Mexico Revises Law on Investment : Rules on Foreign Ownership Eased to Bolster Economy

The Mexican government has taken a major step toward opening its borders to more foreign investment by permitting small and medium-size companies to set up wholly-owned manufacturing operations in Mexico.

Commerce Secretary Hector Hernandez said the government revised its foreign investment law in hopes of attracting more capital to Mexico.

The action is the latest effort by President Miguel de la Madrid’s government to bolster Mexico’s economy, which has been severely hurt by the collapse of oil prices.

Mexico has depended on oil sales for 70% of its foreign earnings, which it needs to make payments on its foreign debt of nearly $100 billion.

In the past, the nation has strictly limited the amount of investment by foreigners, generally requiring 51% Mexican ownership of subsidiaries of foreign companies. Companies wanting to have greater ownership had to apply to the National Foreign Investment Commission. Last year, in an unusual case, the commission approved a plan for International Business Machines to make personal computers in a wholly owned operation in Mexico.

But otherwise, the restrictions have discouraged investment by many companies that want to maintain control over their foreign operations. As a result, foreign investment in Mexico has been quite low, making up less than 4% of all investment in the country, according to analysts.

The share of U.S. investment in the country fell to 65% last year from 69% in 1980, according to Commerce Department figures.

Under the new rule changes, small and medium-size foreign companies will be allowed to invest in Mexico, either through joint ventures or new subsidiaries, without previous authorization. They will be able to maintain 100% ownership of these operations, which must be in manufacturing.

To qualify, the companies must employ no more than 250 workers in Mexico and export 35% of their production. Annual sales must not exceed 1.1 billion pesos, which is about $1.6 million at current exchange rates.

These companies will not be able to have 100% ownership in the areas of petrochemicals, mining and auto parts, Hernandez said.

Small and medium-size companies are defined as those that have no more than 500 employees and no more than $8 million in annual sales.

In addition, the department said it would permit international financial organizations to invest risk capital for development projects in Mexican companies.

Hernandez said this would apply to money from such organizations as the Inter-American Development Bank, the International Economic Cooperation Fund of Japan, Finland’s Industrial Cooperation Fund for Developing Countries, the German Society for Economic Cooperation and the Swedish Fund for Industrial Cooperation With Developing Countries.