The Mexican government uses the federal system with 31 states and a national government. The national government in Mexico is very strong compared to that of Canada and the United States. Mexico has a total population of approximately 110 million citizens made of Spanish speakers (Avalos). This makes it the most populated country with Spanish-speaking people and the third most populated nation in the western hemisphere after Brazil and the United States. Looking into these demographic statistics, Mexico is a good nation to invest in business. Having a strong parliamentary system, Mexico has a very powerful president responsible for the countries’ policies. The Mexican president is the most powerful and influential official who is responsible for making legal laws. Nearly all Mexican federal laws are proposed and passed by the president and not a council of parliamentary delegates (DonQuijote). The Mexican government has a constitution that governs foreign investment in the country. Foreigners are not allowed to own land within 100 kilometers from the Mexican border and 50 kilometers from the Mexican shoreline.
Mexico is part of the North America Free Trade Agreement (NAFTA). NAFTA was an agreement that removed non-tariff and tariff barriers of trade and investment between the United States, Canada and Mexico (Hernandez,15). The agreement made the three nations into one business block but with different government policies in each country. This brought about the increase of business ops among the border countries. Initially, Mexico had passed the law requiring a 51-49% percent rule to limit foreign investment. This rule was amended to encourage foreign investment by reducing the percentage to 49% and allowing 100% ownership of foreign investment in the country in specified areas. Foreign investments in Mexico are classified as follows: those reserved for Mexico, open to foreign investment to up to 10%, 25%, 30%, 49%and more than 49%. Foreign investments that wish to own over the 49% mark require approval by the Mexican Foreign Investment Commission (FIC) (Hernandez,15). Moreover, in the 21st century, any foreign investment that amounts to US$100 million must have prior approval from the FIC. Foreign companies cannot invest in petroleum, mail service, nuclear energy, minting of coins, issuing bank notes and controlling entry points like ports, airports and heliports.
Mexican is a good country that American investors can venture into. NAFTA has a liberalizing effect that lessens across the border trade restrictions between America and Mexico. There are increased opportunities for investing in Mexico in financial institutions, transport services, and automotive goods (Depersio). Trucking and bus companies have slots for foreign investments to take up to 49% of the company. NAFTA pushed the Mexican government to allow foreign investors to have 100% ownership of port equipment and facilities. The Mexican government is very prompt to control labor laws in the country to allow for limited interruption by labor unions. This is an advantage for American investors who can have local labor with fewer disruptions from labor unions. Moreover, Mexico has low labor cost due to inflation in the 1980s that reduced the labor rates. Labor rates are comparatively lower in Mexico compared to the United States. The Maquiladora program is passed under Mexican law to allow foreign companies to establish manufacturing facilities in northern Mexico. Under the program, investors can import components and equipment into Mexico duty-free, provided that a substantial percentage of end products are exported from Mexico. The program also allows foreign investors to sell 100% of the company directly to the Mexican Market.
Mexico is one of the most corrupt nations in the world. Despite the major efforts to stop the vice, corruption is still crippling the country, bringing many losses to its revenue. Political officials and police are huge takers of bribes before they initiate certain legal procedures. Bureaucracy and bribery have been the procedural way of handling businesses in Mexico; thus, it will not end easily. Corruption in Mexico is bad for business because a lot of time is wasted when doing official procedures, and there are hidden costs that the company undergoes its operations (Rathbone and Weber). The efficiency in running the company is highly affected in return. The Mexican government created the National anticorruption system to fight corruption. Still, it will take time to end because the vice runs deep into the police tasks to government officials and the judicial system. Secondly, the challenge of cartels which brings a rise to the crime rates in the country. Cases of crime and theft are an alarm in Mexico threatening foreign investments. Mexican society is deeply rooted in drug trafficking syndicates that are always violent and threaten companies’ existence in Mexico (Rathbone and Weber). Drug-related violence is increasing in Mexico, which destroys property and lives. Kidnappings, theft of cargo, robberies and smuggling are common in Mexico due to corruption and weak institutions. Moreover, the power that the president manifests poses a threat to investment in the country. In case an autocrat president is elected, investments in the country are speculated to suffer.
Besides the challenges that threaten foreign investments in Mexico, the country is a haven with lots of investment opportunities. American investors can invest in Mexico because NAFTA creates a smooth environment for investors. The Mexican government also allows 100 % ownership of foreign investments in the country that will enable investors to control all business operations independently. It is highly recommendable for American investors to invest in Mexico because cheaper labor with duty-free imports is exported to the country. The presence of a stable federal government that controls the business environment creates a stable investment political environment. Mexico has crime rates that are pegged on the high unemployment rates in the country. Investing in the country means creating new employment opportunities that would have a rippling effect of reducing the country’s crime rates. The northern part of Mexico, with many foreign companies, has reduced crimes resulting from high employment opportunities in the region (Depersio). So to say, Mexico is a commendable country for American Investors to venture in.