ulrika Andersson, PwC Mexico PwC Denmark PwC Finland PwC Norway PwC Sweden Nina Hamer, Traducciones Hamer Interviews Carlos Caicedo, Atlas Copco Søren Ustrup, Arla Food Ingredients Raul Armenta, Autoliv Jonny Torp, BWO Gustavo Godinez, DNV José Luis Serrato, Ericsson Richardt Fangel, FL Smidth Rafael Llamas, Hiab Cargotec Adonaí Garcia, KWH Mirka Alicia Bandala, KONE Jens Peter Klausen, Lego Michael Hansen, Maersk Line Daniel Merlo, Maquet Leif Lindholm, Metso Minerals Morten Vaupel, Novo Nordisk José Antonio Martínez Palacios, Norsafe Guillaume Lejeune, Stora Enso Adrian Katzew, Vestas Sergio Gutierrez, WWL Pedro Parenti, Yara
Nordic investment in Mexico2 Foreword
PwC Mexico 3 Carlos Mendez Territory Senior Partner PwC Mexico Nordic Desk within International Business Centre at PwC Mexico was created in late 2012. Previously from 2010-2012 it was called Scandinavian Desk and mostly focused on Swedish market. In these years we have begun to work with the key players of the Nordic community in Mexico, such as the Embassies and their trade offices, the Nordic Chamber of Commerce and ProMexico. With these co-operation partners we decided to make this publication in order to promote our country in the Nordic countries. In the past decade the multilateral trade has greatly increased in-between Mexico and Nordic countries: over 200% with Denmark and Finland, over 120% with Norway and over 45% with Sweden. There are currently over 250 Nordic companies in Mexico and the country offers a lot of opportunities for the Nordic companies especially in automotive, energy, health, manufacturing, mining, retail, telecoms and transportation and logistics sectors, which are presented in this publication. Mexico is becoming a centre of Nordic business in Latin America. In recent years, many companies have chosen to invest in Mexico and set up their regional offices, not only for its proximity with the United Stated and the ease of trade, but also because the domestic market is growing rapidly. Today, Mexico is considered to be one of the most competitive countries in the world, belonging to the so-called MINT group along with rapidly growing economies of Indonesia, Nigeria and Turkey. In 2013, the federal government passed two major and long- standing constitutional reforms on telecommunications and energy, with the purpose of boosting competitiveness and growth for these key economic sectors in Mexico. Mexico has a great potential for accelerated economic growth. In 2012, Latin America’s second largest economy maintained a steady growth of 3.9% supported by both external and internal demand. In 2013, GDP was expected to grow 3.5%, but in reality the growth was a mere 1.1 %. However, the forecast for 2014 looks promising with the growth rate expected to go back to 2012 numbers. To conclude, I would like to point out that the publication “Nordic investment in Mexico” is designed as an accessible tool for both industry experts and for anyone interested in Mexico. Our hope is that this publication will contribute to strengthening co-operation between the Nordic countries and Mexico and will attract new Nordic investment into Mexico. PwC’s desire is to intensify the good relationship we have established in recent years with the Nordic Embassies, the Nordic Chamber of Commerce and ProMexico and to be a reference point for the Nordic community in Mexico.
Nordic investment in Mexico4 Susanne Rumohr Hækkerup Ambassador of Denmark in Mexico Det er ikke tilfældigt, at den danske regering har udvalgt det mexicanske marked i sin ambitiøse vækstmarkedsstrategi fra 2013 som et af de markeder, danske virksomheder bør satse på. Mexico har en befolkning på 115 mio. og omkring 25 mio. af dem med en købekraft svarende til et dansk gennemsnitsindkomstniveau. Landet er derfor et stadigt mere attraktivt marked. Den mexicanske regering har desuden vedtaget en række gennemgribende reformer, som kan bidrage positivt til landets vækst. Mexico er i dag den 14. største økonomi i verden – med en voksende befolkning og en stigende økonomisk vækst forventes landet at vokse til den 5. største i 2050. For produktionsvirksomheder er Mexico også et oplagt springbræt for eksport. Landet har et af verdens største net af frihandelsaftaler med adgang til 1,2 mia. forbrugere. I Nordamerika dækker NAFTA et marked på 18,7 mia. USD. Mexico har nu overgået Kina og USA hvad angår konkurrencedygtige produktionsomkostninger for forbrugsvarer. Hvor mexicanske timelønninger for 10 år siden var tre gange højere end i Kina, er de nu en femtedel lavere. Mexico er samtidig et bevis på, at lave lønomkostninger ikke nødvendigvis er ensbetydende med en mangel på kompetencer. Mexico uddanner hvert år 110.000 ingeniører og fremstiller og eksporterer en række sofistikerede produkter inden for bilindustri, medicinaludstyr, mobiltelefoner, fladskærme og udstyr til luft- og rumfart. Danske virksomheder ser i stigende grad ud til at have fået øje på mulighederne på det mexicanske marked, hvor det danske brand nyder en stor anseelse og associeres med innovation og troværdighed. Danmark er med sine investeringer på 3.900 millioner kr. blandt EU’s største investorer i landet, og dansk vareeksport er fordoblet siden 2007. Mexicanske forbrugere er i stigende grad begyndt at stille krav til de produkter, de køber, og producenter efterspørger i stigende grad input, så de kan følge med forbrugernes stigende krav samt effektivisere deres produktion og øge deres konkurrencedygtighed. For danske virksomheder, der er stærke inden for kvalitet, innovation og procesoptimering, er der derfor rigtig gode muligheder for at afsætte produkter på det mexicanske marked. Jeg håber, at denne publikation vil bidrage til at øge kendskabet til de mange muligheder i Mexico.
PwC Mexico 5 Anne Lammila Ambassador of Finland in Mexico Tänä vuonna tulee kuluneeksi 50 vuotta siitä, kun Suomi ja Meksiko avasivat suurlähetystönsä toistensa pääkaupungeissa. Diplomaattisuhteet solmittiin jo aiemmin, vuonna 1949. Maittemme väliset suhteet ovat hyvät, mutta kasvupotentiaalia on paljon enempään. Parhaiten kahdenvälinen yhteistyö on toiminut muutamilla teknisillä sektoreilla, erityisesti ympäristöalalla. Suomella ja Meksikolla on ollut metsäalan yhteistyötä jo 1960-luvulta alkaen. Yhteistyö laajeni tällä vuosikymmenellä oikeus- ja vesialoille. Myös kansainvälisillä foorumeilla, erityisesti YK:ssa, maamme harjoittavat paljon yhteistyötä. Viimeisin korkean tason vierailu oli toukokuussa 2013, kun Eurooppa- ja ulkomaankauppaministeri Alexander Stubb vieraili Meksikossa mukanaan laaja delegaatio suomalaisyrityksiä. Suomen ja Meksikon välinen kauppa on kasvanut tasaisesti vuonna 2008 tapahtuneen notkahduksen jälkeen aina vuoteen 2013 saakka, jolloin Meksikosta suuntautunut tuonti laski 32 prosenttia edellisvuoteen verrattuna. Kauppavaihtomme oli vuonna 2013 noin 415 miljoonaa euroa, mikä merkitsi noin prosentin laskua vuoteen 2012 verrattuna. Vientimme oli 306 miljoona euroa ja tuontimme 109 miljoonaa euroa, joten kauppataseen ylijäämä Suomelle oli 197 miljoonaa euroa. Suomen kokonaisviennistä ja -tuonnista Meksiko edustaa hieman alle puolta prosenttia. Taloudellisessa kanssakäymisessä on paljon kehittämisen varaa, sillä Meksikossa on erittäin ostovoimainen keski- ja yläluokka, ja maan infrastruktuuria parannetaan nopeaa tahtia. Myös käynnissä olevat taloudelliset uudistukset avaavat entistä parempia tai kokonaan uusia liiketoimintamahdollisuuksia. Meksikolla on valtava kasvupotentiaali, joka usein jää muiden nousevien talouksien varjoon. Yksipuolinen, turvallisuustilanteeseen keskittynyt uutisointi on osaltaan vaikuttanut negatiivisesti eri toimijoiden halukkuuteen luoda yhteyksiä Meksikoon. Useat kilpailija- ja verrokkimaamme ovat kuitenkin lisänneet nopeaa tahtia panostustaan Meksikoon. Kokonaisuutena EU-maat ovatkin Meksikon toiseksi suurin suorien investointien lähde. Meksikolla on monta vahvuutta. Se on Maailmanpankin mukaan maailman 14. suurin kansantalous ja 11. suurin ostovoimapariteetilla mitattuna. Se on Latinalaisen Amerikan parhaimpia liiketoimintaympäristöjä heti pienempien avoimien talouksien, Chilen, Perun ja Kolumbian jälkeen. Meksiko on huomattavasti edellä useita muita kasvavia markkinoita kuten BRIC-maita – ja jopa joitakin EU-maita kuten Italiaa ja Luxemburgia. Meksiko on valtava, luonnonvaroiltaan rikas maa strategisesti tärkeällä paikalla Pohjois- ja Etelä-Amerikan välissä. Investointikohteena Meksiko on erittäin lupaava juuri maantieteellisen sijaintinsa, suhteellisen koulutetun työvoimansa ja monien vapaakauppasopimustensa vuoksi. Meksikossa toimii tällä hetkellä 36 suomalaisyritysten tytäryhtiötä, joista kolmellatoista on maassa yksi tai useampi tuotantolaitos. Sen lisäksi noin 70 yrityksellä on Meksikossa paikallinen edustaja. Suurimmat työnantajat ovat olleet Nokian matkapuhelintehtaat Reynosassa, Luvatan tehdas Monterreyssa ja KONEen tehdas Coahuilassa. Vuonna 2012 suorien suomalaisten sijoitusten määrä Meksikoon oli Suomen Pankin tilastojen mukaan noin 105 miljoonaa euroa. Suomen ja Meksikon välillä on investointisuojasopimus ja kaksinkertaisen verotuksen estävä sopimus. Kiinnostavimmat kaupalliset yhteistyösektorit Suomen ja Meksikon välillä ovat ympäristö, puhdas teknologia, liikenne, terveydenhuolto ja hyvinvointi, energia- ja kaivosteollisuus, infrastruktuuri, off-shore -teollisuus, metsä- ja selluteknologiat sekä tietoteknologia (ICT).
Nordic investment in Mexico6 Merethe Nergaard Ambassador of Norway in Mexico Bare ett år etter at Norge fikk sin uavhengighet i 1905, besluttet man å åpne den første norske ambassaden Mexico. 108 år senere ser både Mexico og Norge ganske annerledes ut, og dette reflekteres i hvordan vi forholder oss til hverandre. I mange år var forbindelsene mellom Norge og Mexico svært begrenset - til skipsanløp og «bacalao noruego». Dette har endret seg de siste årene. Norge og Mexico utvikler stadig tettere bånd. At Mexico i år gjenåpner sin ambassade i Oslo vitner tydelig om dette. Både Mexico og Norge er viktige energinasjoner, og vi har en åpen og god dialog om energispørsmål. Da Mexico i desember i fjor vedtok en ny energireform, ble Norge fremhevet som et forbilde på et land som hadde funnet en balansegang hvor offentlige og private interesser sammen bidro til størst mulig verdiskapning, og hvor oljeformuen kom hele befolkningen til gode. Når Mexico nå skal modernisere sin egen energisektor, vil også private selskaper spille en viktig rolle. Herunder norske selskaper, som med sin erfaring fra Nordsjøen er verdensledende på teknologi og kunnskap om oljeutvinning på store havdyp. Nøyaktig den ekspertisen Mexico trenger for å utvikle sine oljefelter i Mexicogolfen. Norske selskaper er allerede viktige samarbeidspartnere for den meksikanske oljeindustrien, og en rekke nye spennende muligheter er nå i ferd med å åpne seg! At relasjonene mellom våre land styrkes, ser vi også i andre næringer. Store norske selskaper som Yara, Det Norske Veritas, Tomra, Elopak og Sapa, med flere, har de siste årene etablert seg i Mexico. Samtidig ser vi en fremvekst av små og innovative norske gründerforetak, innen sektorer som for eksempel IKT og grafisk design. Likevel er det ikke tvil om at næringslivssamarbeidet med Mexico har et langt større potensiale enn vi så langt har sett. Mexico er en fremvoksende økonomi, som det siste året har vist sterk vilje til nødvendig omstilling. Landet har betydelige naturressurser, kvalifisert arbeidskraft og en unik strategisk plassering. Rett utenfor stuedøren, mot nord, ligger verdens største og viktigste marked. Samtidig blir samarbeidet med andre latinamerikanske land og med Asia stadig tettere, gjennom et utall av frihandelsavtaler. Både Mexico og Norge har dratt god nytte av vår EFTA-frihandelsavtale fra 2001. Vi håper å utvide denne avtalen ytterligere. President Enrique Peña Nieto og hans regjering arbeider nå hardt for å virkeliggjøre Mexicos potensiale. Et iherdig reformarbeid skal gjøre landet internasjonalt konkurransedyktig og attraktivt for utenlandske investeringer. Og verden følger med. Det bør også Norge gjøre. Ambassaden er derfor glad for at det nå settes økt fokus på mulighetene Mexico kan tilby norsk næringsliv. Vi ser frem til at flere av dere kommer hit, og vi bistår dere gjerne på veien. Bienvenidos! Jeg håper denne brosjyren bidrar til at norsk næringsliv fatter interesse for Mexico. Kontakt oss gjerne ved den norske ambassaden!
PwC Mexico 7 Jörgen Persson Ambassador of Sweden in Mexico Relationerna mellan Sverige och Mexiko sträcker sig långt tillbaka i tiden. Redan 1850 invigdes ett svenskt konsulat i hamnstaden Veracruz. Mycket har hänt sedan dess, inte minst vad gäller handel och investeringar. Svenska storföretag etablerade sig tidigt och idag finns kring 150 svenska eller Sverige-relaterade företag på plats. Mexiko är Sveriges näst största handelspartner i Latinamerika. Svenska direktinvesteringar i Mexiko uppgick 1999-2013 till nästan två miljarder USD vilket gjorde Sverige till tolfte största investerare. Mexiko är världens fjortonde största ekonomi och med 115 miljoner konsumenter tillhör landet den grupp större medelinkomstländer som förväntas växa mest framöver. För svenska företag finns stora möjligheter att dra nytta av en växande inhemsk marknad, närhet till USA och landets öppna inställning till frihandel. Tillväxtpotentialen är stor i de många sektorer där svenska företag är konkurrenskraftiga som ITC, miljöteknologi, transport, gruvnäring och hälsa. Det svenska intresset för Mexiko manifesterades i höstas när statsminister Fredrik Reinfeldt och handelsminister Ewa Björling tillsammans med en stor företagsdelegation besökte landet. Jag hoppas att denna broschyr ska väcka intresse för den mexikanska marknaden. På plats finns ett engagerat lokalt team som utöver ambassaden består av Business Swedens kontor samt två handelskammare, en svensk och en nordisk. Kontakta oss gärna!
Nordic investment in Mexico8 Sergio Rivas President of Nordic Chamber of Commerce in Mexico The Nordic Chamber of Commerce in Mexico was established in 2010 as a result of an initiative of Ambassadors and entrepreneurs from Denmark, Finland, Norway and Sweden1 in order to generate more business opportunities and to promote Nordic values, including sustainability, transparency, democracy and zero tolerance of corruption, among other values of importance for business and for society as a whole. One of its goals is to create a business platform promoting Nordic business values and skills in new and clean technologies, efficiency, productivity and more and better conditions for jobs. At the end of 2013, NCCM membership totaled 73 companies, all branch offices of companies in Nordic countries or enjoying a strong and permanent commercial relationship between Mexico and the country in question. That membership represents 27% of total Nordic companies established in Mexico, as follows: The 73 member companies are high-level representatives of the most important companies in the four Nordic countries, working in important, key clusters such as health, mining, transportation, energy, clean tech and IT. Iconic companies and the most traditional and representative Nordic businesses are very well represented in our membership. To increase that number, it is indispensable to provide useful services to companies, i.e., networking, conferences, seminars, business development support and so on. For 2014, the NCCM has important challenges to meet, including organising some 12 high-level conferences involving the monthly Nordic Business Breakfast, the Nordic Business Day (scheduled for November), the Annual Convention, the Annual Kräftskiva (September) and the Golf and Nordic Sports Day in May. The main goal is to contribute to the creation and continuation of a dynamic designed to promote business opportunities for both sides, (i.e., foreign investment from Nordic countries to Mexico, and from Mexico to Nordic countries), trade, entrepreneur cooperation and networking. The challenges are imposing, but with positive Viking business attitude we will continue to work towards enhancing and increasing welfare in Mexico and in Nordic countries. 1 Iceland has been included, but has no diplomatic representation and not many business operations in Mexico. Country Total companies established in Mexico Belonging to NCCM Total (%) Denmark 58 18 32 Finland 36 14 39 Norway 29 10 34 Sweden 150* 18 12 Mexico 13 Total 273 73 27% *Includes representatives.
PwC Mexico 9 Laust Hjortkjær Hansen, Louisa Masoura, Pia Lustig, Lisamaria Markula (Clockwise from the top) Starting up your business Your first step towards implementing your business model and meeting your financial needs is having a clear and quantitative perspective of trends and market opportunities. • Market entry strategy • Project feasibility studies • Seeking partners and investors / target screening • Strategic planning for mergers and acquisitions • Capital raising / financing structures • International tax and local contributions advice • International trade advice (tariffs, customs, international treaties, temporary import regimes) • Business start-up procedures with government bodies • Payroll, book keeping, treasury and tax outsourcing services • Inventory management • Compliance with local and international reporting standards (NIF, IFRS, US GAAP) Driving growth Good management of growth and achieving organisational goals depend on implementing the right structures for your company: effective internal control and risk management is crucial for your business to thrive. • Organic growth strategy • Enhancement of the quality and safety of information systems • Optimisation of internal control and operational efficiency • Corporate Governance • Risk monitoring and control • Legal support in claims and lawsuits • Fiscal optimisation of investments • Human resource solutions (e.g. study of the organisational climate, competencies assessment) • Post-deal integration and valuations • Arbitration, mediation, renegotiation and dispute resolution Realising your value Adapting your business to every circumstance, taking advantage of the best opportunities and realising the value of your business. • Corporate crisis advice (debt restructuring, refinancing) • Cost reduction programmes • Plan for succession and shareholders’ equity strategy • Business reviews and performance improvement • Sales process management advice PwC Mexico - Nordic Desk When Nordic countries are looking for new markets, Mexico offers great advantages not only due to its strategic geographical location, young and skilled human resources, but also because it offers macroeconomic and political stability and competitive prices. Mexico is in fact one of the most competitive countries in the region for international investment and it is the second largest economy in Latin America and fourth largest on the continent. Furthermore, its GDP is the 14th in the world, and 11th by purchasing power parity (PPP) with an internal market of over 115 million consumers. With growth in sectors such as automotive, energy, health and mining ie sectors prominent in Nordic countries, there are a lot of opportunities Mexico can offer for Nordic companies. Objective of this publication is to promote Mexico as a destination for Nordic investments, and support new Nordic initiatives contributing to the strengthening of the Nordic - Mexican commercial relations. In co-operation with Nordic Embassies, Nordic Chamber and ProMexico, Nordic Desk within International Business Centre at PwC Mexico has supported the development of Nordic companies in Mexico since late 2012. Building on local expertise combined with the strength of a global network, our team of bilingual professionals tailored to the specific needs and challenges of your business.
