Representative office in Mexico City
Over the past years Mexico has established itself as an ideal location for companies seeking to gain a foothold in the North American market. The country, which has a population of 120 million, has increasingly become a production location for NAFTA and is serving as a bridge between Europe and Asia.
Structural reforms paving the way for investment
Solid state finances, a low wage level and the highest number of free trade agreements worldwide are behind Mexico's growing importance as a place to invest. In 2013 major, long-awaited structural reforms were introduced which will generate extensive investment mainly in the fields of energy and infrastructure. For instance, the monopoly of the state-owned petroleum company Pemex ended after 75 years. Since 2015 foreign companies have been allowed to invest directly in oil and gas production.
A strong trade partner for Germany
Mexico's volume of trade with Germany is rising steadily. In 2012 Germany exported goods and services worth EUR 8.9 billion to Mexico - in 2011 this figure was EUR 7.6 billion and in 2010 it had reached EUR 6.9 billion. Germany ranks seventh among foreign investors in Mexico. After the USA and Brazil, Mexico is Germany's third largest trade partner in the Americas.
German and European investment opportunities in Mexico
For decades hundreds of German and European companies have been conducting business in Mexico. The new economic momentum in the country - driven by the structural reforms - is opening up new opportunities in a number of industries in which German businesses have traditionally been active including the automotive industry, petrochemicals as well as telecommunications and infrastructure in general.
We assist German and European investors and exporters with carrying out their plans and provide them with tailored financing solutions.
Alex Wegenast, Director of the representative office Mexico City, talks about 20 years of NAFTA and the energy market reform in Mexico.
Mr Wegenast, you have been living in Mexico for 20 years where you have personally experienced the effects of NAFTA since its launch in 1994. What effects has the North American Free Trade Agreement had thus far on Mexico?
NAFTA has had quite an extensive impact on Mexico. The volume of trade in the free trade area has increased considerably and a number of US but also European and Asian companies have set up or expanded production sites in the country. This is especially apparent when you look at the capacity buildup going on in the industrial metropolis Monterrey in northern Mexico. Here NAFTA brought about financings worth several billions backed by Hermes to expand the national and international production capacity in Mexico. Thousands of new jobs were created there and elsewhere. This is especially noticeable in the field of automobile construction and also in the so-called maquiladora industry, where in particular electronic appliances such as televisions etc. are assembled in Mexico under particularly favourable tax conditions.
The monopoly of the state-owned petroleum company Pemex ended after 75 years - since 2015 foreign businesses have been allowed to invest directly in oil and gas production. What opportunities do you see for German and European exporters once the Mexican energy market has opened up?
What is important is how exactly the reforms will be implemented. It depends heavily on how transparent and impartially this process is seen as taking place. If all goes well, Mexico will see substantial investment, beginning in exploration followed by the petrochemical and other industries. In exploration German companies will play a role mainly as - or even as key - suppliers whereas in downstream industries their role will change to that of sponsors.
Solar, wind and hydro - what role do renewable energies play in oil-producing Mexico?
The opportunities for hydropower are naturally limited. However, some large-scale projects have been carried out in recent years, e.g. "El Cajon" and "La Yesca".
There are a good many wind energy success stories in Mexico, and not least because Mexico has some of the best wind locations worldwide. The wind that blows in Isthmo de Tehuantepec, the narrowest strip of land in the country, is almost frightening. One must experience it for oneself. First-class locations can also be found in the north, in the states of Tamaulipas and Nuevo Leon. Most of these projects were realised on a PPA basis (Power Purchase Agreement), in other words, with the support of long-term off-take agreements with industrial companies.
Solar energy is still expanding at a very sluggish pace. One must take into account here the absence of subsidies for wind or solar energy in Mexico. However, things are moving thanks to the location advantages. The investment costs for solar energy have fallen sharply in recent years and are expected to do so in the future too. I believe we are about to see the first private and commercial projects.
KfW IPEX-Bank's representative office in Mexico-City does not conduct any bank business of its own. Instead, its sole function is to support the bank's headquarters in Frankfurt.