Salinas Pushes Bill to Encourage Foreign Investment in Mexico

As Mexico heads toward receiving a record $10 billion in new foreign investment this year, President Carlos Salinas de Gortari sent the Mexican congress a bill Thursday to provide prospective investors from abroad fewer restrictions, more guarantees and a greater range of activities.

The proposed law--expected to win easy approval in a legislature dominated by Salinas’ Institutional Revolutionary Party, known by the initials PRI--would bring Mexican legislation into compliance with the investment provisions of the North American Free Trade Agreement.

However, it also extends many of the benefits of NAFTA to potential foreign investors from outside the region. Investment in mining, airlines, airports, railroad-related services, ports, farmland, courier services and cross-border cargo transport will be opened to all foreign interests.

The most significant area open solely to Mexico’s NAFTA partners--the United States and Canada--is financial services. For example, U.S and Canadian banks can open wholly owned subsidiaries in Mexico while banks from other countries cannot.

The proposed law would also allow Mexican subsidiaries of foreign corporations and Mexican companies with foreign investors to buy land along the border and coastlines for industrial, commercial and hotel purposes. Currently, only Mexicans and completely Mexican-owned companies can own land in those so-called restricted zones.

In reality, foreigners already invest in many of those industries and areas through complex trust and stock ownership schemes. However, the paperwork and risk involved in such arrangements puts off some investors, as well as their potential lenders.

For example, European banks have been reluctant to finance beach hotels because the foreign hoteliers do not have clear title to the land.

The change would also be a boost to commercial and industrial real estate developers eager to use foreign financing to build in the booming border region.

“Investors wanted security,” said a Commerce Ministry official, who asked not to be identified. “This will establish legal security for investors.”

In addition, the law would remove the so-called performance requirements previously placed on foreign investors. For example, foreign-owned computer companies in Mexico must export $1 worth of Mexican-made merchandise for every $1 in components they import. Those restrictions would be removed, along with minimum domestic content requirements.

The proposed law would also permit foreigners to make portfolio investments--with restricted voting rights--in closely held companies in industries such as domestic land transportation, customs brokers, gasoline stations and radio and television stations, whose ownership remains restricted to Mexican citizens. Currently, only companies listed on the stock exchange may have such so-called neutral investment.

“Mexico has been aware of the investment tendencies in the world that are characterized by an international shortage of available resources as well as an increased competition among countries to attract capital,” according to a prepared statement from Salinas’ office. “For that reason, within the confines of our constitution, the proposed law is intended to provide a greater opening and clear rules to channel foreign investment into the nation’s economic sectors.”

The law would replace a 20-year-old statute that is generally considered hostile to foreign capital. It would unite a patchwork of regulatory changes made by decree during the past five years, without congressional approval, that softened restrictions in the old law.

“This makes into law what was in regulations or dispersed throughout various laws,” said Pedro Noyola, undersecretary of foreign trade.

With $9.5 billion in foreign investment that has flowed into the country since January and several projects in the pipeline, Noyola said he is confident that foreign investment in Mexico this year will top the 1991 record of $9.7 billion.

“We will be over $10 billion,” he said.

Foreign investment is a crucial part of Mexico’s effort to upgrade technology, increase productivity, generate exports, create jobs and raise wages, according to Salinas’ statement.

Money from abroad also helps offset Mexico’s trade deficit, allowing the government to keep the peso stable, which is crucial to both the fight against inflation and investor confidence.