Nordic investment in Mexico10 Carlos Pérez-Cirera Langenscheidt Trade Commissioner for the Nordic countries Almost 25 years ago, Mexico began its journey towards greater economic openness with a strong focus on international trade liberalisation and attracting investment. Along the way, significant changes were made to the Foreign Investment Law and free trade agreements signed with the world’s leading economies. The country also achieved a solid and stable macroeconomic environment that has brought certainty to companies’ investment decisions. Today, Mexico has an attractive business environment, legal certainty, and the world’s largest network of free trade agreements, widely developed economic sectors and an extremely competitive cost profile. It is also progressing in terms of infrastructure to make it a world-class logistics platform. Mexico’s competitive advantages Competitive labour costs Mexico offers significant savings in labour costs. The level of annual salaries in Mexico is below many European and Latin American countries, including Brazil, and it is expected to sustain moderate growth between 2011 and 2015. Manufacturing costs Mexico has a better manufacturing cost profile than many countries, including Brazil, Poland and Taiwan Furthermore, consulting firms such as Boston Consulting Group, AT Kearney, Alix Partners, KPMG and PwC have recognised Mexico’s advantages for manufacturing investment. Facility of operation The procedures and time required to open or close a business, or to obtain a construction permit, are critical to success in international business. In Mexico, investors require only 6 procedures and 9 days to open a business, and 10 procedures and 81 days to obtain a construction permit. Moreover, only 1.8 days are required on average to close a business in Mexico, and the recovery rate for creditors and shareholders is 67.1%. This is significantly better than countries such as India, Russia and Brazil, among others. Operation costs There are several factors that affect operation costs and, therefore, company profitability, such as taxes paid on profits, the number of tax payments (which affects administrative costs) and insolvency proceedings costs operations in Mexico lead to significant tax savings compared to economies such as China, India and Brazil. In terms of number of tax payments, Mexico requires only six payments per year, which is much more favourable than the average in Latin America and OECD countries. It is important to note that according to Global Insight, in 2011 labour costs in Mexico were 35% lower than Brazil and 87% below Canada. Accesibility to large markets Mexico has 12 free trade agreements (FTA) with 44 countries, making it one of the most open countries to international trade, with preferential access to more than 1.2 billion potential consumers and
PwC Mexico 11 close to 63% of the world’s GDP. In addition, tariff restrictions on import of goods in Mexico are lower than in countries such as China and Brazil. This increases the profitability of companies established in Mexico, which can access inputs and final products at competitive prices. Mexico’s network of FTAs gives it a preferential access to the US and European markets, compared to goods from other countries. In addition, when using land transportation, Mexican goods have tariff-free access to the United States, which is a clear advantage over competitors from around the world. On the other hand, exporting and importing procedures in Mexico are few, with only five documents required to complete an export procedure and four for import procedures. Mexico has an advantage over many countries in terms of documents required to export. Legal certainty for foreign investment Executing Reciprocal Investment Promotion and Protection Agreements (RIPPA) is part of the Mexican government’s strategy to grant Mexican and foreign investors a legal framework that strengthens the protection of foreign investment in Mexico and Mexican investment abroad. Generally, RIPPAs cover investment definition, scope, promotion and admission, investment treatment, expropriation, transfers and Investor-State/State-Investor dispute settlement. Mexico has signed 28 RIPPAs to date, the latest executed with Singapore. Furthermore, some of Mexico’s FTAs have a chapter on investment that resembles a RIPPA, such as those with the United States, Canada, Chile, Colombia and Japan. All this institutional framework provides legal certainty to companies that decide to establish operations in Mexico. Low transportation costs Another advantage is Mexico’s closeness to the world’s main consumer centres, which enables companies to be more responsive to sudden changes in demand and reduces inventory costs. Infrastructure Mexico has 27,000 kilometres of railroads and 372,000 kilometres of roads. It has various domestic distribution terminals that connect to the main sea ports, enabling reduced costs and speedy arrival and departure of goods. In brief, Mexico has: • 76 airports (12 domestic and 64 international) • 68 deep sea and coastal ports and 49 coastal ports • 49 customs offices, of which 11 are inland • 3,152 kilometres of border with the United States and 1,149 kilometres with Guatemala and Belize, with a total of 63 border crossings Macroeconomic stability According to the World Economic Forum’s (WEF) latest report on Global Competitiveness, in terms of Macroeconomic Environment, Mexico ranked 39th among 142 economies. Mexico has no solvency issues: its public debt as a percentage of its GDP is below 45%, much lower than countries such as Brazil, Poland and India. This is backed by several fiscal measures adopted recently in Mexico, which reinforce the sustainability of its public finances in the medium term and the government’s ability to continue to promote improvements to the country’s infrastructure. Mexico’s monetary policy has enabled it to reach inflation levels close to our main trade partners’. As evidence of this, in 2011 the country closed with 3.8% inflation, according to INEGI. Furthermore, WEF’s report places Mexico in 41st position out of 142 in terms of credit risk score. Favourable exchange performance In coming years, Mexico will have a better exchange performance in real terms, compared to many of its competitors in international markets. Final remarks Various factors make Mexico one of the best choices to locate operations. The country will continue to progress in several areas: infrastructure, legal certainty, deregulation, safety and commercial openness, among others, to raise the competitive profile of its business environment. The road travelled and the goals set by the Mexican government and society will make the country a major economic power by the year 2040. Companies that choose Mexico as their operations centre will certainly exceed their medium- and long-term goals.
Nordic investment in Mexico12 Introduction to Mexico
PwC Mexico 13 Mexico in general Geography and climate Mexico (officially the United Mexican States) with an area of 1,970,000 square kilometres (760,000 square miles) is the twelfth country in the world in size and occupies the southern part of North America and part of Central America. It is the third-largest country in Latin America after Brazil and Argentina. The greater part of the country is a highland plateau bordered on the east, west and south by mountains. This plateau gradually rises to the south. The southern part of the plateau includes Mexico City, the political, economic and population centre of the country, located at an altitude of about 2,240 metres (7,500 feet), one of the highest cities in the world. Almost 50 percent of Mexico, including the entire northern part of the country is arid or semiarid. Annual rainfall increases toward the south where there are zones with the highest levels of rainfall in the world; the rainy season usually runs from May to October, with very little rainfall during the rest of the year, except in the coastal area near the Gulf of Mexico. Nevertheless, the climate varies widely, in part because of the wide variation in altitudes in the country and the effect of the Pacific Ocean and the Gulf of Mexico on the coastal areas. Mexico City and many other regions in the central part of the country have a semitropical climate. There are very few regions where it snows regularly in winter, aside from the higher mountains. Most of the coastal regions have a humid, tropical climate. The Mexico City metropolitan area has an average mean temperature of 17°C (63°F), with occasional lows of around 0°C (32°F) in December and January and highs near 30°C (86°F) in April or May before the beginning of the rainy season. History For more than 300 years, Mexico was ruled as a tightly controlled colony of Spain. Independence in 1821 was followed by decades of struggle for political power and slow economic development, until the 30 years of internal peace achieved under Porfirio Díaz around the end of the 19th century. During that period, the great haciendas, huge areas of land used for cattle raising and farming, reached their peak, although with little improvement in the economic condition of the great majority of the people. The Mexican revolution of 1910 was followed by more than ten years of civil war, which almost completely destroyed the agricultural economy of the country. Accordingly, although Mexican cultural, social and political life reflects the cumulative development of more than 10 centuries since the Spanish conquest and the earlier Aztec, Mayan and other civilisations, the economy of modern Mexico is only some 90 years old, originating in the 1920s. Political system Mexico is now a federal democratic republic divided into 31 states and the Federal District (Mexico City). The federal government has somewhat greater powers than its counterpart in the United States, particularly in one area: the principal types of tax revenues are reserved to the federal government, which distributes certain revenues to the states. The chief executive is the President, who is elected for a period of six years and may not be re-elected. There is a bicameral legislature as well as a judicial branch. The mayor of Mexico City is elected by popular vote for a single six year term. The Legislative Assembly (formerly the Assembly of Representatives) of the Federal District is elected every three years. This assembly is empowered to issue ordinances regarding the day-to-day administration of the District. All the officials of the Federal District are appointed to office and may serve for more than one term, although this is unusual. In view of the size and economic importance of the District, its annual budget is considerably larger than that of any of the states. The state governments are headed by popularly elected governors, who also serve for single six-year terms. The states have their own legislatures and judicial systems. Legal system In general, legislation follows the pattern of codified law originally based on the Napoleonic Code, with separate federal and state, civil and other codes, in addition to separate laws and decrees covering specific subjects. Corporate law, as well as foreign investment, intellectual property protection, and income and value-added tax laws, among others, are federally governed. Population The population of Mexico is estimated at approximately 115 million inhabitants, reflecting a net annual increase in recent years of about 1.2 percent. Mexico is the most populous country in Latin America after Brazil. The total population of the country has more than tripled since 1940. There has been a substantial movement of people from rural areas to towns and larger cities. The urban population is now considered to represent well over 70.3 percent of the total. Although the average population density in the country as a whole is only about 53 inhabitants per square
Nordic investment in Mexico14 kilometre, that of the individual states of the republic varies widely, from about 13 inhabitants per square kilometre in the southeastern state of Campeche to more than 5,954 per square kilometre in the Federal District, consisting largely of the capital, Mexico City. Mexico City and its surroundings continue to be the largest and most concentrated population centre, with a disproportionate share of economic activity. However, some efforts have been made by both the federal and local governments to decentralise industry and foster the growth of other regional population and business centres. Language The national language of Mexico, understood and used by all but a very small number of indigenous tribes in the interior, is Spanish, although local languages are also spoken by fairly large numbers of the population in certain areas. English is also understood by many members of the business community in the capital and larger cities, as well as in the areas bordering the United States. Religion Mexico enjoys full religious freedom. Roman Catholicism was for a long time the state religion. However, the influence of the church has been greatly reduced since the separation of church and state in the 1860s. A majority of the population still consider themselves active members of the Roman Catholic Church. Education The Mexican federal and state governments provide universal free education through six years of primary school and three years of secondary school, as well as preprimary. The federal government also provides the funds for the three largest universities in Mexico City, which, however, operate as autonomous entities. These universities have established preparatory schools that provide another three years of education before the university level. Many state governments also finance schools and universities. Students are charged small fees at the preparatory schools and universities. A large number of private schools and colleges, as well as full-fledged private universities, some operated by religious orders, have also been licensed by the Department of Education. The tremendous increase in population has resulted in an enormous demand for new school facilities at all levels. The federal government spends nearly 15 percent of its estimated expense budget to satisfy the demand. Illiteracy has been reduced substantially in recent decades, but percent of the population over 15 years of age is still classified as illiterate. Particularly in rural areas, many children are still unable to attend school regularly. Living standards As in most developing countries, the distribution of wealth between different segments of the population is uneven. The standard of living of those in upper- and middle-management positions is more or less comparable to that of persons occupying similar positions in companies of comparable size in the industrialised countries. However, the earnings of office, skilled, semiskilled, and unskilled workers are considerably below those of their counterparts in the industrialised countries. One of Mexico’s biggest problems is finding employment for its population. Government officials have estimated that more than 1,000,000 new jobs should be provided each year. Unemployment and underemployment are considerable and have increased in recent years, although no comprehensive statistical information is available. The unskilled labour pool is very large in many parts of the country, particularly outside Mexico City, where the labour force has proved to be easily trained for semiskilled and skilled jobs. The in-bond processing plants near the U.S. border often achieve productivity rates 20 to 30 percent higher than those of the United States. Cultural and social life Mexico City is considered the most important centre of Mexico’s very active cultural life, particularly with regard to art, museums, theatres, musical organisations, book publishers, and libraries. Similar facilities, although less numerous, are also available in the other principal cities and state capitals. There has been an increasing trend toward participation in many types of sports, and facilities for spectator sports are widespread. National tourism by automobile, bus and airline has become a major part of the overall travel industry, particularly during school vacation periods. The many resorts on the coastlines and in the interior, as well as Mexico’s numerous colonial cities and archeological sites, are the preferred destinations. Foreign tourism has also been increasing, with Mexico becoming one of the world’s preferred tourist destinations.
PwC Mexico 15 Social security system The Mexican Social Security Institute (IMSS) was established in 1942, and the social security system is in effect in all industrial areas and agricultural zones throughout Mexico. In these areas the employer’s statutory obligations related to occupational risks are covered by payments of social security premiums. The Institute provides for employees’ and their dependents’ medical attention, including hospitalisation and limited unemployment compensation in cases of illness and maternity, occupational disease and accidents, in addition to disability and old-age pensions. A separate social security system operates for employees of the government and its agencies. Benefits Sickness and disability The Social Security Institute provides medical and hospital service throughout the country, alongside private hospitals and many physicians in private practice. It maintains modern hospitals and clinics providing medical attention to covered employees and provides free medicines, etc. prescribed by its doctors. If employees are absent from work for more than three days as a result of a nonoccupational illness, job-related accident or illness or maternity, the institute will pay 60 to 100 percent of their regular salary during their absence. The employer is relieved of the obligation to pay the salary, although in some cases, employers pay the difference. A guaranteed minimum salary is payable in the case of a permanent disability, and benefits to heirs are provided in the case of death. Pensions Old-age pensions, as well as those for disability, have been increased in recent years. The pensions are normally payable from age 65 if the person has paid social security premiums for the required minimum of 1,250 weeks. Early retirement at reduced rates of pension can be taken from age of 60. There are minimum guaranty pensions equal to monthly minimum salaries. Employees currently qualify for one of two different pensions. Employees who began working after July 1, 1997 receive their pension through AFORE; employees who started working before that date can receive their pensions through AFORE or through the traditional system. Retirement Savings System (SAR) and Old Age In order to supplement retirement pensions under the regular social security system, which have been deemed insufficient to provide adequate retirement benefits, a Retirement Savings System has been established. The employer’s contribution per employee is 2 percent of salary, with a wage ceiling of 25 times the minimum wage for Mexico City. The Old Age system includes an additional contribution per employee of 3.15 percent of salary. These employer contributions will be credited to individual employees’ restricted interest-bearing bank accounts established specifically for that purpose. The funds so accumulated over the years may be withdrawn, under certain rules, only upon retirement or unemployment due to disability and are partially or totally exempt upon withdrawal, together with any other retirement payments received from the employer, following the general rule for taxation of pension payments (i.e., pensions are taxable only to the extent that they exceed nine times the minimum wage). Employees may elect a company authorised to manage the fund (individual account) for the Retirement Savings System(Administradora de Fondos para el Retiro—AFORE). Housing On May 1, 1972, the National Workers’ Housing Fund Institute (INFONAVIT) was inaugurated under the terms of amendments to the Federal Labour Law and a law establishing the Institute. Obligations of employers The Mexican Constitution provides that all agricultural, industrial, mining, and other enterprises of whatever nature are required to provide adequate housing for their employees; this obligation must be met by means of contributions in the name of the individual employee. In accordance with the law, employers are required to contribute 5 percent of the earnings of their employees to the institute, calculated on the same basis as for social security purposes. Foreign employees of Mexican companies working in Mexico are also entitled to the housing benefit.
Nordic investment in Mexico16 Wages and salaries Minimum daily wages are established for separate regions of the country by a National Minimum Wage Committee working through local committees made up of representatives of government, organised labour and private industry. Formerly, new minimum wages were approved every year, but in the past, as a result of the relatively high rate of inflation, minimum wages were sometimes adjusted more than once a year. In recent years, annual increases have not exceeded the inflation rates as measured by the National Consumer Price Index. The variation in wage rates in the different regions has been considerably reduced, and only three different minimum rates are now in effect, varying from a low of 54.47 pesos per day in some regions to 57.46 pesos per day in Mexico City and in some regions near the U.S. border. Fringe benefits Collective labour contracts often provide for benefits over and above those stipulated by the federal labour law and other legislation with regard to early retirement, number of holidays, length of vacations, and a wide range of benefits on which employees pay no tax, such as contributions to general savings funds. Many taxpayers provide coupons for meals and groceries, which under certain conditions, are not taxable to the employees. Paid holidays and vacations The present law requires that a vacation of six working days be granted after the first year of service, with an additional two days for each of the next three subsequent years, with an additional two days for every five years of service after the fourth year. A premium of 25 percent of the regular salary must also be paid during vacations. Nonunion employees are commonly granted a two week vacation period. Termination of employment An employer in Mexico may dismiss an employee without liability other than the seniority premium only if there is a cause for the dismissal. The Federal Labour Law lists specific kinds of conduct that are cause for dismissal: use of false documentation to secure employment; dishonest or violent behavior on the job; dishonest or violent behavior against coworkers that disrupts work discipline; threatening, insulting, or abusing the employer or his or her family, unless provoked or acting in self-defense; intentionally damaging the employer’s property; negligently causing serious damage to the employer’s property; carelessly affecting work-place safety; immoral behavior in the workplace; disclosure of trade secrets or confidential information; or commission of other acts of similar severity to those described above. An employee may appeal his or her discharge within two months of the dismissal at the Conciliation and Arbitration Board, an administrative agency charged with resolving labour disputes. The employer has the burden of demonstrating that the employee has engaged in the conduct described above. If the employer fails to meet this burden, the employee can request either reinstatement to his or her position, or a constitutional indemnification equivalent to three months’ full salary, including premiums, bonuses, commissions,etc., and any fringe benefits. In order to avoid such reinstatement, employers usually pay the severance compensation. The employee also has the right to receive back pay with no offset for interim earnings. The labour law specifies that at the date of termination of employment, the reasons for dismissal must be presented to the employee in writing. It also provides that employees with more than 20 years’ service can be dismissed only for very serious reasons.
PwC Mexico 17 Legal framework Forms of business enterprise The different forms of organisation of business entities in Mexico are regulated by the General Law of Mercantile Companies (Ley General de Sociedades Mercantiles), the Commercial Code (Código de Comercio) or the Civil Code (Código Civil). Some of these forms are summarised in the following table: Stock corporation, stock corporation for the promotion of investment and stock corporation with variable capital. (These are the forms most commonly used by domestic and foreign investors) Limited liability company. (Used frequently) General partnership. (Rarely used by foreign investors because of unlimited liability, unless they want to qualify as a foreign partnership in the home country) Partnership with limited and unlimited liability partners. Civil partnership, i.e., of a noncommercial nature. (Used for non-profit entities and by professional practitioners) Joint venture contract. This is not a legal entity but is treated as a separate entity for income tax purposes. Branch of a foreign corporation. Sole proprietorship. (A foreigner must qualify as a permanent resident “inmigrado” to be able to do business in this way) (Used by charitable and other nonprofit organisations) Non-income or income-earning representative office Principal forms of business enterprise Corporate law is federal in nature and applies throughout the country. Although civil law is a matter of state law, the different state Civil Codes are practically identical as to the formation of entities of a civil nature. Stock Corporation One of the most common way for domestic and foreign investors to operate in Mexico is through a stock corporation (Sociedad Anónima—S.A.) formed under the General Law of Mercantile Companies (Ley General de Sociedades Mercantiles). In this case, the corporate name selected is followed by the initials S.A., which indicates that it is a stock corporation. A foreign-owned Mexican corporation is subject to the laws relating to all local companies in general, as well as to the Foreign Investment Law. Limited liability company In most ways, the limited liability company (Sociedad de Responsabilidad Limitada—S. de R.L.) is similar to a corporation in actual operation. However, as an organisation of individuals, its by-laws can be drafted in such a way as to give it most of the characteristics of a partnership under the tax laws of foreign countries, except for unlimited liability. Partnership The General Law of Mercantile Companies also provides for partnerships (Sociedades en Nombre Colectivo), as well as for partnerships with limited and unlimited liability partners (Sociedades en Comandita), but as a result of the unlimited liability of all or the general partners, as the case may be, these forms are not common. These forms of business organisation have most of the attributes associated with the US concept of a partnership because of the unlimited liability of the partners so designated. Partnerships require at least two partners. Civil partnership Professional practitioners are usually organised as a civil partnership (Sociedad Civil—S.C.), which resembles in many ways the limited liability partnership (S. de R.L.) mentioned above. The managing partners have unlimited liability, while other partners’ liability is limited to the value of their contributions (2704 Civil Code). This form is also used by some non-profit entities such as educational establishments. By definition, these entities should not engage in commercial operations (any activities involving commercial speculation). The transferability of rights, as well as the admission of new partners, is subject to approval of all the partners.
Nordic investment in Mexico18 Joint venture contract Under a joint venture contract (Asociación en Participación—A. en P.), a person grants an interest in the profits and losses of a specific venture or business to others who provide property or services. Such a contract has no legal personality, i.e., no separate legal entity is created, and operations are conducted in the name of the active managing joint venturer (asociante). The asociante is the only party with any direct liability to third parties. The silent partner (asociado) has no direct relationship with third parties. The tax treatment applicable to the Asociación en Participación is essentially the same treatment as regular corporations solely for tax purposes. Branch of a foreign corporation A foreign corporation can be registered to operate in Mexico, with full access to the local courts, through a branch office (Sucursal de sociedad extranjera) after complying with certain formalities and obtaining the approval of the Mexican government through the Department of the Economy. Sole proprietorship As in many Western countries, the sole proprietorship (comerciante/persona física) is a very popular form of organisation for small businesses. However, the element of unlimited liability generally inhibits the use of this form of organisation for large operations, particularly in view of the substantial amount of severance pay that may accrue in favor of employees. Moreover, resident aliens may engage in business activities only if their immigration status is that of permanent resident (inmigrado). However, in some instances, it has been concluded that non/resident individuals with a taxable permanent establishment might operate under the same principles as branches of foreign entities. Nonprofit organisations Charitable and other nonprofit organisations take the form of a civil association (Asociación Civil— A.C.), whose charter prohibits the distribution of profits to its members.
