Country Risk Mexico

Country Risk

When investing in a country, the risk depends on the changes in the business environment that may affect the operating profits or the value of the assets in the specific country. Because Mexico is using a different currency, this will involve extra risk together with factors such as currency control, devaluation or regulatory changes. Not only financial risk should be taken into account, but also mass riots, civil wars terrorism insurrection and drugskartels are potential events that contribute to higher risks for companies.

Besides the financial and civilisation/country risk, in which it refers to the complications the business and other governments may face to political decisions. It can be defined as “the risk of strategic, financial or personnel loss because of such non-market factors as macro economics and social policies or events related to instability.

Mexico is facing potential investors with uncertainty arising from ongoing reforms to the tax systems and competition framework. Not only reforms, also the high levels of violence and the government’s frontal confrontation with drug trafficking organisations will cause serious problems for investors. Together with the need to take additional security can have an added financial impaction the companies as they divert funds away from re-investment plans to foot the security bill. (2)

The reforms, who are taking place right now, may improve the overall business climate in the long run. This said, there is still the short- to medium term that is forecasted as ‘high risk’ together with unstable and changing regulations. Also the worldwide growing fiscal pressure on investment returns and increased scrutiny of transactions is a major factor of considering establishing in Mexico. The new government of President Pena Nieto will seek to improve tax efficiency that establishes a fairer, simpler and more transparent tax system for all Mexicans while diversifying tax collection to create a...