By Samuel Peña Guzman
Foreign Investment Coodinator State of Nuevo Leon

Global markets are currently demanding larger incentives from countries and therefore from states or provinces in order to facilitate operations´ expansion. There is no doubt that, considering current globalizing competition, it would be obvious that increasing incentives for foreign investment is what authorities should do. However, the truth is that in Mexico said incentives are scarce due to its economic policies.

The reality all states must face is that they all offer very similar incentives. Even if in the less developed states, mainly in Mexico´s south, there can be a wider range of incentives; there is also less competition due to their unfortunately limited suppliers´ development. There are also training programs aimed for potential investors provided in most states of Mexico. However, fiscal incentives are practically annulled due to the fact that most taxes are federal, 2% payroll state tax exemption is the more that can be expected, undermining the states´ governments capacity to offer larger fiscal incentives to potential investors. When analyzing investment projects, eliminating 2% payroll tax does not represent an essential factor when a company has to make the decision to expand operations, because savings are not that significant. In some countries in Asia or even the European Union, fiscal exemptions go even beyond 5 years. Mexican reality is that states practically lack the incentives required by globalization to attract new investments over other markets in the world, making the task even harder for states. To this date, not enough investment has been achieved.

Markets opening has undoubtedly multiplied after the signature of several Free Trade Agreements that Mexico has entered with 45 countries now. No doubt, NAFTA - the one that the most benefits has brought - has hugely benefited Mexico, trade and investment in many ways. However, the other side of the coin is that unfortunately these benefits have only gone to a very small population sector. On the other hand, it would be a mistake to blame trade agreements for the loss of competitiveness and jobs in Mexico. Trade agreements not only mean opening the economy to new markets, maybe they are only a "recipe" (to name it some way), that comes together with globalization and neo-liberalism reducing the role governments play in economy and henceforth relieving markets and the private sector from tasks and responsibilities, completely different from the centralist policies that characterized Mexico in the seventies. However, we have witnessed that the several markets and industries have been unable to guarantee people´s progress; also, social gaps in Mexico have been increased. This is not meant to ascribe responsibilities neither to the private sector nor to government authorities, this is but an example that tries to show that both sectors share the responsibility and opening must be gradual and not immediate.

It is clear enough to me that increasing access to markets, competitiveness and foreign investment is not the product of a "math formula", but it would be if the goal pursued were concrete enough and meant to provide welfare to us, citizens. This globalization process of allowing markets to rule the society´s fate is at the same time the new neo-liberalism concept that states that economy dictates social norms and not the other way around.

As a matter of fact, I think that, at least in the developing countries, where economies are concentrated in very few hands, as in Mexico, we should not allow - at least not yet - neo-liberalism and market economy to dictate the norms for the economic policies that will rule over us. There is danger, especially in countries with a large concentration of foreign investment in strategic sectors that could put the country´s stability at risk. For example: Mexico´s banking system or the airports system, which are practically in the hands of foreign capitals. I think a globalizing neo-liberalism such as the one we are currently living - if we consider the significant differences among social classes and most of all the considerable differences in income - could lead to an increase in said social differences, in addition to allowing those who have more and which are also foreign to Mexico, to rule over us.

There is no doubt that incentives, markets and globalization are all linked; however, their interaction must be gradual due to the circumstances we are living in Mexico.

Hector Samuel Peña LL.M, MPA Currently works as a Foreign Investment Coordinator for the State Government of Nuevo León, he has LLM Masters in Law from American University, Washington, College of Law, and a Masters in Public Administration from the George Washington University and has advised foreign companies who are expanding operations in to Mexico. He is also a professor at the State University of Nuevo Leon in Monterrey, Mexico and a Member of the Consejo Mexicano de Asuntos Internacionales COMEXI.
The point of view is strictly from the author and does not represent the vision on any of the author institutions relationships.

He can be reached at: samuel.pena@mexicoglobal.com