PwC Mexico 19 Tax System The corporate taxes in Mexico are levied by the federal government. No corporate income taxes are levied by local governments and the main federal taxes payable in Mexico are: • Income tax • Flat tax (repealed as from January 1st, 2014) • Value added tax • Social security and federal housing contributions (Employment taxes and contributions) Local taxes include: • Payroll taxes • Tax on transfer of real estate (paid by the purchaser) Corporate income tax • Rate: 30% • Certain deductions allowed (returns and discounts on sales, cost of sales, net expenses, investments, i.e. depreciation or amortisation of fixed assets/deferred expenses) • Deductible expenses must comply with several requirements, e.g. to be “strictly indispensable” for the business activities of the taxpayer • Corporate tax advance payments are calculated on current year’s revenues multiplied by a “profit factor” determined on prior year’s figures (taxable income/total revenues) • Tax Losses (NOL’s) are deductible over a ten year carry-forward period • Transfer pricing – arm’s length / OECD compliant VAT Calculated on a monthly basis, at 16%, on a cash flow basis • Taxable activities: • Sale of goods • Rendering of services • Leasing of goods • Import of goods and services • Output VAT on cash receipts for goods or services, can be credited with input VAT paid to suppliers of goods and services • Credits or refunds for overpayments are available Local taxes • Most relevant state and local taxes in Mexico: • payroll tax, with no limit • annual property tax on cadastral value of property • real estate transfer tax on appraised or fair market value • Deductible for Mexican income tax purposes • Tax rates depend on state where the employees or property are located Social security contributions Employers and employees are required to make contributions to the system, based on daily salary caps, depending on area where the work is performed. Maximum Social Security contribution is approximately US$ 9000, yearly, once the maximum salary cap is reached.
Nordic investment in Mexico20 Employees statutory profit sharing (“PTU”) • Every entity with employees is required to distribute a portion of its annual profits amongst all of its employees • 10% of entity’s taxable income, adjusted to eliminate inflation, apply straight line depreciation , eliminate NOL’s and to add dividend income • All employees entitled (except directors, administrators and general managers) • Not payable during the first year of operations and limited to one month’s remuneration in certain activities such as real estate rentals and professional service firms. • Tax year end matches calendar year (i.e. from January 1st to December 31st) • In the following cases an irregular tax year exists: • Incorporation: from the date of incorporation to December 31st • Merger: from January 1st to the date of merger • Split (spin-off): from January 1st to the date of split, applicable to entity created in spin-off or when original entity disappears • Liquidation: from January 1st to the date when the liquidation process begins • The period from the beginning to the end of the liquidation is deemed to be a single fiscal period Annual tax opinion Certain taxpayers are required to obtain an annual tax compliance opinion issued by a certified public accountant (CPA), known as the “dictamen fiscal” which must be filed together with audited financial statements and detailed schedules, no later than June 15th of the following year. The dictamen fiscal is signed by the CPA and normally states that no irregularities were observed or remain in respect with the taxpayer’s compliance with its federal tax obligations in the prior fiscal year. Any unresolved omissions or situations must be disclosed. This certification process became elective for most other companies, but it is widely elected, because it provides shareholders and management a greater level of comfort on the entity’s tax compliance. Tax audits • Tax authorities reviewing a taxpayer who has filed a dictamen fiscal for the year under review must review, first, the working papers of the CPA issuing the tax opinion. • If the authorities are satisfied with the information provided by the CPA, the procedure stops there; otherwise, they will request the information directly from the company. • Tax authorities may carry out tax inspections both at the taxpayer’s facilities and at the authority’s offices. Tax audits should be concluded within the following 12 months after the audit was initiated. This term may be suspended in some specific cases such as a strike. Statute of limitation The statute of limitation is five years as from the date the last annual tax return was filed. In some cases, the statute of limitation is extended to ten years when the taxpayer is not registered in the Taxpayer Registry or when has no accounting books or has not filed an annual tax return, when one was required. Federal Tax incentives Mexico opened its doors to foreign investment, providing the following federal incentives up to 2014, when most incentives were suspended, with only the following still available: • Research and development (R&D) Taxpayers involved in certain R&D projects are granted a cash subsidy to be yearly determined by the tax authorities, based on a budget approved by the Mexican Congress. A 100 percent deduction is allowed for investments in assets intended to produce renewable energy.
PwC Mexico 21 • Employment incentives Consisting of a credit equivalent to 100% of the income tax corresponding to the salary paid to employees with certain disabilities and 25% extra deduction for salaries paid to employees over 65 years. • FIDECINE Taxpayers may apply a tax credit of the amount contributed to investments in Mexican motion picture productions as well as in Mexican theatre production, against IT. • Other incentives • Zero rated VAT for exports • VAT and import duties are waived on temporary import programmes to produce exports (IMMEX – Maquiladora Regime) – 2014 Tax Reform restricted the qualification for these incentives • Sectorial Relief Programme The Sectorial Relief Programme provides preferential import tariff on goods intended for production, regardless of the country of origin. State and Local Incentives Some state governments are willing to grant incentives to attract new industries, often in the form of: • reduced prices or grants for land for industrial use • reductions in property and payroll taxes for agreed periods of time • development of infrastructure (roads, electrical power, water and sewage) • Training centres or special programmes at state universities To maximise the local incentive investments as well as to obtain legal certainty on the delivery of those incentives, beyond any change in the government structure, an agreement or formal ruling should be obtained from the local authorities and the review of certain legal documents is recommended. Tax amendments affecting Nordic companies doing business in Mexico 1. Within the new Income Tax Law: • Introduction of a 10% dividend tax (reduced by the tax treaty). • Elimination of most tax incentives. • New restrictions on deductibility of related party payments. • Restriction on deductibility of exempt salaries or benefits. • Increases in tax rates for individuals and certain foreign tax payers from 30% to 35%. 2. New rules for maquiladoras. 3. Government Mining Royalties of 7.5% in general, plus 0.5% for precious metals, apply from 2014. Flat tax (“IETU”) – repealed as from January 1st, 2014 • 17.5% • Cash flow basis (taxable cash income collected, less certain cash deductions) • Taxable income: • sale of goods • independent services • leasing of goods • Royalties to related parties and the most interest are excluded • Excess of expenses over income (multiplied by the flat tax rate) produce a credit available to carry forward for 10 years
Nordic investment in Mexico22 Macro-economic analysis
PwC Mexico 232 (worldbank.org) (http://www.oecd.org/) Mexican economy Overview Mexico has a mixed economy, with the government, its agencies and government owned or – controlled companies dominant in the areas of public utilities and petroleum. Private enterprise is the principal factor in manufacturing, mining, commerce, entertainment, and the service industries, including construction and tourism. During the 80’s and 90’s, the government sold a number of its holdings to private enterprises in what are classified as nonstrategic industries. Foreign investment is found most frequently in the manufacturing, mining and financial sectors. The economy is fairly broad-based and dedicated mainly to supplying the needs of the large and rapidly increasing population. However, proximity to the United States also provides a large market for the export of manufactured and semi-manufactured goods. Inflation Since 1973 Mexico, has had high rates of inflation with concurrent substantial devaluations of the Mexican currency. However, as a result of the measures then agreed on by the federal government and organised labour, farmers and private enterprise, inflation was brought down to approximately 9 percent in 1994. Although the 1994 devaluation resulted in inflation of 52 percent in 1995, in recent years, the inflation rate dropped to one digit and may be considered comparable with Mexico’s commercial partners (i.e. the USA and Canada). The inflation rate for 2013 was 3.97 percent and is estimated to lie at levels close to the 3 percent target for most of 2014. Mexico in the world Mexico is the first Latin American country to have joined the OECD in 1994, and it is also the first country in the region to have assumed the Presidency of the G20 in 2012. Advocate of free trade at the bilateral, (trans/sub) regional and multilateral levels, Mexico is the only OECD country to benefit from free trade agreements with both the United States, Japan and the EU in addition to being a member of the World Bank since 1945 and a key actor in the Inter-American Development Bank (IDB ). Mexico signed an agreement with the European Union in 1997, which entered into force in 2000. Since 2008, Mexico is one of 9 countries linked to the European Union through a strategic partnership with regular consultations and summits realised every two years. As the first Hispanic country in the world, Mexico has been very active in the multilateral forums (UN in particular), and Mexico received increased visibility on the world stage with the organisation of the 16th Conference of Parties to the UN Climate Convention in Cancun (COP 16). Anchored in North America via NAFTA, it is a member of Forum for Asia-Pacific Economic Cooperation (APEC) since 1993. Mexico has strengthened its participation in the integration process in Latin America especially in Central America through the Mesoamerica Project (2008), and its entry as an observer to the Central American Integration System (SICA). Mexico was among the promoters of the Community of Latin American and Caribbean States (CELAC - 2011) and has been actively involved in the construction and development of Pacific Alliance (2012-) without forgetting Mercosur in which Mexico is an observer. It is not a member of the BRICS but it belongs to the “ MINT” countries (Mexico, Indonesia, Nigeria and Turkey) whose economic development is closely monitored due to the positive growth trends. Subsequently, Mexico is an emerging economy with a very promising future. Mexico in Latin America Mexico is the 2nd economy in Latin America and the 14th world economy with GDP of € 891.7 billion in 2012 and 11th by purchasing power parity (PPP). The average economic growth is around 3% over the past twenty years. Mexico remains a two-speed economy: • The country is very attractive for foreign investors and countries whose per capita income is one of the most important in the region; • It still has the characteristics of a developing country with high inequality ( between urban and rural areas , between North and South in particular) with an important informal economy).
Nordic investment in Mexico24 Growth of the Mexican Economy The Mexican economy has shown positive results in recent years (except in 2009, the year of global crisis), even greater than those of its main Latin American competitor, Brazil. The Mexican economy recovered from a severe drop generated by the 2008-2009 global financial crisis and the economy experienced an average annual growth of 4.3 % between 2010 and 2012. More recently, weak external demand led to stagnation in growth and prompted the Ministry of Finance to lower its growth projection for 2013 to 1.8 %. The economy slowed abruptly in the first half of 2013, principally due to the delayed effects of weak export demand spilling over to the rest of the economy, thereby hurting consumer and investor confidence. As external conditions improve and government expenditure is stepped up, growth should rebound in 2014 and 20152 . The expected GDP growth is forecasted at 3.4 % for 2014 according to the IMF. The economic health of Mexico, however, depends on the strength of its sales abroad, particularly the United States. In the recent years Mexico has received increased volumes of capital flows, which has enabled it to achieve historically low levels of interest at the international markets (5.32 % for 30 years and 4.64% for 10 years in June 2013). Financial situation of Mexico Mexico has one of the best risk ratings in Latin America (EMBI +) and JP Morgan and other international rating agencies have given it the classification “Investment grade” (Standard & Poor’s , Moody’s and Fitch) recognising the stability of its political institutions, the independence of the Central Bank and the prudent macroeconomic policies pursued by the authorities in recent years (including the requirement of a balanced budget and prudent management of the Bank) . The action of the Central Bank is particularly noteworthy: policy inflation target (3% with + / -1 point) to limit the rise of price at 4.4 % in 2010, economic recovery and rising food prices. Inflation displays a remarkable stability - 4.09 % the end of June 2013, reflecting the tight monetary policy (the total government deficit was 3,7% of GDP in 2012). The relative weight of external debt was reduced gradually while the external credibility of the country was restored : the rating agencies have given Mexico the investment grade since 2000. The Mexican government is the first Latin American borrower in the international market. Given the quality of the policy mix, IMF renewed its confidence in Mexico by giving the country, as a precaution, its 4th Flexible Credit Line in November 2012 for a total of $ 73 billion for a period of two years. However, the financial stability of Mexico has been affected by a decline in oil production, while oil revenues still account for over one third of budget revenues and match 14.3 % of total exports in 2012. Given the planned reduction in the future, Mexico has undertaken the first step with the recent energy reform to reduce its dependence vis-à- vis oil revenue. Fiscal and economic policies Mexico has obvious economic advantages, and some of the industrial groups are competitive players on the international scene with solid financial systems. Mexico benefits from a coherent governance, and the severe problems caused by the repeated crises of the 1980s and 1994 led successive governments to pursue prudent and consistent macroeconomic policies. It allowed the government to undertake consolidation of public finances and have leeway, admittedly modest, for adopting countercyclical measures as was the case in 2009. During his tenure (2006-2012) President Felipe Calderón was able to achieve some structural reforms long overdue including pension reform in the civil service, electoral reform, Pemex restructuring and redeployment of energy sector, etc. The current President Enrique Peña Nieto, in power for more than a year, has already passed various reforms, including labour, education, telecom, fiscal and energy.
PwC Mexico 25 Agreement Coverage Date of signature Entry into force North American Free Trade Agreement Goods and services December 17, 1992 January 1, 1994 Costa Rica - Mexico Goods and services April 5, 1994 January 1, 1995 Nicaragua - Mexico Goods and services December 18, 1997 July 1, 1998 Chile - Mexico Goods and services April 17, 1998 August 1, 1999 European Union - Mexico Goods and services December 8, 1997 July 1, 2000 (goods) October 1, 2000 (services) Israel - Mexico Goods April 10, 2000 July 1, 2000 Northern Triangle - Mexico Goods and services June 29, 2000 March 15, 2001; June 1, 2001 EFTA - Mexico Goods and services November 27, 2000 July 1, 2001 Uruguay - Mexico Goods and services November 15, 2003 July 15, 2004 Japan - Mexico Goods and services September 17, 2004 April 1, 2005 Colombia - Mexico Goods and services June 13, 1994 January 1, 2011 Peru - Mexico Goods and services April 6, 2011 February 1, 2012 Central America - Mexico Goods and services November 22, 2011 Pending Treaties and Agreements Its political opening facilitated bilateral and multilateral agreements, strengthened its dynamic economy, and over the years Mexico has become a regional market power. Its first steps in the field of economic cooperation at the multilateral level date back to 1980 with the accession to the Treaty of Montevideo establishing the Latin American Integration Association (LAIA ). Thereafter, Mexico joined the GATT in 1986. In the wake of NAFTA in 1994, Mexico became a champion of bilateral agreements. Decreasing the strong dependence of the Mexican economy vis-à- vis the its northern neighbour remains a priority of the authorities. A strategy of trade diversification was implemented which has already led to the signing of 12 free trade agreements with 44 countries. The free trade agreement with the EU was signed in 1997 and entered into force in 2000. In January 2013, Mexico informed the European Commission of its desire to modernise the FTA. The negotiations include deepening existing provisions but also including new areas such as services, investment, public procurement, trade rules. A Joint Working Group was formed to work on the modernisation of the agreement3 . 3 (http://europa.eu/rapid/press-release_MEMO-13-915_en.htm)
Nordic investment in Mexico26 Trade and trade balance Trade in goods from Mexico rose 5.9 % in 2012, confirming the steady recovery started in 2010. With 370.9 billion dollars of exports and nearly 370.8 billion dollars in imports, Mexico remains the largest trading power in Latin America. Most of the trade consists of manufactured goods (81.4 % of exports) including cars, electrical and electronic goods, as Mexico is acting as an assembly platform for North America. Trade patterns remain highly dependent of the U.S. economy, as the United States alone receives 77.6 % of exports and 49.9 % of imports. The policy of trade diversification seeks to overcome this dependence, and new initiatives like Pacific Alliance could further boost the recovery of the Mexican foreign trade. Mexican trade has evolved considerably since the signing of the free trade agreement with NAFTA and the series of trade agreements that followed. Today more than 90 % of Mexican trade is governed by free trade agreements. Consequence of this opening is that foreign trade accounts for 60% of GDP in 2012 compared to 27% in 1993. Since 1994, annual exports grew by 12.6 % in average, and imports by 11.4 %. After a deteriorating trade deficit that peaked in 2008 with minus $ 17.5 billion, Mexico has improved markedly since then with the trade balance recording a surplus of $ 163 million in 2012. Mexico is the first country in Latin America with a total of more than 740 billion in trade, and the 12th worldwide, with 2 % participation in global exports. Between 1993 and 2012, sales abroad increased more than fivefold, thanks to the liberal trade policies. However, Mexico is very dependent on its oil exports. The country is, according to the WTO, the 16th largest oil importing country in 2012. The imports have increased considerably since the implementation of NAFTA and the weight of North America in imports and exports remains very strong. However, since the late 1990s, this trend has shifted in favour of Asian countries and, to a lesser extent, to European Union. The Pacific Alliance Treaty Two years after its official launch, the Pacific Alliance (including by 4 countries already interlinked through trade agreements: Mexico, Colombia, Peru and Chile) has established itself as a modern integration process with political and economic cooperation in a regional panorama marked by various integration projects of the previous generation (MERCOSUR , CAN ). This integration has raised the growing interests of many states. In its quest for regional leadership, Mexico has made Pacific Alliance vector of its foreign policy in Latin America. 1. A dynamic and innovative regional process Vast market of nearly 210 million consumers (36% of the population of Latin America and Caribbean - LAC) , the Pacific Alliance appears to be a dynamic and significant from an economic point of view: its overall GDP between 2003 and 2012 increased by 115%. It consists of 35% of GDP in the LAC region (2,010 billion in 2012) and almost half of trade in goods in the region with the rest of the world. It also hosts 37 % of the flows FDI in LAC. Based on a pragmatic method (limited number of participants, the existence of prior commercial ties and weak institutionalisation ), 4 member states have been able to infuse a positive dynamic that has lead to concrete results: free movement of goods and people, promotion of foreign trade and tourism, many cooperation projects and active involvement of the private sector. 2. A myriad of opportunities for Mexico in its quest for regional leadership Mexico’s participation in the Pacific Alliance meets its commercial diversification strategy. This regional commercial power, bound by agreements with 3 other member states, has an interest to deepen its ties with them as they offer a growing market. As the Pacific Alliance also seeks to strengthen relations with other Latin American and the Caribbean states, Mexico is anxious to assume a regional leadership. The Alliance allows it to join with other countries favouring economic liberalism and pose an ideological counterweight to the ALBA, the MERCOSUR countries which do not hesitate to resort to protectionist measures including Argentina and Brazil. 3. Cali, a decisive summit The 7th Summit in Cali (presidential meeting May 23, 2013 ) was a turning point in the history of this process, and the four countries dealt with critical issues (geostrategic and economic ambitions ) for the development of the project: participation of other states, under institutional, trade and integration, services and capital, cooperation projects and free movement of people and export promotion.
