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Mexico offers investors and businesses a land of opportunity that rivals any other emerging market, but doing business can be a time-absorbing task, which is why having local knowledge as part of the venture is crucial.
Once perceived as a land of violence and corruption, Mexico has transformed its reputation to become a land of opportunity. To make itself attractive to investors, the Mexican government has made improvements to its infrastructure and fostered competition in sectors such as transportation, energy and telecommunications. As a result, it now stands as the 13th largest economy in the world and the 11th in terms of purchasing power. A recent PwC report estimated that it would become the 7th largest economy in the world by 2050, behind Latin American counterparts Brazil and neighbour US.
One of the biggest changes for Mexico has been its trade policies. By opening its borders, Mexico has become a global manufacturing base, with strong links to consumer economies in North and South of America. What’s more, the price of labour has remained stable over the last decade while the cost of wages in Chinese factories has quintupled. As the Economist puts it, this has led to “Made in China” giving way to “Hecho en México”.
There are still many hurdles to overcome when doing business in Mexico, and international firms are often perplexed by the legal and fiscal system. Having local knowledge of the investment environment and good information on the legal, accounting and taxation framework can therefore be an asset for any overseas venture.
Starting a Business
Starting a business in Mexico was once a complex minefield, but thanks to tough government action the procedure today is much more manageable. The World Bank and International Finance Corporation (IFC) improved Mexico’s rank by 38 places this year, placing it in 36th place in the world for ease of starting a business. Still, there are several procedures which can be tricky to navigate for firms unfamiliar with the environment, particularly registration with the Mexican Social Security Institute (IMSS).
Dealing with Construction Permits
It takes 69 days and requires 10 procedures to deal with construction permits, which is around the OECD norm but far more efficient than the Latin America and Caribbean average. Water and sewerage connection takes the most time to complete - around a month on average - and obtaining a single zoning certificate stating specific land use and feasibility can be a complex task.
The World Bank and IFC rank Mexico in 130th place in the world for ease of getting electricity, underlining the complex nature of the procedure. It is a task laden with bureaucracy, and firms must submit applications, obtain certificates and inspections from the Comisión Federal de Electricidad (CFE), before a contractor can carry out the works.
Registering property is a long and arduous task, taking 74 days in total compared to the 26-day norm for OECD countries. Dealing with the Public Registry of Property of the Federal District can be particularly time consuming, and obtaining a certificate of good standing with the water service and the Zoning Certificate of the property can also take some time.
Mexico’s well developed financial sector puts it in good stead in terms of getting credit, although it is still relatively difficult compared to most developed nations in the world.
Investor protection is still a contentious issue in Mexico, although the North American Free Trade Agreement (NAFTA) has gone a long way in rectifying some of the past issues that existed in the country.
Paying taxes is a laborious process in Mexico, taking some 337 hours of business time per year, even though there are only six payments to be made. Corporate income tax at a rate of 30 per cent takes 155 hours alone to complete, and VAT filing and social security contributions take a long time to process.
Trading Across Borders
There is a substantial cost associated with trading across borders, far higher than the average in South America and the Caribbean. The cost of importing is around $1,450 per container and exporting costs $1,780. It also takes quite a long time to move containers, 12 days when importing and exporting on average.
Enforcing Contracts and Resolving Insolvency
It takes 415 days to enforce a contract, and there are 38 procedures involved in doing so, making it a complex task. Resolving insolvency, on the other hand, is more streamlined, taking only 1.8 years compared to 3.1 in the rest of South America and the Caribbean.
In Mexico’s typical business culture meetings start off slowly, and matters of importance - such as deal making - are generally not discussed until the end of a session. There is a large gap between the executive level and the various levels of the rest of the company, and decisions will usually be made by one person, rather than a board of directors.
We have the local knowledge to help you navigate these minefields. Whether you want to set up in Mexico or just want to streamline your Mexican operations, talk to us.