Methodology Notes

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Methodology for the Preparation of Figures on Direct Foreign Investment (DFI) Flows

The methodology for measuring and presenting the DFI amounts in Mexico was prepared jointly by the Secretariat of Economy (SE) and the Bank of Mexico, following the recommendations of two international organisms and their respective documents:

1) Organization for Economic Cooperation and Development (OECD): Benchmark Definition of Foreign Direct Investment. Third Edition (BD3), edited in 1996


2) International Monetary Fund (IMF): Balance of Payments Manual, Fifth Edition (BPM5) Chapter XVIII, edited in 1993

Pursuant to Articles 32 and 33 of the Foreign Investment Law and 38 of the Regulations on the Foreign Investment Law and the National Register of Foreign Investment, DFI movements must be reported to the National Register of Foreign Investment (RNIE), dependency of the Directorate General of Foreign Investment of the SE.

The SE discloses cumulative DFI flows in the year of reference on a quarterly basis. DFI figures are produced by determining the value of investment movements made and reported to the RNIE by:

1) Foreign individuals or legal entities who perform acts of foreign trade in Mexico and branches of foreign investors established in the country. The latter refers to establishments opened in Mexico by foreign legal entities for the provision of services, without the need to form a Mexican company.

2) Mexican companies with foreign participation in their capital.


3) Trust companies which participate in real estate trusts from which rights are derived in favor of foreign investment.

The amounts reported are divided by investment type as follows:The amounts reported are divided by investment type as follows:

 

New Investments
Incoming DFI movements which are listed below
1.- Initial investments made by foreign individuals or legal entities on becoming established in Mexico; these investments include those fixed assets and working capital to perform trade acts in Mexico. These transactions are carried out by foreign individuals or legal entities whose legal status is recognized by the Code of Commerce and who are allowed by the Foreign Investment Law to perform economic activities in Mexico, without the need to form a Mexican company.
2.- Share transfers by Mexican investors to foreign investors, through which the DFI acquires at least 10% of the shares with voting power of already established Mexican companies. These movements are considered DFI because their purpose is to obtain a long-term interest in Mexican companies, which coincides with the OECD's definition of DFI.
3.- Constitution of Mexican legal entities in which one or more foreign investors participate in their capital with at least 10% of the shares with voting power.
Reinvested Earnings
Comprises the following:
1) Part of the profits which is not distributed as dividends and which is considered DFI because it represents an increase in capital resources belonging to the foreign investor.
Intercompany Accounts
Referring to transactions originated by debts between associated companies:
1) Includes loans from the parent company abroad to subsidiaries in Mexico, and loans or advance payments from subsidiaries to the parent companies; these transactions are considered DFI because they imply an income from abroad directly financed by the foreign investor to its subsidiary in Mexico.

It is worth noting that the value of DFI movements performed and reported to the RNIE are preliminary figures since RNIE notifications tend to be made with a significant time lag compared to the dates on which the investments were made.
 
This means that the DFI amounts reported to the RNIE in a specific period correspond, in many cases, to investments made several months earlier, and less so to investments made in the period in question. The figure reported as DFI in a determined period, therefore, is not definitive since it is updated as the RNIE receives notifications of the rest of the investments made in that period.


Changes in the methodology to calculate DFI figures

Before 1994, the annual DFI was integrated into the amounts reported to the National Register of Foreign Investment each year, in addition to the amounts involved in the projects authorized by the National Foreign Investment Commission. In other words, the full amount of approved projects was taken into account even though some of them never reached fruition. Therefore, adding the amounts reported to the RNIE to those approved by the National Investment Commission meant that investments already made were combined with projects still in the pipeline.

Since 1994, figures are prepared using another approach which integrates amounts reported to the RNIE that did actually materialize each year, with an estimate of the amounts not yet reported to the RNIE and the value of the imports of fixed assets by maquila companies.

Since 1999, only investments actually completed are reported to the RNIE and these include all the concepts encompassed by the definition of DFI according to the BD3 (new investments, reinvested earnings and intercompany accounts).