PwC Mexico 27 Foreign Direct Investment In terms of foreign direct investment, many agreements have been signed by Mexico. To attract foreign investment is a major challenge for the country that wishes to remain a leader in this area in Latin America. So far, 27 agreements for the reciprocal promotion and protection in investments have been concluded. This makes Mexico a good place to invest and an ideal platform to export. The two most important agreements are NAFTA and FTA with the European Union. Foreign investment in Mexico focuses mainly around the border towns with the U.S and large industrial centres such as Guadalajara, Queretaro, Monterrey and Puebla. The Yucatán peninsula attracts much foreign investment in the tourism sector. Mexico receives significant amounts of FDI. In 2012, it was the fourth FDI receiver in Latin America after Brazil, Chile and Colombia. However, these figures do not reflect the wider trend which places Mexico as the second largest FDI recipient country in Latin America (in 2011) and the expectations for 2014 seem positive. That would place Mexico among the top then in the world for the most attractive countries in terms of FDI. The share of FDI from the European Union is, in turn, around 37 % of FDI received by Mexico. Over the period of 2000-2012, FDI mostly came from the United States, followed by Spain, the Netherlands , Canada, the United Kingdom and Switzerland. Government incentives for foreign investment In terms of economic development policies, one of the priorities for Mexico is to attract foreign direct investment. The promotion of foreign investment in Mexico is conducted by the Ministry of Economy, Development Bank (NAFINSA), the Bank for Export Promotion (BANCOMEXT) and the Secretaries of the Economic Development in different states. The Mexican federal government and many states offer incentives to foreign manufacturers. Historical granting of government incentives In the 1970s and 1980s Mexico gave large incentive packages for investment to attract foreign manufacturers to respond to a high rate of unemployment in the country. These policies were initiated to create manufacturing centres to the border and in the parts of the country where few jobs were available. Significant packages were provided to major car, electronic and consumer goods manufacturers. To ensure that these companies were successful in Mexico, packages were also offered to their suppliers. In the 1990s, the best incentives were offered to foreign businesses manufacturing in certain geographical areas and belonging to certain industries. The electronics industry in Guadalajara, Tijuana and Juarez was first developed by government incentives as was the case of the automotive sector, which has migrated from the United States and Europe to Saltillo, Leon, Toluca and Puebla. Training programmes to increase the skill level of workers, subsidised goods and real estate, were offered. Thanks to the successful government policies, Mexico has reached its goal of becoming a manufacturing platform for North America. Industrial parks and free zones The free zone is a limited geographical area benefiting from incentives including exemption from customs duties and preferential tax and social treatment. Their goals are to: • create jobs; • strengthen the trade balance by supplying currency and an increase in exports; • contribute to greater inter-industry integration (developed countries - developing countries) and raise the international competitiveness of the domestic industry; • elevate the competence of workers and promote the development and transfer of technologies; • maintain the workforce on site and thus curb immigration. In 2003, the first free zone of Mexico was created in the state of Nuevo León. Since then, over eighty industrial parks have been opened. Several industrial parks have sprung up over the last decade across the country, providing land for infrastructure construction and equipment. Land is generally available with loans, and sometimes they are given or sold at discounted price in order to promote construction of new plants. Mexico’s accession to the North American Free Trade Agreement (NAFTA) changed the naming of free zones, now divided into two categories: Processing zones (border areas); the free regions (border regions).
Nordic investment in Mexico28 The pattern is the same for both categories, the difference being that the zones are located along the northern border, while the free areas include entire states (including Oaxaca, Chiapas, Quintana Roo, Baja California, Baja California Sur, Sonora). The main industrial parks are located in Queretaro, Toluca, Naucalpan San Andres Atoto, Puebla, Guadalajara and Monterrey. Project financing Once a foreign investor has decided to move to Mexico, it is important to know that there are programmes and national organisations that support companies in funding. Among these is PYME programme to support micro, small and medium enterprises, which is led by the National Institute of Entrepreneurship (“Instituto Nacional del Emprendedor” INADEM) created in December 2012 in collaboration with the government of Enrique Peña Nieto. To be eligible for funding, projects must address one of the following objectives: 1. Strategic sector and regional development programmes: • Development of the supplier; • Regional competitiveness; • Economic recovery; • Economic recovery for the National Programme of the prevention of violence and social crime, and the National Campaign against hunger; • Support to Regulatory Improvement projects; 2. Business development programmes : • Building and strengthening connections between the states; • The creation and strengthening of business incubators and incubation networks; • The realisation of events that promote strategic sectors , linkages and entrepreneurship; • Awareness campaigns and workshops for culture and entrepreneurial skills ; • Promote innovation initiatives ; • Bonus for ingenuity, innovation and invention for entrepreneurs and small businesses; 3. Programmes for entrepreneurship and financing : • Access to finance ; • The development of the venture capital system; 4. Programmes for micro, small and medium enterprises: • Capacity building; • The development and acquisition of concessions; • The integration of global production chains SMEs; • The development of exportable products and services.
PwC Mexico 29 A second programme includes the funds to support research, development and innovation through National Council for Science and Technology (“Consejo Nacional de Ciencia y Tecnología” - CONACYT). CONACYT, an institution that regulates and supports excellence in the areas of science and technology, also has the task of allocating funds for projects with innovation, which may contribute to the development of the country. Among the types of resources available are: 1. Sector funds: organisations and entities of the federal government, in collaboration with CONACYT, can allocate resources for scientific research and technology development in specific sectors. 2. Mixed funds: they are a tool to support the development of science and technology and municipalities. They must involve municipal, provincial and federal governments. 3. Institutional funds: CONACYT has launched many targeted funding to meet and support the needs of the scientific community and technology. Among them are: • Institutional Fund of CONACYT (HAY) • Institutional Fund for Technology • Regional Institutional Development Fund for Science, Technology and Innovation (FORDECYT) • Institutional Fund for Science • CIBIOGEM Fund • IDEA Programme 4. International Fund: a fund for international cooperation for the promotion of scientific and technological research, with common projects between Mexico and the EU. 5. Institutional support: a fund granted to support scientific research, technology development and innovation, by individuals or entities in the public and private sector. The approval of the Director General of CONACYT and the support of the Institutional Commission(IAC) are required. 6. Programmes to stimulate innovation: support programmes for businesses to invest in research, technological development and innovation for the creation of new products, processes or services. Today, in order to remain competitive, Mexican government still offers a set of incentive packages to foreign investors. These incentives vary by location, sector, level of financial investment, types and number of jobs created and the expected long-term benefits. PROMEXICO has a map of investments in the country to illustrate the incentives offered by each state and facilitate the process of selecting the geographical area. This investment map of Mexico4 offers information on competitive advantages, infrastructure tenders, the human capital, demographic components, the presence of strategic industries and industrial parks. 4 (http://mim.promexico.gob.mx/wb/mim/inicio)
Nordic investment in Mexico30 Nordic investment in Mexico
PwC Mexico 31 Bilateral relations and agreements The most important agreement regulating commercial relations between Mexico and Nordic countries is the Mexico-European Union Free-Trade Treaty (MEUFTT), which went into effect in July 2000. Among its principal objectives are to promote the exchange of goods and services, liberalise commerce, attract materials and technologies for Mexican companies, encourage direct investment and increase opportunities and strategic alliances. There is also the Agreement for Reciprocal Promotion and Protection of Investments (APPRI), which has been in effect since July 2000 with Finland; September 2000 with Denmark; and July 2001 with Sweden. The Mexico-Nordic juridical framework also includes an Economic Cooperation Agreement (1980 with Denmark; 1975 with Finland); a Double Taxation Treaty (1997 with Denmark; 1998 with Finland; 1995 with Norway; 1993 with Sweden) and an Agreement for Scientific and Technical Cooperation (1983 with Denmark; 1980 with Sweden) as well as Mexico-European Union Cultural Agreement and Agricultural Agreement. Furthermore, a Memorandum of Understanding on Cooperation between the Government of Sweden and the Government of the United Mexican States on behalf of the National Council of Science and Technology was inaugurated in 2011. In 2013, Sweden has also signed a Letter of Intent on cooperation in the Field of Health and Social Assistance and a Memorandum of Understanding on Cooperation in Export Credits. Nordic FDI Nordic investment in Mexico has remained relatively stable during the time period from 2001 to 2013, especially in the case of Finland and Norway, with Finnish FDI experiencing its peak in 2003 and Norwegian one in 2009. Danish and Swedish FDI has experienced growth with Danish FDI peaking in 2001 and 2006 and Swedish one in 2004 and 2010. Sweden continues to represent the biggest investment among the Nordic countries, with Denmark on the second place, followed by Finland and Norway. This trend is evident in the number of companies with Sweden having 150 companies and representatives in Mexico, Denmark 58, Finland 38 and Norway 29 with the total of over 200 Nordic companies. Mexico-Denmark bilateral trade • In 2012, Denmark was in 50th place in Mexico’s total commerce (40th as a supplier and 46th as a purchaser). It was in 14th place among the countries of the European Union. • Trade relations between Mexico and Denmark grew by 206% from 2002 to 2012, from $214 to $656 million dollars (md), for an average annual growth rate of 11.8%. • Exports grew 414% from 2002 to 2012, from 37 to 190 md, for average annual growth of 17.8%. On the other hand, imports increased by 163% in that same period, rising from 177 to 466 md in 2012 for an average annual growth rate of 10.1%. • In 2012, overall trade between Mexico and Denmark grew 17% over 2011, according to Bank of Mexico figures. In that same period, Mexican exports to Denmark showed growth of 65%, while Mexican imports from Denmark rose by 5%. • At the 2012 closing, Mexico showed a 276 md deficit in its balance of trade with Denmark. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 600 400 200 0 -200 SWE DK NOR FIN Source: Secretaría de Economía.
Nordic investment in Mexico32 Bilateral commerce Mexico - Denmark 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 600 400 200 0 -200 -400 -600 millionsofdollars Exports from Mexico to Denmark Imports from Denmark to Mexico Commercial scale Source: Banco de México. Indicators 2010 2011 2012 Jan-Nov Total trade Annual variation 647 48% 559 -14% 608 18%* Mexican exports to Denmark Annual variation 119 84% 116 -3% 174 74%* Mexican imports from Denmark Annual variation 528 42% 443 16% 434 5%* Balance of trade -409 -327 -260 Indicators 2010 2011 2012 Jan-Nov Total trade Annual variation 555 57% 517 -7% 534 14%* Mexican exports to Denmark Annual variation 120 27% 149 24% 175 32%* Mexican imports from Denmark Annual variation 435 68% 368 15% 359 7%* Balance of trade -315 -219 -184 Mexico - Denmark bilateral trade ratio (millions of dollars) Reporting country: Mexico Mexico - Denmark bilateral trade ratio (millions of dollars) Reporting country: Denmark Source: Banco de México. *Variation from the same period in the preceding year. Source: Global Trade Atlas. *Variation from the same period in the preceding year. Products exported from Mexico to Denmark % Part Products imported from Denmark to Mexico % Part Pumps for liquids; elevators for liquids 16% Other toys; reduced scale models and simple models 11% Turbojets, jet engines and other turbines 16% Medications 10% Automatic data processing devices 15% Smelting boxes; molds for metal, glass and plastic 6% Centrifuges; liquid and gas filtering devices 8% Agglutinating preparations for molds 4% Electric motors and generators 7% Enzymes; enzyme preparations 4% Other toys; reduced scale models and simple models 7% Machines designed to: wash dishes; fill, cap or label containers; pack merchandise; inject gas into beverages 4% Hollow iron and steel pipes and profiles 6% Automatic regulation or control instruments 4% The rind of citrus fruits, melons or watermelons 4% Accessories and similar items for pipes 3% TV sets; monitors and projectors 4% Components for product manufacturing (item 9802) 3% Vegetable juices and extracts; pectin-containing material; thickeners 2% Parts for electric motors, generators and converters 2% Subtotal 85% Subtotal 51% Other products 15% Other products 49% Total 100% Total 100% The principal products traded between Mexico and Denmark in 2012 Source: Global Trade Atlas.
PwC Mexico 33 • 94% of Mexican exports to Denmark in 2012 were manufactured goods, principally submersible pumps, turbojets and jet engines, memory units for computers and dryer filters. On the other hand, 99% of Mexican imports from Denmark consisted of manufactured goods, principally construction toys, medications and boxes and plates for injection molding. FDI • In 2012, Denmark was the 12 largest investor in Mexico. Of European Union countries, it was in the eighth place. • From January 1999 to December 2012, Danish companies invested 1,761.7 million US dollars (md) in Mexico. 37% of that investment went into the manufacturing industry, 21% to real estate services, 18% to the trade sector and 11% to the transportation, postal and storage sector. • The federal entities with the highest level of Danish investment are Nuevo León, The Federal District and the State of Mexico. • A total of 108.5 md of Danish investment was recorded in Mexico, mostly in the contraction sector. • At the 2012 closing, there were 202 companies of Danish origin with investments in Mexico. • The 500 largest companies in Mexico published by Expansión (2012 issue) include one Danish company: ISS Facility Services, in 438th place. Denmark’s FDI in Mexico (flow, millions of dollars) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 300 250 200 150 100 50 0 -50 millionsofdollars Source: Secretaría de Economía.
Nordic investment in Mexico34 Mexico-Finland bilateral trade • In 2012, Finland was in 54th place in Mexico’s total trading partners (44th as a supplier and 59th as a purchaser). It was in 16th place among the countries of the European Union. • Trade relations between Mexico and Finland grew by 221% from 2002 to 2012, from $163 to $523 million dollars (md), for an average annual growth rate of 12.4%. • Exports grew 733%, from 12 md in 2002 to 100 md in 2012, for annual average growth of 23.6%. Imports grew 180% in that same period, from 151 to 423 md, for annual average growth of 10.9%. • At the 2012 closing, Mexico showed a 323 md deficit in its balance of trade with Finland. Indicators 2010 2011 2012 Jan-Nov* Total trade Annual variation 438 -46% 478 9% 494 13% Mexican exports to Finland Annual variation 64 -88% 74 15% 95 42% Mexican imports from Finland Annual variation 374 31% 404 8% 399 8% Balance of trade -310 -330 -303 Indicators 2010 2011 2012 Jan-Nov* Total trade Annual variation 315 37% 350 11% 354 9% Mexican exports to Finland Annual variation 79 -11% 125 58% 96 -15% Mexican imports from Finland Annual variation 236 67% 225 -4% 258 23% Balance of trade -157 -100 -162 Mexico - Finland bilateral trade ratio (millions of dollars) Reporting country: Mexico Mexico - Finland bilateral trade ratio (millions of dollars) Reporting country: Finland Bilateral commerce Mexico - Finland 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 600 400 200 0 -200 -400 -600 millionsofdollars Exports from Mexico to Finland Imports from Finland to Mexico Commercial scale Source: Banco de México. Source: Banco de México. *Variation from the same period in the preceding year. Source: Global Trade Atlas. *Variation from the same period in the preceding year.
PwC Mexico 35 • In 2012, 97% of Mexican exports to Finland were manufactured goods, principally automobiles used in tourism, mobile phones and auto parts, particularly suspension shock absorbers, axles with chain blocks and tractor body parts. Mexico also exported coffee and malt beer to Finland. On the other hand, 99% of Mexican imports from Finland were manufactured goods, principally paper and cardboard, construction machinery (such as hydraulic front loaders) and freight vehicles. Products exported from Mexico to Finland % Part Products imported by Mexico from Finland % Part Automobiles for use in tourism and other motor vehicles 44% Paper and cardboard coated on one or both sides with kaolin 13% Telephones, including mobile phones and phones for other wireless networks 31% Bulldozers, graders, mechanical shovels, excavators, etc. 8% Motor vehicle parts and accessories 4% Freight transportation vehicles 6% Enzymes; enzyme preparations 4% Machines and devices for producing pasta or paper finishing 5% Coffee, including toasted and decaffeinated 3% Other earthmoving machines and devices 5% Malt beer 2% Medications 4% Other gauges; speedometers and tachometers 1% Machines and devices with built-in functions 4% Pipe accessories 1% Electricity transformers 2% Inner tubes - tires 1% Centrifuges, including dryers 2% Electrical batteries 1% Flat, stainless steel laminated products 2% Subtotal 92% Subtotal 51% Other products 8% Other products 49% Total 100% Total 100% The principal products traded between Mexico and Finland in 2012 Source: Global Trade Atlas. FDI • In 2012, Finland was in 30th place worldwide among investors in Mexico and 11th place among countries of the European Union. Flows registered in that year totaled 4.2 md. • From January 1999 to December 2012, Finnish companies invested 676.3 million US dollars (md) in Mexico. 50% of that investment flowed into the manufacturing industry, followed by the business support and waste management sector with 32% of the total and the trade sector with 18%. • The federal entities with the highest level of Finnish investment are Nuevo León, Puebla and the Federal District. In December 2012, there were 36 Finnish companies with investments in Mexico. Finland’s FDI in Mexico (flow, millions of dollars) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 140 120 100 80 60 40 20 0 -20 -40 -60 millionsofdollars Source: Secretaría de Economía.
Nordic investment in Mexico36 Principal Mexican exports to Norway % Part Principal Mexican imports from Norway % Part Hollow iron and steel pipes and profiles, with no welding 61% Mineral and chemical fertilizers 19% Turboreactors, turbopropulsion devices and other turbines 6% Petroleum gas and other gas hydrocarbons 14% Malt beer 5% Mineral and chemical fertilizers containing nitrogen 13% Coffee, including toasted and decaffeinated 4% Dry, salt or pickled fish; smoked fish 11% Wire, cable and other conductors 3% Telephones, including cell phones and phones for other wireless networks Other 21% Other 40% Percentage of manufactured items 95% Percentage of manufactured items 73% The principal products traded between Mexico and Norway in 2011 Source: Global Trade Atlas. Mexico-Norway bilateral trade • In 2012, Norway was in 62th place in Mexico’s total commerce (68th as a supplier and 58th as a purchaser). • Trade relations between Mexico and Norway grew by 129% from 2002 to 2012, from $101 to $232 million dollars (md), for an average annual growth rate of 9%. • Exports grew 724% from 2002 to 2012, from 8 to 66 md, for average annual growth of 23%. On the other hand, imports increased by 78% in that same period, rising from 93 to 166 md in 2012 for an average annual growth rate of 6%. • At the 2012 closing, Mexico showed a 100 mdd deficit in its balance of trade with Norway. • In 2011, 95% of Mexican exports to Norway were manufactured goods, mainly iron and steel pipes, turboreactors and turbines. On the other hand, 73% of Mexican imports from Norway consisted of manufactured goods, principally telephones& wireless networks and mireal and chemical fertilizers. FDI • In 2012, Norway was in 37th place worldwide among investors in Mexico. • From January 2001 to December 2011, Norwegian companies invested 60.3 million US dollars in Mexico. • From January to December 2011, Norwegian investment of 19.2 md flowed into the country • Up to September 2012, there were 29 Norwegian companies with investments in Mexico. Norway’s FDI in Mexico (flow, millions of dollars) 500 400 300 200 100 0 -100 -200 millionsofdollars Source: Secretaría de Economía. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
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041404_GM_NordicInvestment

  • 2. The purpose of this document is to be only a general reference on certain areas of interest. The application and effect of the law may vary depending on the specific data included herein. Omissions or inaccuracies are possible due to the changing nature of the laws, rules and regulations. This document is distributed based on the understanding that the authors and editors are not bound to offer legal, accounting and tax advice, nor other professional services. Therefore, this document cannot replace direct accounting, tax or legal professional advice, or any other type of advice. Before making any decision or taking any action, we recommend calling upon a professional of PwC Mexico. Even though we made our best effort to base the contents of this document on reliable sources, PwC Mexico is not responsible for any mistake or omission resulting from the use of this information. The data included in this document is provided “as found” in the original source, without guaranteeing its integrity, precision, accuracy or assuming the responsibility for the results obtained through its application; and without any other kind of guarantee, expressed or implicit, including but not limited to performance, commercialisation and convenience guarantees to reach an specific goal. PwC Mexico, its affiliated companies/firms, partners, agents or employees cannot be held accountable for any decision or measure implemented by you or any other person based on this information, as well as for any resulting damage or harm, specific or similar, including a notification about the possibility of such damage.
