Building business bridges between the UK and Mexico
Both the UK's accession to the CPTPP and the implementation of the proposed UK-Mexico FTA will boost these efforts, encouraging closer commercial relations between the two nations, says Canning House...
A recent Canning Paper explored the UK and Mexico's long relationship in finance and commerce. Finance is a particular area of strength as the Mexican financial system is one of the most developed in Latin America, with a solid regulatory framework and highly developed sub-sectors.
The insurance and pension sector was the most valuable UK services export (£282m), up 0.7% compared to the four quarters to end of Q3 2023, and financial services exports were worth £180m, up 9.8% for the period. Fintech is a significant growth area. Mexico has one of the largest fintech ecosystems in Latin America, with a favourable regulatory environment thanks to the relatively flexible 2018 fintech law and remittance flows worth tens of billions of dollars.
Various British companies have moved into the Mexican market in recent years. Most recently, London-listed fintech Wise launched cross-border payment services in Mexico in January, while Mexico’s banking regulator approved British firm Revolut’s plans to become a bank in April 2024. Plenty of opportunities remain, with millions of Mexicans unbanked. The UK government has supported financial inclusion in Mexico with the Financial Services Programme, which assists fintech entrepreneurs in developing financial solutions.
More widely, financial services is one key area that is set to benefit from the UK’s accession to CPTTP. In terms of foreign direct investment (FDI), Mexican government figures show that inflows from the UK were worth US$713m in 2024, down from US$824m in 2023 and US$1.2bn in 2022, but much higher than the US$192m received in 2017, which was the lowest figure in more than a decade. As for the stock of outward UK FDI in Mexico, which records the total book value of all existing investments at a given point, UK government figures capture a total £12.6bn in 2023, making it the eighth largest source of FDI to Mexico.
Plan México
Further opportunities for investment are highlighted in Plan México, also known as the National Strategy for Industrialisation and Shared Prosperity, which was published in the last week of 2024 and highlights government plans to strengthen Mexico’s role in global value chains by attracting investment in specific areas, outlining a potential portfolio of M$277bn (US$13.4bn) in foreign and local investment projects. Priority areas include textiles, automotive, pharmaceuticals, aerospace, agribusiness, and electromobility, and there are plans to build 10 new industrial parks.
President Sheinbaum has also pledged to improve the investment climate by simplifying bureaucratic procedures and implementing a national digitisation strategy, as well as working to improve links between strategic sectors and the education system. President Sheinbaum’s clean energy drive also forms part of the Plan México industrial programme, which targets investment in the sector.
President Sheinbaum is keen to present Plan México as a mixed investment plan, which she says is different from public-private partnerships. “We no longer want to call it public or private, but mixed investment, where risks are shared and benefits are also shared, which also allows us to increase the infrastructure of our country where it is possible, without giving up public investment, which is essential for development,” she said.
The publication of the plan was followed by the publication of new nearshoring decree on 21 January, which offers tax incentives to companies looking to relocate to the country worth up to a total M$30bn (US$1.47bn). Effective through to 30 September 2030, the vast majority (M$28.5bn) of the deductions are offered for investments in new fixed assets, benefitting sectors such as construction, communications, and power generation, while M$1.5bn in deductions is offered on expenses linked to training and innovation, such as new patent applications.
Potential challenges
Although Mexico has succeeded in attracting billions of dollars in foreign investment from firms keen to move production capacity closer to the US market in recent years, some critics argue that regulations in areas such as electricity generation, as well as legislative changes including a raft of constitutional reforms, have affected investor confidence and prevented the country from fulfilling its potential.
Future prospects will depend largely on how far the country maintains its privileged access to the US and Canadian markets after the USMCA renegotiation in 2026. Together these measures should help to counterbalance some investor concerns around recent reforms, such as changes to the judicial system and the shuttering of independent regulatory agencies, some of which covered key sectors such as energy generation.