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Why Mexico's drug violence doesn't deter foreign direct investment

Recent reports indicate foreign companies are not feeling the effects of the violence in Mexico and Central America, likely due to the difficulty of extorting multinational corporations.

By Geoffrey RamseyGuest blogger / September 19, 2011



Despite a surge in drug-related violence in the Central America and Mexico, foreign direct investment in the region does not seem to have been seriously affected.

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Bank of America published a report recently stating that its operations in Mexico were not significantly affected by the violence in the country, and in doing so joined the ranks of a number of large multinational corporations to remain relatively unscathed. Recently, Nestle S.A. also issued a statement claiming that it had noticed “no significant change” in relation to the security of its goods or vehicles in Mexico.

The announcements come just two months after the Mexican government published a report showing that foreign direct investment (FDI) has actually increased slightly in the past few years. FDI totaled $31 billion from 2006 to 2010, up from $30 billion in the previous period. Interestingly, the report found that investment in the country’s seven most violent states is higher than before the “drug war” began in 2006.

While the fact that investment in Mexico has been unaffected by the surge in criminal activity may come as a surprise to some, it is not an isolated trend. In fact, the latest data from the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) suggests that foreign direct investment has increased in drug-ridden Central America as well. Although the subcontinent has seen a significant rise in drug trafficking accompanied by murder rates making it one of the most dangerous regions in the world, the average FDI went up 16 percent from 2009 to 2010. Every country but El Salvador reported growth in FDI last year.

Meanwhile, the “big three” countries involved in cocaine production (Colombia, Peru, and Bolivia) saw no major falls in FDI, with only Colombia registering a drop (five percent) compared to the year before. The only other country in South America that saw a reduction in FDI in 2010 was Ecuador, and this was more likely influenced by President Rafael Correa’s veiled threats at nationalizing private oil firms last year.

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