  • 3. PwC Mexico Content table Iceland Denmark Norway Sweden Finland Foreword Acknowledgements Introduction to Mexico Tax and legal framework Macro-economic analysis Nordic investment in Mexico CEO interviews Conclusion Contact information Sectors • Telecommunications • Manufacturing • Infrastructure & Logistics • Automotive • Healthcare • Mining • Retail • Energy Directory of Nordic companies
  • 4. Nordic investment in Mexico4 Acknowledgements
  • 5. PwC Mexico 1 Susanne Rumohr Hækkerup, Ambassador of Denmark in Mexico Anne Lammila, Ambassador of Finland in Mexico Merethe Nergaard, Ambassador of Norway in Mexico José Ignacio Madrazo, Ambassador of Mexico in Denmark Norma Pensado Moreno, Ambassador of Mexico in Finland Ambassador of Mexico in Norway Ambassador of Mexico in Sweden Jörgen Persson, Ambassador of Sweden in Mexico Ivar Gundersen, ABC Communications Jakob Sjölander, Business Sweden Mayra Mateos, Business Sweden Marit Hvithamar, Confederation of Danish Industy Tore Myhre, Confederation of Norwegian Enterprise Katarina Sætersdal, Confederation of Norwegian Enterprise Allan Leest, Embassy of Denmark in Mexico Jakob Tvede, Embassy of Denmark in Mexico Marco Thomas Lund, Embassy of Denmark in Mexico Kaisa Koivisto, Embassy of Finland in Mexico Simen Ekblom, Embassy of Norway in Mexico Adam Boltjes, Embassy of Sweden in Mexico Jakob Holthuis, Embassy of Sweden in Mexico Erna Takala, Finpro Nina Jaakkola, Finpro Alenica Staniewski, International Business Centre PwC Mexico Anthony Armand, International Business Centre PwC Mexico Caroline Tissot, International Business Centre PwC Mexico Lisamaria Markula, International Business Centre PwC Mexico Margarida Costa, International Business Centre PwC Mexico Maria Alejandra Urrea, International Business Centre PwC Mexico Pia Maria Lustig, International Business Centre PwC Mexico Raehyun Im, International Business Centre PwC Mexico Shravan Thampi, International Business Centre PwC Mexico Thibaut Buat, International Business Centre PwC Mexico Walter Heredia, International Business Centre PwC Mexico Yan Zhang, International Business Centre PwC Mexico Per Hagen, INTSOK Sergio Rivas, INTSOK Board and Directors 2013-2014, Nordic Chamber of Commerce in Mexico Estrellita Fuentes, Nordic Chamber of Commerce in Mexico Hanna Arnby, Nordic Chamber of Commerce in Mexico Richard Scarborough, Norwegian Shipowners’ Association Carlos Pérez-Cirera Langenscheidt , ProMexico Berta Rendón, PwC Mexico Carlos Méndez, PwC Mexico Carlos Montemayor, PwC Mexico Carlos Morales Rozo, PwC Mexico Cesar Lara, PwC Mexico Eduardo De La Pena, PwC Mexico Eduardo Reyes Bravo, PwC Mexico Fredy Muñoz, PwC Mexico Gabriel Muñozcano, PwC Mexico Ivan Diáz-Bárreiro, PwC Mexico José Almodovar, PwC Mexico José Antonio Quesada, PwC Mexico Juan Luís Garcia, PwC Mexico Luis Sánchez Gonzalez, PwC Mexico Marco Hernandez, PwC Mexico Moises Cisneros, PwC Mexico Norma Gascon, PwC Mexico Tove Ulmanen, PwC Mexico Ulrika Andersson, PwC Mexico PwC Denmark PwC Finland PwC Norway PwC Sweden Nina Hamer, Traducciones Hamer Interviews Carlos Caicedo, Atlas Copco Søren Ustrup, Arla Food Ingredients Raul Armenta, Autoliv Jonny Torp, BWO Gustavo Godinez, DNV José Luis Serrato, Ericsson Richardt Fangel, FL Smidth Rafael Llamas, Hiab Cargotec Adonaí Garcia, KWH Mirka Alicia Bandala, KONE Jens Peter Klausen, Lego Michael Hansen, Maersk Line Daniel Merlo, Maquet Leif Lindholm, Metso Minerals Morten Vaupel, Novo Nordisk José Antonio Martínez Palacios, Norsafe Guillaume Lejeune, Stora Enso Adrian Katzew, Vestas Sergio Gutierrez, WWL Pedro Parenti, Yara
  • 6. Nordic investment in Mexico2 Foreword
  • 7. PwC Mexico 3 Carlos Mendez Territory Senior Partner PwC Mexico Nordic Desk within International Business Centre at PwC Mexico was created in late 2012. Previously from 2010-2012 it was called Scandinavian Desk and mostly focused on Swedish market. In these years we have begun to work with the key players of the Nordic community in Mexico, such as the Embassies and their trade offices, the Nordic Chamber of Commerce and ProMexico. With these co-operation partners we decided to make this publication in order to promote our country in the Nordic countries. In the past decade the multilateral trade has greatly increased in-between Mexico and Nordic countries: over 200% with Denmark and Finland, over 120% with Norway and over 45% with Sweden. There are currently over 250 Nordic companies in Mexico and the country offers a lot of opportunities for the Nordic companies especially in automotive, energy, health, manufacturing, mining, retail, telecoms and transportation and logistics sectors, which are presented in this publication. Mexico is becoming a centre of Nordic business in Latin America. In recent years, many companies have chosen to invest in Mexico and set up their regional offices, not only for its proximity with the United Stated and the ease of trade, but also because the domestic market is growing rapidly. Today, Mexico is considered to be one of the most competitive countries in the world, belonging to the so-called MINT group along with rapidly growing economies of Indonesia, Nigeria and Turkey. In 2013, the federal government passed two major and long- standing constitutional reforms on telecommunications and energy, with the purpose of boosting competitiveness and growth for these key economic sectors in Mexico. Mexico has a great potential for accelerated economic growth. In 2012, Latin America’s second largest economy maintained a steady growth of 3.9% supported by both external and internal demand. In 2013, GDP was expected to grow 3.5%, but in reality the growth was a mere 1.1 %. However, the forecast for 2014 looks promising with the growth rate expected to go back to 2012 numbers. To conclude, I would like to point out that the publication “Nordic investment in Mexico” is designed as an accessible tool for both industry experts and for anyone interested in Mexico. Our hope is that this publication will contribute to strengthening co-operation between the Nordic countries and Mexico and will attract new Nordic investment into Mexico. PwC’s desire is to intensify the good relationship we have established in recent years with the Nordic Embassies, the Nordic Chamber of Commerce and ProMexico and to be a reference point for the Nordic community in Mexico.
  • 8. Nordic investment in Mexico4 Susanne Rumohr Hækkerup Ambassador of Denmark in Mexico Det er ikke tilfældigt, at den danske regering har udvalgt det mexicanske marked i sin ambitiøse vækstmarkedsstrategi fra 2013 som et af de markeder, danske virksomheder bør satse på. Mexico har en befolkning på 115 mio. og omkring 25 mio. af dem med en købekraft svarende til et dansk gennemsnitsindkomstniveau. Landet er derfor et stadigt mere attraktivt marked. Den mexicanske regering har desuden vedtaget en række gennemgribende reformer, som kan bidrage positivt til landets vækst. Mexico er i dag den 14. største økonomi i verden – med en voksende befolkning og en stigende økonomisk vækst forventes landet at vokse til den 5. største i 2050. For produktionsvirksomheder er Mexico også et oplagt springbræt for eksport. Landet har et af verdens største net af frihandelsaftaler med adgang til 1,2 mia. forbrugere. I Nordamerika dækker NAFTA et marked på 18,7 mia. USD. Mexico har nu overgået Kina og USA hvad angår konkurrencedygtige produktionsomkostninger for forbrugsvarer. Hvor mexicanske timelønninger for 10 år siden var tre gange højere end i Kina, er de nu en femtedel lavere. Mexico er samtidig et bevis på, at lave lønomkostninger ikke nødvendigvis er ensbetydende med en mangel på kompetencer. Mexico uddanner hvert år 110.000 ingeniører og fremstiller og eksporterer en række sofistikerede produkter inden for bilindustri, medicinaludstyr, mobiltelefoner, fladskærme og udstyr til luft- og rumfart. Danske virksomheder ser i stigende grad ud til at have fået øje på mulighederne på det mexicanske marked, hvor det danske brand nyder en stor anseelse og associeres med innovation og troværdighed. Danmark er med sine investeringer på 3.900 millioner kr. blandt EU’s største investorer i landet, og dansk vareeksport er fordoblet siden 2007. Mexicanske forbrugere er i stigende grad begyndt at stille krav til de produkter, de køber, og producenter efterspørger i stigende grad input, så de kan følge med forbrugernes stigende krav samt effektivisere deres produktion og øge deres konkurrencedygtighed. For danske virksomheder, der er stærke inden for kvalitet, innovation og procesoptimering, er der derfor rigtig gode muligheder for at afsætte produkter på det mexicanske marked. Jeg håber, at denne publikation vil bidrage til at øge kendskabet til de mange muligheder i Mexico.
  • 9. PwC Mexico 5 Anne Lammila Ambassador of Finland in Mexico Tänä vuonna tulee kuluneeksi 50 vuotta siitä, kun Suomi ja Meksiko avasivat suurlähetystönsä toistensa pääkaupungeissa. Diplomaattisuhteet solmittiin jo aiemmin, vuonna 1949. Maittemme väliset suhteet ovat hyvät, mutta kasvupotentiaalia on paljon enempään. Parhaiten kahdenvälinen yhteistyö on toiminut muutamilla teknisillä sektoreilla, erityisesti ympäristöalalla. Suomella ja Meksikolla on ollut metsäalan yhteistyötä jo 1960-luvulta alkaen. Yhteistyö laajeni tällä vuosikymmenellä oikeus- ja vesialoille. Myös kansainvälisillä foorumeilla, erityisesti YK:ssa, maamme harjoittavat paljon yhteistyötä. Viimeisin korkean tason vierailu oli toukokuussa 2013, kun Eurooppa- ja ulkomaankauppaministeri Alexander Stubb vieraili Meksikossa mukanaan laaja delegaatio suomalaisyrityksiä. Suomen ja Meksikon välinen kauppa on kasvanut tasaisesti vuonna 2008 tapahtuneen notkahduksen jälkeen aina vuoteen 2013 saakka, jolloin Meksikosta suuntautunut tuonti laski 32 prosenttia edellisvuoteen verrattuna. Kauppavaihtomme oli vuonna 2013 noin 415 miljoonaa euroa, mikä merkitsi noin prosentin laskua vuoteen 2012 verrattuna. Vientimme oli 306 miljoona euroa ja tuontimme 109 miljoonaa euroa, joten kauppataseen ylijäämä Suomelle oli 197 miljoonaa euroa. Suomen kokonaisviennistä ja -tuonnista Meksiko edustaa hieman alle puolta prosenttia. Taloudellisessa kanssakäymisessä on paljon kehittämisen varaa, sillä Meksikossa on erittäin ostovoimainen keski- ja yläluokka, ja maan infrastruktuuria parannetaan nopeaa tahtia. Myös käynnissä olevat taloudelliset uudistukset avaavat entistä parempia tai kokonaan uusia liiketoimintamahdollisuuksia. Meksikolla on valtava kasvupotentiaali, joka usein jää muiden nousevien talouksien varjoon. Yksipuolinen, turvallisuustilanteeseen keskittynyt uutisointi on osaltaan vaikuttanut negatiivisesti eri toimijoiden halukkuuteen luoda yhteyksiä Meksikoon. Useat kilpailija- ja verrokkimaamme ovat kuitenkin lisänneet nopeaa tahtia panostustaan Meksikoon. Kokonaisuutena EU-maat ovatkin Meksikon toiseksi suurin suorien investointien lähde. Meksikolla on monta vahvuutta. Se on Maailmanpankin mukaan maailman 14. suurin kansantalous ja 11. suurin ostovoimapariteetilla mitattuna. Se on Latinalaisen Amerikan parhaimpia liiketoimintaympäristöjä heti pienempien avoimien talouksien, Chilen, Perun ja Kolumbian jälkeen. Meksiko on huomattavasti edellä useita muita kasvavia markkinoita kuten BRIC-maita – ja jopa joitakin EU-maita kuten Italiaa ja Luxemburgia. Meksiko on valtava, luonnonvaroiltaan rikas maa strategisesti tärkeällä paikalla Pohjois- ja Etelä-Amerikan välissä. Investointikohteena Meksiko on erittäin lupaava juuri maantieteellisen sijaintinsa, suhteellisen koulutetun työvoimansa ja monien vapaakauppasopimustensa vuoksi. Meksikossa toimii tällä hetkellä 36 suomalaisyritysten tytäryhtiötä, joista kolmellatoista on maassa yksi tai useampi tuotantolaitos. Sen lisäksi noin 70 yrityksellä on Meksikossa paikallinen edustaja. Suurimmat työnantajat ovat olleet Nokian matkapuhelintehtaat Reynosassa, Luvatan tehdas Monterreyssa ja KONEen tehdas Coahuilassa. Vuonna 2012 suorien suomalaisten sijoitusten määrä Meksikoon oli Suomen Pankin tilastojen mukaan noin 105 miljoonaa euroa. Suomen ja Meksikon välillä on investointisuojasopimus ja kaksinkertaisen verotuksen estävä sopimus. Kiinnostavimmat kaupalliset yhteistyösektorit Suomen ja Meksikon välillä ovat ympäristö, puhdas teknologia, liikenne, terveydenhuolto ja hyvinvointi, energia- ja kaivosteollisuus, infrastruktuuri, off-shore -teollisuus, metsä- ja selluteknologiat sekä tietoteknologia (ICT).
  • 10. Nordic investment in Mexico6 Merethe Nergaard Ambassador of Norway in Mexico Bare ett år etter at Norge fikk sin uavhengighet i 1905, besluttet man å åpne den første norske ambassaden Mexico. 108 år senere ser både Mexico og Norge ganske annerledes ut, og dette reflekteres i hvordan vi forholder oss til hverandre. I mange år var forbindelsene mellom Norge og Mexico svært begrenset - til skipsanløp og «bacalao noruego». Dette har endret seg de siste årene. Norge og Mexico utvikler stadig tettere bånd. At Mexico i år gjenåpner sin ambassade i Oslo vitner tydelig om dette. Både Mexico og Norge er viktige energinasjoner, og vi har en åpen og god dialog om energispørsmål. Da Mexico i desember i fjor vedtok en ny energireform, ble Norge fremhevet som et forbilde på et land som hadde funnet en balansegang hvor offentlige og private interesser sammen bidro til størst mulig verdiskapning, og hvor oljeformuen kom hele befolkningen til gode. Når Mexico nå skal modernisere sin egen energisektor, vil også private selskaper spille en viktig rolle. Herunder norske selskaper, som med sin erfaring fra Nordsjøen er verdensledende på teknologi og kunnskap om oljeutvinning på store havdyp. Nøyaktig den ekspertisen Mexico trenger for å utvikle sine oljefelter i Mexicogolfen. Norske selskaper er allerede viktige samarbeidspartnere for den meksikanske oljeindustrien, og en rekke nye spennende muligheter er nå i ferd med å åpne seg! At relasjonene mellom våre land styrkes, ser vi også i andre næringer. Store norske selskaper som Yara, Det Norske Veritas, Tomra, Elopak og Sapa, med flere, har de siste årene etablert seg i Mexico. Samtidig ser vi en fremvekst av små og innovative norske gründerforetak, innen sektorer som for eksempel IKT og grafisk design. Likevel er det ikke tvil om at næringslivssamarbeidet med Mexico har et langt større potensiale enn vi så langt har sett. Mexico er en fremvoksende økonomi, som det siste året har vist sterk vilje til nødvendig omstilling. Landet har betydelige naturressurser, kvalifisert arbeidskraft og en unik strategisk plassering. Rett utenfor stuedøren, mot nord, ligger verdens største og viktigste marked. Samtidig blir samarbeidet med andre latinamerikanske land og med Asia stadig tettere, gjennom et utall av frihandelsavtaler. Både Mexico og Norge har dratt god nytte av vår EFTA-frihandelsavtale fra 2001. Vi håper å utvide denne avtalen ytterligere. President Enrique Peña Nieto og hans regjering arbeider nå hardt for å virkeliggjøre Mexicos potensiale. Et iherdig reformarbeid skal gjøre landet internasjonalt konkurransedyktig og attraktivt for utenlandske investeringer. Og verden følger med. Det bør også Norge gjøre. Ambassaden er derfor glad for at det nå settes økt fokus på mulighetene Mexico kan tilby norsk næringsliv. Vi ser frem til at flere av dere kommer hit, og vi bistår dere gjerne på veien. Bienvenidos! Jeg håper denne brosjyren bidrar til at norsk næringsliv fatter interesse for Mexico. Kontakt oss gjerne ved den norske ambassaden!
  • 11. PwC Mexico 7 Jörgen Persson Ambassador of Sweden in Mexico Relationerna mellan Sverige och Mexiko sträcker sig långt tillbaka i tiden. Redan 1850 invigdes ett svenskt konsulat i hamnstaden Veracruz. Mycket har hänt sedan dess, inte minst vad gäller handel och investeringar. Svenska storföretag etablerade sig tidigt och idag finns kring 150 svenska eller Sverige-relaterade företag på plats. Mexiko är Sveriges näst största handelspartner i Latinamerika. Svenska direktinvesteringar i Mexiko uppgick 1999-2013 till nästan två miljarder USD vilket gjorde Sverige till tolfte största investerare. Mexiko är världens fjortonde största ekonomi och med 115 miljoner konsumenter tillhör landet den grupp större medelinkomstländer som förväntas växa mest framöver. För svenska företag finns stora möjligheter att dra nytta av en växande inhemsk marknad, närhet till USA och landets öppna inställning till frihandel. Tillväxtpotentialen är stor i de många sektorer där svenska företag är konkurrenskraftiga som ITC, miljöteknologi, transport, gruvnäring och hälsa. Det svenska intresset för Mexiko manifesterades i höstas när statsminister Fredrik Reinfeldt och handelsminister Ewa Björling tillsammans med en stor företagsdelegation besökte landet. Jag hoppas att denna broschyr ska väcka intresse för den mexikanska marknaden. På plats finns ett engagerat lokalt team som utöver ambassaden består av Business Swedens kontor samt två handelskammare, en svensk och en nordisk. Kontakta oss gärna!
  • 12. Nordic investment in Mexico8 Sergio Rivas President of Nordic Chamber of Commerce in Mexico The Nordic Chamber of Commerce in Mexico was established in 2010 as a result of an initiative of Ambassadors and entrepreneurs from Denmark, Finland, Norway and Sweden1 in order to generate more business opportunities and to promote Nordic values, including sustainability, transparency, democracy and zero tolerance of corruption, among other values of importance for business and for society as a whole. One of its goals is to create a business platform promoting Nordic business values and skills in new and clean technologies, efficiency, productivity and more and better conditions for jobs. At the end of 2013, NCCM membership totaled 73 companies, all branch offices of companies in Nordic countries or enjoying a strong and permanent commercial relationship between Mexico and the country in question. That membership represents 27% of total Nordic companies established in Mexico, as follows: The 73 member companies are high-level representatives of the most important companies in the four Nordic countries, working in important, key clusters such as health, mining, transportation, energy, clean tech and IT. Iconic companies and the most traditional and representative Nordic businesses are very well represented in our membership. To increase that number, it is indispensable to provide useful services to companies, i.e., networking, conferences, seminars, business development support and so on. For 2014, the NCCM has important challenges to meet, including organising some 12 high-level conferences involving the monthly Nordic Business Breakfast, the Nordic Business Day (scheduled for November), the Annual Convention, the Annual Kräftskiva (September) and the Golf and Nordic Sports Day in May. The main goal is to contribute to the creation and continuation of a dynamic designed to promote business opportunities for both sides, (i.e., foreign investment from Nordic countries to Mexico, and from Mexico to Nordic countries), trade, entrepreneur cooperation and networking. The challenges are imposing, but with positive Viking business attitude we will continue to work towards enhancing and increasing welfare in Mexico and in Nordic countries. 1 Iceland has been included, but has no diplomatic representation and not many business operations in Mexico. Country Total companies established in Mexico Belonging to NCCM Total (%) Denmark 58 18 32 Finland 36 14 39 Norway 29 10 34 Sweden 150* 18 12 Mexico 13 Total 273 73 27% *Includes representatives.
