Global Observer

Mexico growth prospects lure Spanish investment

Mexico growth prospects lure Spanish investment

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MEXICO CITY -- Mexico looks increasingly hot as the economies of Brazil and Argentina slow down.

MEXICO CITY -- While the Eurozone flirts with recession and other Latin American hotspots lose their allure, Mexico is attracting increased foreign investment – especially from Spain.

Battered by domestic weakness, Spanish companies have managed to keep up their hunt for opportunities in Mexico, which has seen the influx of some 4,000 Spanish companies over the past 10 years.

Spain's Enagas and Elecnor recently won a 25-year, $270 million concession to build and operate a pipeline between the states of Morelos and Tlaxcala, partially backed by funding from the Spanish and Mexican governments and Banamex Citigroup.

Mallorca-based Melia Hotels International floated its latest quarterly results on the strength of its business in Latin America, where Mexico ranked among the company's two best-performing regions and where sales growth tempered anemic demand at home.

Meanwhile, the Spanish Hotel Riu chain inaugurated a $132 million hotel in Cancun in May.

Spain's Codere negotiated in 2011 the option to buy a controlling stake in Mexican gaming company Corporación Interamericana de Entretenimiento; Codere already owns the majority of Mexico's Grupo Caliente and in total operates 94 gaming venues and a racetrack in Mexico.

Sun and sand, cell phones, commodities, credit, casinos and construction: The examples of Spanish participation in tourism, communications, energy, banking, entertainment and infrastructure go on.

Private investment from Spain over the past decade nears $36 billion, or roughly 16 percent of Mexico's total foreign direct investment over the period, according to Mexico’s Office of the President. That's been a boon to Mexico's infrastructure development across industries.

While Spanish investment has played a lead role in Mexico for at least two decades, said Francisco Garzon Morales, Spain's consul for commerce and economy in Mexico, what's significant is that the country's interest hasn't waned during the past few years of global economic strife.

"Spain’s interest (in Mexico) goes beyond the economic cycle," he said.

Mexico has grown more attractive compared with South American rivals.

Analysts expect GDP growth between 3.5 percent and 4 percent, according to a survey by Mexico’s central bank, Banco de Mexico. The bank reported first-quarter GDP climbed 4.6 percent (compared with less than 1 percent GDP growth in Brazil).

Manuel Sanchez Gonzalez, a member of the bank's governing board, has attributed Mexico's "sustained recovery" from the global recession to "strong macroeconomic fundamentals," including a low fiscal deficit, stable public debt, moderate inflation and a "well-capitalized" banking system.

All that has spelled haven for Spanish companies in search of stronger growth outside the Europe – but without some of the political risks and sluggish growth Spanish companies have recently faced elsewhere in Latin America. Spanish investment in Mexico falls second only to the U.S.

Bloomberg reports that Spanish corporations have spent $117 billion on Latin American deals since 1992, while Spain's 200 publicly traded companies now generate 18 percent of their total revenue in Latin America.

Companies looking for additional liquidity are finding it in Mexico.

Last month, Melia sold its ME Cancun for $75.4 million while continuing to operate the hotel. (Spanish companies operate two-thirds of the available rooms in Cancun and Mexico's Mayan Riviera.)

Santander raised $8 billion in an initial public offering in Brazil in 2009. Now the bank is considering floating part of its Mexican business.

The economies of Brazil and Argentina have begun to wither, begging the question of whether Mexico is headed the same direction – or if it will keep up its pace of slow-but-steady growth.

"It's logical that if the economic turbulence grows, Mexico could be relatively affected," said Garzon Morales. "But Mexico's prospects are for growth. In that sense, Mexico is well positioned."

Photo: Flickr/ME by Melia

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Lauren Villagran

Correspondent (Mexico City)

Lauren Villagran has written for the Associated Press, Dallas Morning News and Christian Science Monitor. She holds a degree from the Medill School of Journalism at Northwestern University. Follow her on Twitter. Disclosure