For many years, Canada and Mexico remained economic strangers despite being partners in North American free trade – both deeply tied to the U.S., but with few direct connections to each other.
But that dynamic has changed ahead of a Three Amigos summit in Mexico this week, which Canadian Prime Minister Justin Trudeau will attend with his counterparts. Canadian companies have in recent years become some of Mexico’s most important foreign investors.
In the first nine months of 2022, the latest period for which statistics are available, Canada was the second-largest source of foreign direct investment in Mexico, ahead of Spain. Canadian companies invested US$3-billion in that period – 9.5 per cent of the total. Foreign investment flows can fluctuate widely year by year, but the 2022 figures form part of a trend: in 2017 and in 2020, Canadian investment was also second – behind only the U.S.
It’s an important development. For many years previous, Spain, which shares linguistic and colonial ties with Mexico, was its second-largest investor. Spanish overall holdings in the country continue to outnumber those from Canada, although the gap is closing, with Canadian investments now at nearly two-thirds the total from Spain. Since 1999, Canadian investments in Mexico amount to US$50-billion, compared to US$80-billion for Spain and US$310-billion for the U.S.
“There’s been steady growth in the Canada-Mexico leg of the triangle,” said Tom Long, a University of Warwick scholar and co-editor of the report, North America 2.0: Forging a Continental Future. It began from a low base and the shift has come in part, he said, because of diminished investment from Spain.
“Canadian investment in Mexico is an important factor in creating more tightly integrated North American industries.”
Indeed, trade and investment experts believe the broader forces reshaping global capital flows are likely to provide increasing incentive for companies to invest closer to home. Russia’s invasion of Ukraine, and the resultant rise in energy prices, has altered Europe’s attractiveness. U.S. legislation and broader concerns about Beijing’s policies, meanwhile, have begun to steer money away from China.
“Geopolitics are definitely laying the ground for more nearshoring in North America,” said Luz María de la Mora, an economist who until recently was undersecretary for foreign trade in Mexico’s Secretariat of Economy.
And it comes at a time when Canada and Mexico “have discovered each other,” she said.
Over the past 12 years, Canadian involvement in Mexico has already eclipsed that of Spain in one important way. Since 2010, reinvested profit made up the large majority of Spanish investment. Only 20 per cent came as new spending compared to 30 per cent from Canada, according to an analysis by Alessandra Ortiz, senior economist with Deloitte in Mexico.
“In other words, in the last 10 years Canada has invested more in new projects in Mexico than Spain,” she said.
Canadian miners have been the biggest investors in Mexico, followed by spending on transportation services – mostly natural gas pipelines. In fact, Canadian companies deliver nearly 40 per cent of all Mexican foreign investment in those sectors.
But pipeline investments have been among the largest sources of friction with Mexico in recent years. The U.S. and Canada have threatened to call an arbitration panel under the United States-Mexico-Canada Agreement after Mexico’s state-owned electricity utility, Comision Federal de Electricidad, cancelled contracts with private companies, including Calgary-headquartered ATCO Ltd., as part of a broader nationalization effort under President Andres Manuel Lopez Obrador.
The London Court of International Arbitration ordered CFE to pay ATCO about US$100-million, Reuters reported last year, for a 17-kilometre pipeline it had mostly finished before its contract was cancelled.
Though the three countries continue to negotiate, a USMCA panel “would be unlikely to rule in Mexico’s favour,” Ms. Ortiz said, and any move by its government to dismiss such a ruling would be damaging.
“Such a scenario would reinforce investor concerns about contract rights and government favouritism in Mexico, to the detriment of the country’s economic outlook.”
But there are signs industry is already moving forward. In August, TC Energy finalized an agreement with the CFE to build a US$4.5-billion natural gas pipeline. Much of the 715-kilometre line will pass underwater through the Gulf of Mexico. From 2015 to 2020, TC Energy investments in Mexico have accounted for 56 per cent of total Canadian capital flows to the country, the company said.
In November, a delegation from the Mexican state of Querétaro travelled to Quebec and Ontario, signing an agreement on aerospace co-operation in Montreal and promoting other investments. In that state, Tim Hortons is building 50 locations and BRP is investing to manufacture electric motorcycles.
The joint hosting of the 2026 FIFA World Cup has been among the most visible demonstrations of the three countries working together as a North American bloc. That co-operation in sport reflects a changing business environment, too, as manufacturing slowly moves away from Asia, in part to meet mandates in the U.S. Inflation Reduction Act and the CHIPS and Science Act for domestic production of electric vehicles and semiconductors.
“This relocation will make the North America region trade more within itself,” said Carlos Capistran, who heads Canada and Mexico economics at Bank of America Global Research.
Such movement to date has been particularly beneficial for the U.S. and Mexico – the former as companies seek to avoid tariffs, the latter as investors seek workers that can be paid lower wages.
But, Mr. Capistran said, “as manufacturing production increases in North America as a percentage of the region’s GDP, we expect more of that production to be co-produced between the three countries.”
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.