  • 13. PwC Mexico 9 Laust Hjortkjær Hansen, Louisa Masoura, Pia Lustig, Lisamaria Markula (Clockwise from the top) Starting up your business Your first step towards implementing your business model and meeting your financial needs is having a clear and quantitative perspective of trends and market opportunities. • Market entry strategy • Project feasibility studies • Seeking partners and investors / target screening • Strategic planning for mergers and acquisitions • Capital raising / financing structures • International tax and local contributions advice • International trade advice (tariffs, customs, international treaties, temporary import regimes) • Business start-up procedures with government bodies • Payroll, book keeping, treasury and tax outsourcing services • Inventory management • Compliance with local and international reporting standards (NIF, IFRS, US GAAP) Driving growth Good management of growth and achieving organisational goals depend on implementing the right structures for your company: effective internal control and risk management is crucial for your business to thrive. • Organic growth strategy • Enhancement of the quality and safety of information systems • Optimisation of internal control and operational efficiency • Corporate Governance • Risk monitoring and control • Legal support in claims and lawsuits • Fiscal optimisation of investments • Human resource solutions (e.g. study of the organisational climate, competencies assessment) • Post-deal integration and valuations • Arbitration, mediation, renegotiation and dispute resolution Realising your value Adapting your business to every circumstance, taking advantage of the best opportunities and realising the value of your business. • Corporate crisis advice (debt restructuring, refinancing) • Cost reduction programmes • Plan for succession and shareholders’ equity strategy • Business reviews and performance improvement • Sales process management advice PwC Mexico - Nordic Desk When Nordic countries are looking for new markets, Mexico offers great advantages not only due to its strategic geographical location, young and skilled human resources, but also because it offers macroeconomic and political stability and competitive prices. Mexico is in fact one of the most competitive countries in the region for international investment and it is the second largest economy in Latin America and fourth largest on the continent. Furthermore, its GDP is the 14th in the world, and 11th by purchasing power parity (PPP) with an internal market of over 115 million consumers. With growth in sectors such as automotive, energy, health and mining ie sectors prominent in Nordic countries, there are a lot of opportunities Mexico can offer for Nordic companies. Objective of this publication is to promote Mexico as a destination for Nordic investments, and support new Nordic initiatives contributing to the strengthening of the Nordic - Mexican commercial relations. In co-operation with Nordic Embassies, Nordic Chamber and ProMexico, Nordic Desk within International Business Centre at PwC Mexico has supported the development of Nordic companies in Mexico since late 2012. Building on local expertise combined with the strength of a global network, our team of bilingual professionals tailored to the specific needs and challenges of your business.
  • 14. Nordic investment in Mexico10 Carlos Pérez-Cirera Langenscheidt Trade Commissioner for the Nordic countries Almost 25 years ago, Mexico began its journey towards greater economic openness with a strong focus on international trade liberalisation and attracting investment. Along the way, significant changes were made to the Foreign Investment Law and free trade agreements signed with the world’s leading economies. The country also achieved a solid and stable macroeconomic environment that has brought certainty to companies’ investment decisions. Today, Mexico has an attractive business environment, legal certainty, and the world’s largest network of free trade agreements, widely developed economic sectors and an extremely competitive cost profile. It is also progressing in terms of infrastructure to make it a world-class logistics platform. Mexico’s competitive advantages Competitive labour costs Mexico offers significant savings in labour costs. The level of annual salaries in Mexico is below many European and Latin American countries, including Brazil, and it is expected to sustain moderate growth between 2011 and 2015. Manufacturing costs Mexico has a better manufacturing cost profile than many countries, including Brazil, Poland and Taiwan Furthermore, consulting firms such as Boston Consulting Group, AT Kearney, Alix Partners, KPMG and PwC have recognised Mexico’s advantages for manufacturing investment. Facility of operation The procedures and time required to open or close a business, or to obtain a construction permit, are critical to success in international business. In Mexico, investors require only 6 procedures and 9 days to open a business, and 10 procedures and 81 days to obtain a construction permit. Moreover, only 1.8 days are required on average to close a business in Mexico, and the recovery rate for creditors and shareholders is 67.1%. This is significantly better than countries such as India, Russia and Brazil, among others. Operation costs There are several factors that affect operation costs and, therefore, company profitability, such as taxes paid on profits, the number of tax payments (which affects administrative costs) and insolvency proceedings costs operations in Mexico lead to significant tax savings compared to economies such as China, India and Brazil. In terms of number of tax payments, Mexico requires only six payments per year, which is much more favourable than the average in Latin America and OECD countries. It is important to note that according to Global Insight, in 2011 labour costs in Mexico were 35% lower than Brazil and 87% below Canada. Accesibility to large markets Mexico has 12 free trade agreements (FTA) with 44 countries, making it one of the most open countries to international trade, with preferential access to more than 1.2 billion potential consumers and
  • 15. PwC Mexico 11 close to 63% of the world’s GDP. In addition, tariff restrictions on import of goods in Mexico are lower than in countries such as China and Brazil. This increases the profitability of companies established in Mexico, which can access inputs and final products at competitive prices. Mexico’s network of FTAs gives it a preferential access to the US and European markets, compared to goods from other countries. In addition, when using land transportation, Mexican goods have tariff-free access to the United States, which is a clear advantage over competitors from around the world. On the other hand, exporting and importing procedures in Mexico are few, with only five documents required to complete an export procedure and four for import procedures. Mexico has an advantage over many countries in terms of documents required to export. Legal certainty for foreign investment Executing Reciprocal Investment Promotion and Protection Agreements (RIPPA) is part of the Mexican government’s strategy to grant Mexican and foreign investors a legal framework that strengthens the protection of foreign investment in Mexico and Mexican investment abroad. Generally, RIPPAs cover investment definition, scope, promotion and admission, investment treatment, expropriation, transfers and Investor-State/State-Investor dispute settlement. Mexico has signed 28 RIPPAs to date, the latest executed with Singapore. Furthermore, some of Mexico’s FTAs have a chapter on investment that resembles a RIPPA, such as those with the United States, Canada, Chile, Colombia and Japan. All this institutional framework provides legal certainty to companies that decide to establish operations in Mexico. Low transportation costs Another advantage is Mexico’s closeness to the world’s main consumer centres, which enables companies to be more responsive to sudden changes in demand and reduces inventory costs. Infrastructure Mexico has 27,000 kilometres of railroads and 372,000 kilometres of roads. It has various domestic distribution terminals that connect to the main sea ports, enabling reduced costs and speedy arrival and departure of goods. In brief, Mexico has: • 76 airports (12 domestic and 64 international) • 68 deep sea and coastal ports and 49 coastal ports • 49 customs offices, of which 11 are inland • 3,152 kilometres of border with the United States and 1,149 kilometres with Guatemala and Belize, with a total of 63 border crossings Macroeconomic stability According to the World Economic Forum’s (WEF) latest report on Global Competitiveness, in terms of Macroeconomic Environment, Mexico ranked 39th among 142 economies. Mexico has no solvency issues: its public debt as a percentage of its GDP is below 45%, much lower than countries such as Brazil, Poland and India. This is backed by several fiscal measures adopted recently in Mexico, which reinforce the sustainability of its public finances in the medium term and the government’s ability to continue to promote improvements to the country’s infrastructure. Mexico’s monetary policy has enabled it to reach inflation levels close to our main trade partners’. As evidence of this, in 2011 the country closed with 3.8% inflation, according to INEGI. Furthermore, WEF’s report places Mexico in 41st position out of 142 in terms of credit risk score. Favourable exchange performance In coming years, Mexico will have a better exchange performance in real terms, compared to many of its competitors in international markets. Final remarks Various factors make Mexico one of the best choices to locate operations. The country will continue to progress in several areas: infrastructure, legal certainty, deregulation, safety and commercial openness, among others, to raise the competitive profile of its business environment. The road travelled and the goals set by the Mexican government and society will make the country a major economic power by the year 2040. Companies that choose Mexico as their operations centre will certainly exceed their medium- and long-term goals.
  • 16. Nordic investment in Mexico12 Introduction to Mexico
  • 17. PwC Mexico 13 Mexico in general Geography and climate Mexico (officially the United Mexican States) with an area of 1,970,000 square kilometres (760,000 square miles) is the twelfth country in the world in size and occupies the southern part of North America and part of Central America. It is the third-largest country in Latin America after Brazil and Argentina. The greater part of the country is a highland plateau bordered on the east, west and south by mountains. This plateau gradually rises to the south. The southern part of the plateau includes Mexico City, the political, economic and population centre of the country, located at an altitude of about 2,240 metres (7,500 feet), one of the highest cities in the world. Almost 50 percent of Mexico, including the entire northern part of the country is arid or semiarid. Annual rainfall increases toward the south where there are zones with the highest levels of rainfall in the world; the rainy season usually runs from May to October, with very little rainfall during the rest of the year, except in the coastal area near the Gulf of Mexico. Nevertheless, the climate varies widely, in part because of the wide variation in altitudes in the country and the effect of the Pacific Ocean and the Gulf of Mexico on the coastal areas. Mexico City and many other regions in the central part of the country have a semitropical climate. There are very few regions where it snows regularly in winter, aside from the higher mountains. Most of the coastal regions have a humid, tropical climate. The Mexico City metropolitan area has an average mean temperature of 17°C (63°F), with occasional lows of around 0°C (32°F) in December and January and highs near 30°C (86°F) in April or May before the beginning of the rainy season. History For more than 300 years, Mexico was ruled as a tightly controlled colony of Spain. Independence in 1821 was followed by decades of struggle for political power and slow economic development, until the 30 years of internal peace achieved under Porfirio Díaz around the end of the 19th century. During that period, the great haciendas, huge areas of land used for cattle raising and farming, reached their peak, although with little improvement in the economic condition of the great majority of the people. The Mexican revolution of 1910 was followed by more than ten years of civil war, which almost completely destroyed the agricultural economy of the country. Accordingly, although Mexican cultural, social and political life reflects the cumulative development of more than 10 centuries since the Spanish conquest and the earlier Aztec, Mayan and other civilisations, the economy of modern Mexico is only some 90 years old, originating in the 1920s. Political system Mexico is now a federal democratic republic divided into 31 states and the Federal District (Mexico City). The federal government has somewhat greater powers than its counterpart in the United States, particularly in one area: the principal types of tax revenues are reserved to the federal government, which distributes certain revenues to the states. The chief executive is the President, who is elected for a period of six years and may not be re-elected. There is a bicameral legislature as well as a judicial branch. The mayor of Mexico City is elected by popular vote for a single six year term. The Legislative Assembly (formerly the Assembly of Representatives) of the Federal District is elected every three years. This assembly is empowered to issue ordinances regarding the day-to-day administration of the District. All the officials of the Federal District are appointed to office and may serve for more than one term, although this is unusual. In view of the size and economic importance of the District, its annual budget is considerably larger than that of any of the states. The state governments are headed by popularly elected governors, who also serve for single six-year terms. The states have their own legislatures and judicial systems. Legal system In general, legislation follows the pattern of codified law originally based on the Napoleonic Code, with separate federal and state, civil and other codes, in addition to separate laws and decrees covering specific subjects. Corporate law, as well as foreign investment, intellectual property protection, and income and value-added tax laws, among others, are federally governed. Population The population of Mexico is estimated at approximately 115 million inhabitants, reflecting a net annual increase in recent years of about 1.2 percent. Mexico is the most populous country in Latin America after Brazil. The total population of the country has more than tripled since 1940. There has been a substantial movement of people from rural areas to towns and larger cities. The urban population is now considered to represent well over 70.3 percent of the total. Although the average population density in the country as a whole is only about 53 inhabitants per square
  • 18. Nordic investment in Mexico14 kilometre, that of the individual states of the republic varies widely, from about 13 inhabitants per square kilometre in the southeastern state of Campeche to more than 5,954 per square kilometre in the Federal District, consisting largely of the capital, Mexico City. Mexico City and its surroundings continue to be the largest and most concentrated population centre, with a disproportionate share of economic activity. However, some efforts have been made by both the federal and local governments to decentralise industry and foster the growth of other regional population and business centres. Language The national language of Mexico, understood and used by all but a very small number of indigenous tribes in the interior, is Spanish, although local languages are also spoken by fairly large numbers of the population in certain areas. English is also understood by many members of the business community in the capital and larger cities, as well as in the areas bordering the United States. Religion Mexico enjoys full religious freedom. Roman Catholicism was for a long time the state religion. However, the influence of the church has been greatly reduced since the separation of church and state in the 1860s. A majority of the population still consider themselves active members of the Roman Catholic Church. Education The Mexican federal and state governments provide universal free education through six years of primary school and three years of secondary school, as well as preprimary. The federal government also provides the funds for the three largest universities in Mexico City, which, however, operate as autonomous entities. These universities have established preparatory schools that provide another three years of education before the university level. Many state governments also finance schools and universities. Students are charged small fees at the preparatory schools and universities. A large number of private schools and colleges, as well as full-fledged private universities, some operated by religious orders, have also been licensed by the Department of Education. The tremendous increase in population has resulted in an enormous demand for new school facilities at all levels. The federal government spends nearly 15 percent of its estimated expense budget to satisfy the demand. Illiteracy has been reduced substantially in recent decades, but percent of the population over 15 years of age is still classified as illiterate. Particularly in rural areas, many children are still unable to attend school regularly. Living standards As in most developing countries, the distribution of wealth between different segments of the population is uneven. The standard of living of those in upper- and middle-management positions is more or less comparable to that of persons occupying similar positions in companies of comparable size in the industrialised countries. However, the earnings of office, skilled, semiskilled, and unskilled workers are considerably below those of their counterparts in the industrialised countries. One of Mexico’s biggest problems is finding employment for its population. Government officials have estimated that more than 1,000,000 new jobs should be provided each year. Unemployment and underemployment are considerable and have increased in recent years, although no comprehensive statistical information is available. The unskilled labour pool is very large in many parts of the country, particularly outside Mexico City, where the labour force has proved to be easily trained for semiskilled and skilled jobs. The in-bond processing plants near the U.S. border often achieve productivity rates 20 to 30 percent higher than those of the United States. Cultural and social life Mexico City is considered the most important centre of Mexico’s very active cultural life, particularly with regard to art, museums, theatres, musical organisations, book publishers, and libraries. Similar facilities, although less numerous, are also available in the other principal cities and state capitals. There has been an increasing trend toward participation in many types of sports, and facilities for spectator sports are widespread. National tourism by automobile, bus and airline has become a major part of the overall travel industry, particularly during school vacation periods. The many resorts on the coastlines and in the interior, as well as Mexico’s numerous colonial cities and archeological sites, are the preferred destinations. Foreign tourism has also been increasing, with Mexico becoming one of the world’s preferred tourist destinations.
  • 19. PwC Mexico 15 Social security system The Mexican Social Security Institute (IMSS) was established in 1942, and the social security system is in effect in all industrial areas and agricultural zones throughout Mexico. In these areas the employer’s statutory obligations related to occupational risks are covered by payments of social security premiums. The Institute provides for employees’ and their dependents’ medical attention, including hospitalisation and limited unemployment compensation in cases of illness and maternity, occupational disease and accidents, in addition to disability and old-age pensions. A separate social security system operates for employees of the government and its agencies. Benefits Sickness and disability The Social Security Institute provides medical and hospital service throughout the country, alongside private hospitals and many physicians in private practice. It maintains modern hospitals and clinics providing medical attention to covered employees and provides free medicines, etc. prescribed by its doctors. If employees are absent from work for more than three days as a result of a nonoccupational illness, job-related accident or illness or maternity, the institute will pay 60 to 100 percent of their regular salary during their absence. The employer is relieved of the obligation to pay the salary, although in some cases, employers pay the difference. A guaranteed minimum salary is payable in the case of a permanent disability, and benefits to heirs are provided in the case of death. Pensions Old-age pensions, as well as those for disability, have been increased in recent years. The pensions are normally payable from age 65 if the person has paid social security premiums for the required minimum of 1,250 weeks. Early retirement at reduced rates of pension can be taken from age of 60. There are minimum guaranty pensions equal to monthly minimum salaries. Employees currently qualify for one of two different pensions. Employees who began working after July 1, 1997 receive their pension through AFORE; employees who started working before that date can receive their pensions through AFORE or through the traditional system. Retirement Savings System (SAR) and Old Age In order to supplement retirement pensions under the regular social security system, which have been deemed insufficient to provide adequate retirement benefits, a Retirement Savings System has been established. The employer’s contribution per employee is 2 percent of salary, with a wage ceiling of 25 times the minimum wage for Mexico City. The Old Age system includes an additional contribution per employee of 3.15 percent of salary. These employer contributions will be credited to individual employees’ restricted interest-bearing bank accounts established specifically for that purpose. The funds so accumulated over the years may be withdrawn, under certain rules, only upon retirement or unemployment due to disability and are partially or totally exempt upon withdrawal, together with any other retirement payments received from the employer, following the general rule for taxation of pension payments (i.e., pensions are taxable only to the extent that they exceed nine times the minimum wage). Employees may elect a company authorised to manage the fund (individual account) for the Retirement Savings System(Administradora de Fondos para el Retiro—AFORE). Housing On May 1, 1972, the National Workers’ Housing Fund Institute (INFONAVIT) was inaugurated under the terms of amendments to the Federal Labour Law and a law establishing the Institute. Obligations of employers The Mexican Constitution provides that all agricultural, industrial, mining, and other enterprises of whatever nature are required to provide adequate housing for their employees; this obligation must be met by means of contributions in the name of the individual employee. In accordance with the law, employers are required to contribute 5 percent of the earnings of their employees to the institute, calculated on the same basis as for social security purposes. Foreign employees of Mexican companies working in Mexico are also entitled to the housing benefit.
  • 20. Nordic investment in Mexico16 Wages and salaries Minimum daily wages are established for separate regions of the country by a National Minimum Wage Committee working through local committees made up of representatives of government, organised labour and private industry. Formerly, new minimum wages were approved every year, but in the past, as a result of the relatively high rate of inflation, minimum wages were sometimes adjusted more than once a year. In recent years, annual increases have not exceeded the inflation rates as measured by the National Consumer Price Index. The variation in wage rates in the different regions has been considerably reduced, and only three different minimum rates are now in effect, varying from a low of 54.47 pesos per day in some regions to 57.46 pesos per day in Mexico City and in some regions near the U.S. border. Fringe benefits Collective labour contracts often provide for benefits over and above those stipulated by the federal labour law and other legislation with regard to early retirement, number of holidays, length of vacations, and a wide range of benefits on which employees pay no tax, such as contributions to general savings funds. Many taxpayers provide coupons for meals and groceries, which under certain conditions, are not taxable to the employees. Paid holidays and vacations The present law requires that a vacation of six working days be granted after the first year of service, with an additional two days for each of the next three subsequent years, with an additional two days for every five years of service after the fourth year. A premium of 25 percent of the regular salary must also be paid during vacations. Nonunion employees are commonly granted a two week vacation period. Termination of employment An employer in Mexico may dismiss an employee without liability other than the seniority premium only if there is a cause for the dismissal. The Federal Labour Law lists specific kinds of conduct that are cause for dismissal: use of false documentation to secure employment; dishonest or violent behavior on the job; dishonest or violent behavior against coworkers that disrupts work discipline; threatening, insulting, or abusing the employer or his or her family, unless provoked or acting in self-defense; intentionally damaging the employer’s property; negligently causing serious damage to the employer’s property; carelessly affecting work-place safety; immoral behavior in the workplace; disclosure of trade secrets or confidential information; or commission of other acts of similar severity to those described above. An employee may appeal his or her discharge within two months of the dismissal at the Conciliation and Arbitration Board, an administrative agency charged with resolving labour disputes. The employer has the burden of demonstrating that the employee has engaged in the conduct described above. If the employer fails to meet this burden, the employee can request either reinstatement to his or her position, or a constitutional indemnification equivalent to three months’ full salary, including premiums, bonuses, commissions,etc., and any fringe benefits. In order to avoid such reinstatement, employers usually pay the severance compensation. The employee also has the right to receive back pay with no offset for interim earnings. The labour law specifies that at the date of termination of employment, the reasons for dismissal must be presented to the employee in writing. It also provides that employees with more than 20 years’ service can be dismissed only for very serious reasons.
