If you fail to prepare, you are preparing to fail.Benjamin Franklin
From a financial standpoint, a Fallen Angel refers to a debt issuer that had an investment grade at some point, but has subsequently lost it and has fallen to junk status. The main reason an issuer becomes a Fallen Angel is because of poor management decisions: Mismanagement of their business model, loss of clients that translates into lower income, lower income that translates into lower cash flows and higher risk. of default against commercial or financial obligations. There are Fallen Angels at the level of financial instruments, public or private companies, municipalities, states or even countries.
This week we heard the unfortunate news that Mexico is no longer included in the list of most attractive countries to receive foreign direct investment, according to the Foreign Direct Investment Confidence Index published each year by the consulting firm Kearney. This result should not surprise us, but it should put Mexico’s entrepreneurs and business people on high alert. We all know the enormous challenges facing our country: A very weak rule of law, a security crisis that has been going on for almost two decades and that has no potential solution in the short term, major deficiencies in the education sector, unacceptable and insulting levels of corruption, as well as a terrible disparity in income distribution. The picture worsens when we add a reprehensible political polarization, a lot of ideology with little pragmatism, obsession with the past instead of seizing the future (“nostalgic populism”), and halfway changes to the game rules. In summary, we are becoming experts in just what we should avoid: Generating uncertainty and doubts about the direction of Mexico and about the rationality in the design of public policies.
Foreign investment can be of two types: portfolio or financial investment, which is aimed at investing in bonds or shares of Mexican issuers, and direct investment, which is even more important, since it generates companies, production processes, jobs and economic growth in Mexican soil. It is not a coincidence that the states of our country that have known how to attract the most foreign direct investment (eg Querétaro, Nuevo León, Guanajuato) are also the leaders in the list in per capita income and economic growth. It is expected that in 2020, Mexico will receive 19,241 million dollars of foreign direct investment flows. However, this figure will be well below what the country has achieved in the past. According to OECD figures, during the 2013-2018 period Mexico reached an annual average of $ 35,330 million USD in foreign direct investment. In contrast, in the same period, the Netherlands – a country much smaller than Mexico, with an economy that is neither emerging nor has the amount of natural or human resources that Mexico has, but which does have stability, certainty, technology, innovation and respect for the rule of law – took 80,045 million dollars a year.
We must not allow our country to become a Fallen Angel. We must not allow Mexico to lose competitiveness and go astray in the pursuit of development. Just as economic power should not be above political power, long-term economic decisions should not be subject to short-term political pettiness. To the extent that we are not able to generate certainty and credibility, it will become increasingly difficult to convince multinational companies to come to risk their capital in Mexico, and that will be terrible news for everyone.
Managing Partner of Nuricumbo + Partners. His work as a consultant has focused around CFO services and challenges, in companies of all sizes, both in Mexico and abroad. He began his career at PWC. Later, he held the position of internal audit manager for Young & Rubicam and The Interpublic Group, two international advertising groups, working for five years in New York City and performing audit projects in many countries.