  • 21. PwC Mexico 17 Legal framework Forms of business enterprise The different forms of organisation of business entities in Mexico are regulated by the General Law of Mercantile Companies (Ley General de Sociedades Mercantiles), the Commercial Code (Código de Comercio) or the Civil Code (Código Civil). Some of these forms are summarised in the following table: Stock corporation, stock corporation for the promotion of investment and stock corporation with variable capital. (These are the forms most commonly used by domestic and foreign investors) Limited liability company. (Used frequently) General partnership. (Rarely used by foreign investors because of unlimited liability, unless they want to qualify as a foreign partnership in the home country) Partnership with limited and unlimited liability partners. Civil partnership, i.e., of a noncommercial nature. (Used for non-profit entities and by professional practitioners) Joint venture contract. This is not a legal entity but is treated as a separate entity for income tax purposes. Branch of a foreign corporation. Sole proprietorship. (A foreigner must qualify as a permanent resident “inmigrado” to be able to do business in this way) (Used by charitable and other nonprofit organisations) Non-income or income-earning representative office Principal forms of business enterprise Corporate law is federal in nature and applies throughout the country. Although civil law is a matter of state law, the different state Civil Codes are practically identical as to the formation of entities of a civil nature. Stock Corporation One of the most common way for domestic and foreign investors to operate in Mexico is through a stock corporation (Sociedad Anónima—S.A.) formed under the General Law of Mercantile Companies (Ley General de Sociedades Mercantiles). In this case, the corporate name selected is followed by the initials S.A., which indicates that it is a stock corporation. A foreign-owned Mexican corporation is subject to the laws relating to all local companies in general, as well as to the Foreign Investment Law. Limited liability company In most ways, the limited liability company (Sociedad de Responsabilidad Limitada—S. de R.L.) is similar to a corporation in actual operation. However, as an organisation of individuals, its by-laws can be drafted in such a way as to give it most of the characteristics of a partnership under the tax laws of foreign countries, except for unlimited liability. Partnership The General Law of Mercantile Companies also provides for partnerships (Sociedades en Nombre Colectivo), as well as for partnerships with limited and unlimited liability partners (Sociedades en Comandita), but as a result of the unlimited liability of all or the general partners, as the case may be, these forms are not common. These forms of business organisation have most of the attributes associated with the US concept of a partnership because of the unlimited liability of the partners so designated. Partnerships require at least two partners. Civil partnership Professional practitioners are usually organised as a civil partnership (Sociedad Civil—S.C.), which resembles in many ways the limited liability partnership (S. de R.L.) mentioned above. The managing partners have unlimited liability, while other partners’ liability is limited to the value of their contributions (2704 Civil Code). This form is also used by some non-profit entities such as educational establishments. By definition, these entities should not engage in commercial operations (any activities involving commercial speculation). The transferability of rights, as well as the admission of new partners, is subject to approval of all the partners.
  • 22. Nordic investment in Mexico18 Joint venture contract Under a joint venture contract (Asociación en Participación—A. en P.), a person grants an interest in the profits and losses of a specific venture or business to others who provide property or services. Such a contract has no legal personality, i.e., no separate legal entity is created, and operations are conducted in the name of the active managing joint venturer (asociante). The asociante is the only party with any direct liability to third parties. The silent partner (asociado) has no direct relationship with third parties. The tax treatment applicable to the Asociación en Participación is essentially the same treatment as regular corporations solely for tax purposes. Branch of a foreign corporation A foreign corporation can be registered to operate in Mexico, with full access to the local courts, through a branch office (Sucursal de sociedad extranjera) after complying with certain formalities and obtaining the approval of the Mexican government through the Department of the Economy. Sole proprietorship As in many Western countries, the sole proprietorship (comerciante/persona física) is a very popular form of organisation for small businesses. However, the element of unlimited liability generally inhibits the use of this form of organisation for large operations, particularly in view of the substantial amount of severance pay that may accrue in favor of employees. Moreover, resident aliens may engage in business activities only if their immigration status is that of permanent resident (inmigrado). However, in some instances, it has been concluded that non/resident individuals with a taxable permanent establishment might operate under the same principles as branches of foreign entities. Nonprofit organisations Charitable and other nonprofit organisations take the form of a civil association (Asociación Civil— A.C.), whose charter prohibits the distribution of profits to its members.
  • 23. PwC Mexico 19 Tax System The corporate taxes in Mexico are levied by the federal government. No corporate income taxes are levied by local governments and the main federal taxes payable in Mexico are: • Income tax • Flat tax (repealed as from January 1st, 2014) • Value added tax • Social security and federal housing contributions (Employment taxes and contributions) Local taxes include: • Payroll taxes • Tax on transfer of real estate (paid by the purchaser) Corporate income tax • Rate: 30% • Certain deductions allowed (returns and discounts on sales, cost of sales, net expenses, investments, i.e. depreciation or amortisation of fixed assets/deferred expenses) • Deductible expenses must comply with several requirements, e.g. to be “strictly indispensable” for the business activities of the taxpayer • Corporate tax advance payments are calculated on current year’s revenues multiplied by a “profit factor” determined on prior year’s figures (taxable income/total revenues) • Tax Losses (NOL’s) are deductible over a ten year carry-forward period • Transfer pricing – arm’s length / OECD compliant VAT Calculated on a monthly basis, at 16%, on a cash flow basis • Taxable activities: • Sale of goods • Rendering of services • Leasing of goods • Import of goods and services • Output VAT on cash receipts for goods or services, can be credited with input VAT paid to suppliers of goods and services • Credits or refunds for overpayments are available Local taxes • Most relevant state and local taxes in Mexico: • payroll tax, with no limit • annual property tax on cadastral value of property • real estate transfer tax on appraised or fair market value • Deductible for Mexican income tax purposes • Tax rates depend on state where the employees or property are located Social security contributions Employers and employees are required to make contributions to the system, based on daily salary caps, depending on area where the work is performed. Maximum Social Security contribution is approximately US$ 9000, yearly, once the maximum salary cap is reached.
  • 24. Nordic investment in Mexico20 Employees statutory profit sharing (“PTU”) • Every entity with employees is required to distribute a portion of its annual profits amongst all of its employees • 10% of entity’s taxable income, adjusted to eliminate inflation, apply straight line depreciation , eliminate NOL’s and to add dividend income • All employees entitled (except directors, administrators and general managers) • Not payable during the first year of operations and limited to one month’s remuneration in certain activities such as real estate rentals and professional service firms. • Tax year end matches calendar year (i.e. from January 1st to December 31st) • In the following cases an irregular tax year exists: • Incorporation: from the date of incorporation to December 31st • Merger: from January 1st to the date of merger • Split (spin-off): from January 1st to the date of split, applicable to entity created in spin-off or when original entity disappears • Liquidation: from January 1st to the date when the liquidation process begins • The period from the beginning to the end of the liquidation is deemed to be a single fiscal period Annual tax opinion Certain taxpayers are required to obtain an annual tax compliance opinion issued by a certified public accountant (CPA), known as the “dictamen fiscal” which must be filed together with audited financial statements and detailed schedules, no later than June 15th of the following year. The dictamen fiscal is signed by the CPA and normally states that no irregularities were observed or remain in respect with the taxpayer’s compliance with its federal tax obligations in the prior fiscal year. Any unresolved omissions or situations must be disclosed. This certification process became elective for most other companies, but it is widely elected, because it provides shareholders and management a greater level of comfort on the entity’s tax compliance. Tax audits • Tax authorities reviewing a taxpayer who has filed a dictamen fiscal for the year under review must review, first, the working papers of the CPA issuing the tax opinion. • If the authorities are satisfied with the information provided by the CPA, the procedure stops there; otherwise, they will request the information directly from the company. • Tax authorities may carry out tax inspections both at the taxpayer’s facilities and at the authority’s offices. Tax audits should be concluded within the following 12 months after the audit was initiated. This term may be suspended in some specific cases such as a strike. Statute of limitation The statute of limitation is five years as from the date the last annual tax return was filed. In some cases, the statute of limitation is extended to ten years when the taxpayer is not registered in the Taxpayer Registry or when has no accounting books or has not filed an annual tax return, when one was required. Federal Tax incentives Mexico opened its doors to foreign investment, providing the following federal incentives up to 2014, when most incentives were suspended, with only the following still available: • Research and development (R&D) Taxpayers involved in certain R&D projects are granted a cash subsidy to be yearly determined by the tax authorities, based on a budget approved by the Mexican Congress. A 100 percent deduction is allowed for investments in assets intended to produce renewable energy.
  • 25. PwC Mexico 21 • Employment incentives Consisting of a credit equivalent to 100% of the income tax corresponding to the salary paid to employees with certain disabilities and 25% extra deduction for salaries paid to employees over 65 years. • FIDECINE Taxpayers may apply a tax credit of the amount contributed to investments in Mexican motion picture productions as well as in Mexican theatre production, against IT. • Other incentives • Zero rated VAT for exports • VAT and import duties are waived on temporary import programmes to produce exports (IMMEX – Maquiladora Regime) – 2014 Tax Reform restricted the qualification for these incentives • Sectorial Relief Programme The Sectorial Relief Programme provides preferential import tariff on goods intended for production, regardless of the country of origin. State and Local Incentives Some state governments are willing to grant incentives to attract new industries, often in the form of: • reduced prices or grants for land for industrial use • reductions in property and payroll taxes for agreed periods of time • development of infrastructure (roads, electrical power, water and sewage) • Training centres or special programmes at state universities To maximise the local incentive investments as well as to obtain legal certainty on the delivery of those incentives, beyond any change in the government structure, an agreement or formal ruling should be obtained from the local authorities and the review of certain legal documents is recommended. Tax amendments affecting Nordic companies doing business in Mexico 1. Within the new Income Tax Law: • Introduction of a 10% dividend tax (reduced by the tax treaty). • Elimination of most tax incentives. • New restrictions on deductibility of related party payments. • Restriction on deductibility of exempt salaries or benefits. • Increases in tax rates for individuals and certain foreign tax payers from 30% to 35%. 2. New rules for maquiladoras. 3. Government Mining Royalties of 7.5% in general, plus 0.5% for precious metals, apply from 2014. Flat tax (“IETU”) – repealed as from January 1st, 2014 • 17.5% • Cash flow basis (taxable cash income collected, less certain cash deductions) • Taxable income: • sale of goods • independent services • leasing of goods • Royalties to related parties and the most interest are excluded • Excess of expenses over income (multiplied by the flat tax rate) produce a credit available to carry forward for 10 years
  • 26. Nordic investment in Mexico22 Macro-economic analysis
  • 27. PwC Mexico 232 (worldbank.org) (http://www.oecd.org/) Mexican economy Overview Mexico has a mixed economy, with the government, its agencies and government owned or – controlled companies dominant in the areas of public utilities and petroleum. Private enterprise is the principal factor in manufacturing, mining, commerce, entertainment, and the service industries, including construction and tourism. During the 80’s and 90’s, the government sold a number of its holdings to private enterprises in what are classified as nonstrategic industries. Foreign investment is found most frequently in the manufacturing, mining and financial sectors. The economy is fairly broad-based and dedicated mainly to supplying the needs of the large and rapidly increasing population. However, proximity to the United States also provides a large market for the export of manufactured and semi-manufactured goods. Inflation Since 1973 Mexico, has had high rates of inflation with concurrent substantial devaluations of the Mexican currency. However, as a result of the measures then agreed on by the federal government and organised labour, farmers and private enterprise, inflation was brought down to approximately 9 percent in 1994. Although the 1994 devaluation resulted in inflation of 52 percent in 1995, in recent years, the inflation rate dropped to one digit and may be considered comparable with Mexico’s commercial partners (i.e. the USA and Canada). The inflation rate for 2013 was 3.97 percent and is estimated to lie at levels close to the 3 percent target for most of 2014. Mexico in the world Mexico is the first Latin American country to have joined the OECD in 1994, and it is also the first country in the region to have assumed the Presidency of the G20 in 2012. Advocate of free trade at the bilateral, (trans/sub) regional and multilateral levels, Mexico is the only OECD country to benefit from free trade agreements with both the United States, Japan and the EU in addition to being a member of the World Bank since 1945 and a key actor in the Inter-American Development Bank (IDB ). Mexico signed an agreement with the European Union in 1997, which entered into force in 2000. Since 2008, Mexico is one of 9 countries linked to the European Union through a strategic partnership with regular consultations and summits realised every two years. As the first Hispanic country in the world, Mexico has been very active in the multilateral forums (UN in particular), and Mexico received increased visibility on the world stage with the organisation of the 16th Conference of Parties to the UN Climate Convention in Cancun (COP 16). Anchored in North America via NAFTA, it is a member of Forum for Asia-Pacific Economic Cooperation (APEC) since 1993. Mexico has strengthened its participation in the integration process in Latin America especially in Central America through the Mesoamerica Project (2008), and its entry as an observer to the Central American Integration System (SICA). Mexico was among the promoters of the Community of Latin American and Caribbean States (CELAC - 2011) and has been actively involved in the construction and development of Pacific Alliance (2012-) without forgetting Mercosur in which Mexico is an observer. It is not a member of the BRICS but it belongs to the “ MINT” countries (Mexico, Indonesia, Nigeria and Turkey) whose economic development is closely monitored due to the positive growth trends. Subsequently, Mexico is an emerging economy with a very promising future. Mexico in Latin America Mexico is the 2nd economy in Latin America and the 14th world economy with GDP of € 891.7 billion in 2012 and 11th by purchasing power parity (PPP). The average economic growth is around 3% over the past twenty years. Mexico remains a two-speed economy: • The country is very attractive for foreign investors and countries whose per capita income is one of the most important in the region; • It still has the characteristics of a developing country with high inequality ( between urban and rural areas , between North and South in particular) with an important informal economy).
  • 28. Nordic investment in Mexico24 Growth of the Mexican Economy The Mexican economy has shown positive results in recent years (except in 2009, the year of global crisis), even greater than those of its main Latin American competitor, Brazil. The Mexican economy recovered from a severe drop generated by the 2008-2009 global financial crisis and the economy experienced an average annual growth of 4.3 % between 2010 and 2012. More recently, weak external demand led to stagnation in growth and prompted the Ministry of Finance to lower its growth projection for 2013 to 1.8 %. The economy slowed abruptly in the first half of 2013, principally due to the delayed effects of weak export demand spilling over to the rest of the economy, thereby hurting consumer and investor confidence. As external conditions improve and government expenditure is stepped up, growth should rebound in 2014 and 20152 . The expected GDP growth is forecasted at 3.4 % for 2014 according to the IMF. The economic health of Mexico, however, depends on the strength of its sales abroad, particularly the United States. In the recent years Mexico has received increased volumes of capital flows, which has enabled it to achieve historically low levels of interest at the international markets (5.32 % for 30 years and 4.64% for 10 years in June 2013). Financial situation of Mexico Mexico has one of the best risk ratings in Latin America (EMBI +) and JP Morgan and other international rating agencies have given it the classification “Investment grade” (Standard & Poor’s , Moody’s and Fitch) recognising the stability of its political institutions, the independence of the Central Bank and the prudent macroeconomic policies pursued by the authorities in recent years (including the requirement of a balanced budget and prudent management of the Bank) . The action of the Central Bank is particularly noteworthy: policy inflation target (3% with + / -1 point) to limit the rise of price at 4.4 % in 2010, economic recovery and rising food prices. Inflation displays a remarkable stability - 4.09 % the end of June 2013, reflecting the tight monetary policy (the total government deficit was 3,7% of GDP in 2012). The relative weight of external debt was reduced gradually while the external credibility of the country was restored : the rating agencies have given Mexico the investment grade since 2000. The Mexican government is the first Latin American borrower in the international market. Given the quality of the policy mix, IMF renewed its confidence in Mexico by giving the country, as a precaution, its 4th Flexible Credit Line in November 2012 for a total of $ 73 billion for a period of two years. However, the financial stability of Mexico has been affected by a decline in oil production, while oil revenues still account for over one third of budget revenues and match 14.3 % of total exports in 2012. Given the planned reduction in the future, Mexico has undertaken the first step with the recent energy reform to reduce its dependence vis-à- vis oil revenue. Fiscal and economic policies Mexico has obvious economic advantages, and some of the industrial groups are competitive players on the international scene with solid financial systems. Mexico benefits from a coherent governance, and the severe problems caused by the repeated crises of the 1980s and 1994 led successive governments to pursue prudent and consistent macroeconomic policies. It allowed the government to undertake consolidation of public finances and have leeway, admittedly modest, for adopting countercyclical measures as was the case in 2009. During his tenure (2006-2012) President Felipe Calderón was able to achieve some structural reforms long overdue including pension reform in the civil service, electoral reform, Pemex restructuring and redeployment of energy sector, etc. The current President Enrique Peña Nieto, in power for more than a year, has already passed various reforms, including labour, education, telecom, fiscal and energy.
  • 29. PwC Mexico 25 Agreement Coverage Date of signature Entry into force North American Free Trade Agreement Goods and services December 17, 1992 January 1, 1994 Costa Rica - Mexico Goods and services April 5, 1994 January 1, 1995 Nicaragua - Mexico Goods and services December 18, 1997 July 1, 1998 Chile - Mexico Goods and services April 17, 1998 August 1, 1999 European Union - Mexico Goods and services December 8, 1997 July 1, 2000 (goods) October 1, 2000 (services) Israel - Mexico Goods April 10, 2000 July 1, 2000 Northern Triangle - Mexico Goods and services June 29, 2000 March 15, 2001; June 1, 2001 EFTA - Mexico Goods and services November 27, 2000 July 1, 2001 Uruguay - Mexico Goods and services November 15, 2003 July 15, 2004 Japan - Mexico Goods and services September 17, 2004 April 1, 2005 Colombia - Mexico Goods and services June 13, 1994 January 1, 2011 Peru - Mexico Goods and services April 6, 2011 February 1, 2012 Central America - Mexico Goods and services November 22, 2011 Pending Treaties and Agreements Its political opening facilitated bilateral and multilateral agreements, strengthened its dynamic economy, and over the years Mexico has become a regional market power. Its first steps in the field of economic cooperation at the multilateral level date back to 1980 with the accession to the Treaty of Montevideo establishing the Latin American Integration Association (LAIA ). Thereafter, Mexico joined the GATT in 1986. In the wake of NAFTA in 1994, Mexico became a champion of bilateral agreements. Decreasing the strong dependence of the Mexican economy vis-à- vis the its northern neighbour remains a priority of the authorities. A strategy of trade diversification was implemented which has already led to the signing of 12 free trade agreements with 44 countries. The free trade agreement with the EU was signed in 1997 and entered into force in 2000. In January 2013, Mexico informed the European Commission of its desire to modernise the FTA. The negotiations include deepening existing provisions but also including new areas such as services, investment, public procurement, trade rules. A Joint Working Group was formed to work on the modernisation of the agreement3 . 3 (http://europa.eu/rapid/press-release_MEMO-13-915_en.htm)
  • 30. Nordic investment in Mexico26 Trade and trade balance Trade in goods from Mexico rose 5.9 % in 2012, confirming the steady recovery started in 2010. With 370.9 billion dollars of exports and nearly 370.8 billion dollars in imports, Mexico remains the largest trading power in Latin America. Most of the trade consists of manufactured goods (81.4 % of exports) including cars, electrical and electronic goods, as Mexico is acting as an assembly platform for North America. Trade patterns remain highly dependent of the U.S. economy, as the United States alone receives 77.6 % of exports and 49.9 % of imports. The policy of trade diversification seeks to overcome this dependence, and new initiatives like Pacific Alliance could further boost the recovery of the Mexican foreign trade. Mexican trade has evolved considerably since the signing of the free trade agreement with NAFTA and the series of trade agreements that followed. Today more than 90 % of Mexican trade is governed by free trade agreements. Consequence of this opening is that foreign trade accounts for 60% of GDP in 2012 compared to 27% in 1993. Since 1994, annual exports grew by 12.6 % in average, and imports by 11.4 %. After a deteriorating trade deficit that peaked in 2008 with minus $ 17.5 billion, Mexico has improved markedly since then with the trade balance recording a surplus of $ 163 million in 2012. Mexico is the first country in Latin America with a total of more than 740 billion in trade, and the 12th worldwide, with 2 % participation in global exports. Between 1993 and 2012, sales abroad increased more than fivefold, thanks to the liberal trade policies. However, Mexico is very dependent on its oil exports. The country is, according to the WTO, the 16th largest oil importing country in 2012. The imports have increased considerably since the implementation of NAFTA and the weight of North America in imports and exports remains very strong. However, since the late 1990s, this trend has shifted in favour of Asian countries and, to a lesser extent, to European Union. The Pacific Alliance Treaty Two years after its official launch, the Pacific Alliance (including by 4 countries already interlinked through trade agreements: Mexico, Colombia, Peru and Chile) has established itself as a modern integration process with political and economic cooperation in a regional panorama marked by various integration projects of the previous generation (MERCOSUR , CAN ). This integration has raised the growing interests of many states. In its quest for regional leadership, Mexico has made Pacific Alliance vector of its foreign policy in Latin America. 1. A dynamic and innovative regional process Vast market of nearly 210 million consumers (36% of the population of Latin America and Caribbean - LAC) , the Pacific Alliance appears to be a dynamic and significant from an economic point of view: its overall GDP between 2003 and 2012 increased by 115%. It consists of 35% of GDP in the LAC region (2,010 billion in 2012) and almost half of trade in goods in the region with the rest of the world. It also hosts 37 % of the flows FDI in LAC. Based on a pragmatic method (limited number of participants, the existence of prior commercial ties and weak institutionalisation ), 4 member states have been able to infuse a positive dynamic that has lead to concrete results: free movement of goods and people, promotion of foreign trade and tourism, many cooperation projects and active involvement of the private sector. 2. A myriad of opportunities for Mexico in its quest for regional leadership Mexico’s participation in the Pacific Alliance meets its commercial diversification strategy. This regional commercial power, bound by agreements with 3 other member states, has an interest to deepen its ties with them as they offer a growing market. As the Pacific Alliance also seeks to strengthen relations with other Latin American and the Caribbean states, Mexico is anxious to assume a regional leadership. The Alliance allows it to join with other countries favouring economic liberalism and pose an ideological counterweight to the ALBA, the MERCOSUR countries which do not hesitate to resort to protectionist measures including Argentina and Brazil. 3. Cali, a decisive summit The 7th Summit in Cali (presidential meeting May 23, 2013 ) was a turning point in the history of this process, and the four countries dealt with critical issues (geostrategic and economic ambitions ) for the development of the project: participation of other states, under institutional, trade and integration, services and capital, cooperation projects and free movement of people and export promotion.
  • 31. PwC Mexico 27 Foreign Direct Investment In terms of foreign direct investment, many agreements have been signed by Mexico. To attract foreign investment is a major challenge for the country that wishes to remain a leader in this area in Latin America. So far, 27 agreements for the reciprocal promotion and protection in investments have been concluded. This makes Mexico a good place to invest and an ideal platform to export. The two most important agreements are NAFTA and FTA with the European Union. Foreign investment in Mexico focuses mainly around the border towns with the U.S and large industrial centres such as Guadalajara, Queretaro, Monterrey and Puebla. The Yucatán peninsula attracts much foreign investment in the tourism sector. Mexico receives significant amounts of FDI. In 2012, it was the fourth FDI receiver in Latin America after Brazil, Chile and Colombia. However, these figures do not reflect the wider trend which places Mexico as the second largest FDI recipient country in Latin America (in 2011) and the expectations for 2014 seem positive. That would place Mexico among the top then in the world for the most attractive countries in terms of FDI. The share of FDI from the European Union is, in turn, around 37 % of FDI received by Mexico. Over the period of 2000-2012, FDI mostly came from the United States, followed by Spain, the Netherlands , Canada, the United Kingdom and Switzerland. Government incentives for foreign investment In terms of economic development policies, one of the priorities for Mexico is to attract foreign direct investment. The promotion of foreign investment in Mexico is conducted by the Ministry of Economy, Development Bank (NAFINSA), the Bank for Export Promotion (BANCOMEXT) and the Secretaries of the Economic Development in different states. The Mexican federal government and many states offer incentives to foreign manufacturers. Historical granting of government incentives In the 1970s and 1980s Mexico gave large incentive packages for investment to attract foreign manufacturers to respond to a high rate of unemployment in the country. These policies were initiated to create manufacturing centres to the border and in the parts of the country where few jobs were available. Significant packages were provided to major car, electronic and consumer goods manufacturers. To ensure that these companies were successful in Mexico, packages were also offered to their suppliers. In the 1990s, the best incentives were offered to foreign businesses manufacturing in certain geographical areas and belonging to certain industries. The electronics industry in Guadalajara, Tijuana and Juarez was first developed by government incentives as was the case of the automotive sector, which has migrated from the United States and Europe to Saltillo, Leon, Toluca and Puebla. Training programmes to increase the skill level of workers, subsidised goods and real estate, were offered. Thanks to the successful government policies, Mexico has reached its goal of becoming a manufacturing platform for North America. Industrial parks and free zones The free zone is a limited geographical area benefiting from incentives including exemption from customs duties and preferential tax and social treatment. Their goals are to: • create jobs; • strengthen the trade balance by supplying currency and an increase in exports; • contribute to greater inter-industry integration (developed countries - developing countries) and raise the international competitiveness of the domestic industry; • elevate the competence of workers and promote the development and transfer of technologies; • maintain the workforce on site and thus curb immigration. In 2003, the first free zone of Mexico was created in the state of Nuevo León. Since then, over eighty industrial parks have been opened. Several industrial parks have sprung up over the last decade across the country, providing land for infrastructure construction and equipment. Land is generally available with loans, and sometimes they are given or sold at discounted price in order to promote construction of new plants. Mexico’s accession to the North American Free Trade Agreement (NAFTA) changed the naming of free zones, now divided into two categories: Processing zones (border areas); the free regions (border regions).
  • 32. Nordic investment in Mexico28 The pattern is the same for both categories, the difference being that the zones are located along the northern border, while the free areas include entire states (including Oaxaca, Chiapas, Quintana Roo, Baja California, Baja California Sur, Sonora). The main industrial parks are located in Queretaro, Toluca, Naucalpan San Andres Atoto, Puebla, Guadalajara and Monterrey. Project financing Once a foreign investor has decided to move to Mexico, it is important to know that there are programmes and national organisations that support companies in funding. Among these is PYME programme to support micro, small and medium enterprises, which is led by the National Institute of Entrepreneurship (“Instituto Nacional del Emprendedor” INADEM) created in December 2012 in collaboration with the government of Enrique Peña Nieto. To be eligible for funding, projects must address one of the following objectives: 1. Strategic sector and regional development programmes: • Development of the supplier; • Regional competitiveness; • Economic recovery; • Economic recovery for the National Programme of the prevention of violence and social crime, and the National Campaign against hunger; • Support to Regulatory Improvement projects; 2. Business development programmes : • Building and strengthening connections between the states; • The creation and strengthening of business incubators and incubation networks; • The realisation of events that promote strategic sectors , linkages and entrepreneurship; • Awareness campaigns and workshops for culture and entrepreneurial skills ; • Promote innovation initiatives ; • Bonus for ingenuity, innovation and invention for entrepreneurs and small businesses; 3. Programmes for entrepreneurship and financing : • Access to finance ; • The development of the venture capital system; 4. Programmes for micro, small and medium enterprises: • Capacity building; • The development and acquisition of concessions; • The integration of global production chains SMEs; • The development of exportable products and services.
  • 33. PwC Mexico 29 A second programme includes the funds to support research, development and innovation through National Council for Science and Technology (“Consejo Nacional de Ciencia y Tecnología” - CONACYT). CONACYT, an institution that regulates and supports excellence in the areas of science and technology, also has the task of allocating funds for projects with innovation, which may contribute to the development of the country. Among the types of resources available are: 1. Sector funds: organisations and entities of the federal government, in collaboration with CONACYT, can allocate resources for scientific research and technology development in specific sectors. 2. Mixed funds: they are a tool to support the development of science and technology and municipalities. They must involve municipal, provincial and federal governments. 3. Institutional funds: CONACYT has launched many targeted funding to meet and support the needs of the scientific community and technology. Among them are: • Institutional Fund of CONACYT (HAY) • Institutional Fund for Technology • Regional Institutional Development Fund for Science, Technology and Innovation (FORDECYT) • Institutional Fund for Science • CIBIOGEM Fund • IDEA Programme 4. International Fund: a fund for international cooperation for the promotion of scientific and technological research, with common projects between Mexico and the EU. 5. Institutional support: a fund granted to support scientific research, technology development and innovation, by individuals or entities in the public and private sector. The approval of the Director General of CONACYT and the support of the Institutional Commission(IAC) are required. 6. Programmes to stimulate innovation: support programmes for businesses to invest in research, technological development and innovation for the creation of new products, processes or services. Today, in order to remain competitive, Mexican government still offers a set of incentive packages to foreign investors. These incentives vary by location, sector, level of financial investment, types and number of jobs created and the expected long-term benefits. PROMEXICO has a map of investments in the country to illustrate the incentives offered by each state and facilitate the process of selecting the geographical area. This investment map of Mexico4 offers information on competitive advantages, infrastructure tenders, the human capital, demographic components, the presence of strategic industries and industrial parks. 4 (http://mim.promexico.gob.mx/wb/mim/inicio)
  • 34. Nordic investment in Mexico30 Nordic investment in Mexico
  • 35. PwC Mexico 31 Bilateral relations and agreements The most important agreement regulating commercial relations between Mexico and Nordic countries is the Mexico-European Union Free-Trade Treaty (MEUFTT), which went into effect in July 2000. Among its principal objectives are to promote the exchange of goods and services, liberalise commerce, attract materials and technologies for Mexican companies, encourage direct investment and increase opportunities and strategic alliances. There is also the Agreement for Reciprocal Promotion and Protection of Investments (APPRI), which has been in effect since July 2000 with Finland; September 2000 with Denmark; and July 2001 with Sweden. The Mexico-Nordic juridical framework also includes an Economic Cooperation Agreement (1980 with Denmark; 1975 with Finland); a Double Taxation Treaty (1997 with Denmark; 1998 with Finland; 1995 with Norway; 1993 with Sweden) and an Agreement for Scientific and Technical Cooperation (1983 with Denmark; 1980 with Sweden) as well as Mexico-European Union Cultural Agreement and Agricultural Agreement. Furthermore, a Memorandum of Understanding on Cooperation between the Government of Sweden and the Government of the United Mexican States on behalf of the National Council of Science and Technology was inaugurated in 2011. In 2013, Sweden has also signed a Letter of Intent on cooperation in the Field of Health and Social Assistance and a Memorandum of Understanding on Cooperation in Export Credits. Nordic FDI Nordic investment in Mexico has remained relatively stable during the time period from 2001 to 2013, especially in the case of Finland and Norway, with Finnish FDI experiencing its peak in 2003 and Norwegian one in 2009. Danish and Swedish FDI has experienced growth with Danish FDI peaking in 2001 and 2006 and Swedish one in 2004 and 2010. Sweden continues to represent the biggest investment among the Nordic countries, with Denmark on the second place, followed by Finland and Norway. This trend is evident in the number of companies with Sweden having 150 companies and representatives in Mexico, Denmark 58, Finland 38 and Norway 29 with the total of over 200 Nordic companies. Mexico-Denmark bilateral trade • In 2012, Denmark was in 50th place in Mexico’s total commerce (40th as a supplier and 46th as a purchaser). It was in 14th place among the countries of the European Union. • Trade relations between Mexico and Denmark grew by 206% from 2002 to 2012, from $214 to $656 million dollars (md), for an average annual growth rate of 11.8%. • Exports grew 414% from 2002 to 2012, from 37 to 190 md, for average annual growth of 17.8%. On the other hand, imports increased by 163% in that same period, rising from 177 to 466 md in 2012 for an average annual growth rate of 10.1%. • In 2012, overall trade between Mexico and Denmark grew 17% over 2011, according to Bank of Mexico figures. In that same period, Mexican exports to Denmark showed growth of 65%, while Mexican imports from Denmark rose by 5%. • At the 2012 closing, Mexico showed a 276 md deficit in its balance of trade with Denmark. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 600 400 200 0 -200 SWE DK NOR FIN Source: Secretaría de Economía.
  • 36. Nordic investment in Mexico32 Bilateral commerce Mexico - Denmark 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 600 400 200 0 -200 -400 -600 millionsofdollars Exports from Mexico to Denmark Imports from Denmark to Mexico Commercial scale Source: Banco de México. Indicators 2010 2011 2012 Jan-Nov Total trade Annual variation 647 48% 559 -14% 608 18%* Mexican exports to Denmark Annual variation 119 84% 116 -3% 174 74%* Mexican imports from Denmark Annual variation 528 42% 443 16% 434 5%* Balance of trade -409 -327 -260 Indicators 2010 2011 2012 Jan-Nov Total trade Annual variation 555 57% 517 -7% 534 14%* Mexican exports to Denmark Annual variation 120 27% 149 24% 175 32%* Mexican imports from Denmark Annual variation 435 68% 368 15% 359 7%* Balance of trade -315 -219 -184 Mexico - Denmark bilateral trade ratio (millions of dollars) Reporting country: Mexico Mexico - Denmark bilateral trade ratio (millions of dollars) Reporting country: Denmark Source: Banco de México. *Variation from the same period in the preceding year. Source: Global Trade Atlas. *Variation from the same period in the preceding year. Products exported from Mexico to Denmark % Part Products imported from Denmark to Mexico % Part Pumps for liquids; elevators for liquids 16% Other toys; reduced scale models and simple models 11% Turbojets, jet engines and other turbines 16% Medications 10% Automatic data processing devices 15% Smelting boxes; molds for metal, glass and plastic 6% Centrifuges; liquid and gas filtering devices 8% Agglutinating preparations for molds 4% Electric motors and generators 7% Enzymes; enzyme preparations 4% Other toys; reduced scale models and simple models 7% Machines designed to: wash dishes; fill, cap or label containers; pack merchandise; inject gas into beverages 4% Hollow iron and steel pipes and profiles 6% Automatic regulation or control instruments 4% The rind of citrus fruits, melons or watermelons 4% Accessories and similar items for pipes 3% TV sets; monitors and projectors 4% Components for product manufacturing (item 9802) 3% Vegetable juices and extracts; pectin-containing material; thickeners 2% Parts for electric motors, generators and converters 2% Subtotal 85% Subtotal 51% Other products 15% Other products 49% Total 100% Total 100% The principal products traded between Mexico and Denmark in 2012 Source: Global Trade Atlas.
  • 37. PwC Mexico 33 • 94% of Mexican exports to Denmark in 2012 were manufactured goods, principally submersible pumps, turbojets and jet engines, memory units for computers and dryer filters. On the other hand, 99% of Mexican imports from Denmark consisted of manufactured goods, principally construction toys, medications and boxes and plates for injection molding. FDI • In 2012, Denmark was the 12 largest investor in Mexico. Of European Union countries, it was in the eighth place. • From January 1999 to December 2012, Danish companies invested 1,761.7 million US dollars (md) in Mexico. 37% of that investment went into the manufacturing industry, 21% to real estate services, 18% to the trade sector and 11% to the transportation, postal and storage sector. • The federal entities with the highest level of Danish investment are Nuevo León, The Federal District and the State of Mexico. • A total of 108.5 md of Danish investment was recorded in Mexico, mostly in the contraction sector. • At the 2012 closing, there were 202 companies of Danish origin with investments in Mexico. • The 500 largest companies in Mexico published by Expansión (2012 issue) include one Danish company: ISS Facility Services, in 438th place. Denmark’s FDI in Mexico (flow, millions of dollars) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 300 250 200 150 100 50 0 -50 millionsofdollars Source: Secretaría de Economía.
  • 38. Nordic investment in Mexico34 Mexico-Finland bilateral trade • In 2012, Finland was in 54th place in Mexico’s total trading partners (44th as a supplier and 59th as a purchaser). It was in 16th place among the countries of the European Union. • Trade relations between Mexico and Finland grew by 221% from 2002 to 2012, from $163 to $523 million dollars (md), for an average annual growth rate of 12.4%. • Exports grew 733%, from 12 md in 2002 to 100 md in 2012, for annual average growth of 23.6%. Imports grew 180% in that same period, from 151 to 423 md, for annual average growth of 10.9%. • At the 2012 closing, Mexico showed a 323 md deficit in its balance of trade with Finland. Indicators 2010 2011 2012 Jan-Nov* Total trade Annual variation 438 -46% 478 9% 494 13% Mexican exports to Finland Annual variation 64 -88% 74 15% 95 42% Mexican imports from Finland Annual variation 374 31% 404 8% 399 8% Balance of trade -310 -330 -303 Indicators 2010 2011 2012 Jan-Nov* Total trade Annual variation 315 37% 350 11% 354 9% Mexican exports to Finland Annual variation 79 -11% 125 58% 96 -15% Mexican imports from Finland Annual variation 236 67% 225 -4% 258 23% Balance of trade -157 -100 -162 Mexico - Finland bilateral trade ratio (millions of dollars) Reporting country: Mexico Mexico - Finland bilateral trade ratio (millions of dollars) Reporting country: Finland Bilateral commerce Mexico - Finland 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 600 400 200 0 -200 -400 -600 millionsofdollars Exports from Mexico to Finland Imports from Finland to Mexico Commercial scale Source: Banco de México. Source: Banco de México. *Variation from the same period in the preceding year. Source: Global Trade Atlas. *Variation from the same period in the preceding year.
  • 39. PwC Mexico 35 • In 2012, 97% of Mexican exports to Finland were manufactured goods, principally automobiles used in tourism, mobile phones and auto parts, particularly suspension shock absorbers, axles with chain blocks and tractor body parts. Mexico also exported coffee and malt beer to Finland. On the other hand, 99% of Mexican imports from Finland were manufactured goods, principally paper and cardboard, construction machinery (such as hydraulic front loaders) and freight vehicles. Products exported from Mexico to Finland % Part Products imported by Mexico from Finland % Part Automobiles for use in tourism and other motor vehicles 44% Paper and cardboard coated on one or both sides with kaolin 13% Telephones, including mobile phones and phones for other wireless networks 31% Bulldozers, graders, mechanical shovels, excavators, etc. 8% Motor vehicle parts and accessories 4% Freight transportation vehicles 6% Enzymes; enzyme preparations 4% Machines and devices for producing pasta or paper finishing 5% Coffee, including toasted and decaffeinated 3% Other earthmoving machines and devices 5% Malt beer 2% Medications 4% Other gauges; speedometers and tachometers 1% Machines and devices with built-in functions 4% Pipe accessories 1% Electricity transformers 2% Inner tubes - tires 1% Centrifuges, including dryers 2% Electrical batteries 1% Flat, stainless steel laminated products 2% Subtotal 92% Subtotal 51% Other products 8% Other products 49% Total 100% Total 100% The principal products traded between Mexico and Finland in 2012 Source: Global Trade Atlas. FDI • In 2012, Finland was in 30th place worldwide among investors in Mexico and 11th place among countries of the European Union. Flows registered in that year totaled 4.2 md. • From January 1999 to December 2012, Finnish companies invested 676.3 million US dollars (md) in Mexico. 50% of that investment flowed into the manufacturing industry, followed by the business support and waste management sector with 32% of the total and the trade sector with 18%. • The federal entities with the highest level of Finnish investment are Nuevo León, Puebla and the Federal District. In December 2012, there were 36 Finnish companies with investments in Mexico. Finland’s FDI in Mexico (flow, millions of dollars) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 140 120 100 80 60 40 20 0 -20 -40 -60 millionsofdollars Source: Secretaría de Economía.
  • 40. Nordic investment in Mexico36 Principal Mexican exports to Norway % Part Principal Mexican imports from Norway % Part Hollow iron and steel pipes and profiles, with no welding 61% Mineral and chemical fertilizers 19% Turboreactors, turbopropulsion devices and other turbines 6% Petroleum gas and other gas hydrocarbons 14% Malt beer 5% Mineral and chemical fertilizers containing nitrogen 13% Coffee, including toasted and decaffeinated 4% Dry, salt or pickled fish; smoked fish 11% Wire, cable and other conductors 3% Telephones, including cell phones and phones for other wireless networks Other 21% Other 40% Percentage of manufactured items 95% Percentage of manufactured items 73% The principal products traded between Mexico and Norway in 2011 Source: Global Trade Atlas. Mexico-Norway bilateral trade • In 2012, Norway was in 62th place in Mexico’s total commerce (68th as a supplier and 58th as a purchaser). • Trade relations between Mexico and Norway grew by 129% from 2002 to 2012, from $101 to $232 million dollars (md), for an average annual growth rate of 9%. • Exports grew 724% from 2002 to 2012, from 8 to 66 md, for average annual growth of 23%. On the other hand, imports increased by 78% in that same period, rising from 93 to 166 md in 2012 for an average annual growth rate of 6%. • At the 2012 closing, Mexico showed a 100 mdd deficit in its balance of trade with Norway. • In 2011, 95% of Mexican exports to Norway were manufactured goods, mainly iron and steel pipes, turboreactors and turbines. On the other hand, 73% of Mexican imports from Norway consisted of manufactured goods, principally telephones& wireless networks and mireal and chemical fertilizers. FDI • In 2012, Norway was in 37th place worldwide among investors in Mexico. • From January 2001 to December 2011, Norwegian companies invested 60.3 million US dollars in Mexico. • From January to December 2011, Norwegian investment of 19.2 md flowed into the country • Up to September 2012, there were 29 Norwegian companies with investments in Mexico. Norway’s FDI in Mexico (flow, millions of dollars) 500 400 300 200 100 0 -100 -200 millionsofdollars Source: Secretaría de Economía. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012