TBY talks to Guillermo Garcia Naranjo, Director General of KPMG México, on the changing investment climate, the impact of recent reforms, and the advantages of doing business in Mexico.

Guillermo Garcia Naranjo
Guillermo Garcia Naranjo has over 35 years of experience in the area of auditing. For over 20 years Guillermo has worked as commissioner for multiple companies in different industries, which he has advised on business development and best corporate practices. Since September 2002 he has been a member of the KPMG International and KPMG Americas Board. Guillermo is actively involved in various associations such as the Institute of Chartered Accountants of Mexico, the Mexican Institute of Public Accountants and the Mexican Institute of Finance Executives, and he is currently President of the Mexican Accounting Standards Board (CINIF).

If a foreign company wants to invest in Mexico what particularities will they find in terms of taxes and doing business here?

Mexico is one of the more open economies in the world. About 30 years ago, our country was much less open. Two vital steps for Mexico were GAT and the North American Free Trade Agreement (NAFTA) in 1994 when the economy started to be really open. After that very important event there were other free trade agreements that were signed with different parts of the world. So now Mexico is very open and we had a very important segment, which is the energy industry that according to our 'Top Management Perspectives in Mexico 2015' survey the most acclaimed reform was the Energy Reform, widely accepted by 64% of respondents for being in-depth and in-breath and for opening up the possibility or real industry benefits through new investments and accelerated development. The energy reform calls for investment of approx. $70 billion USD in the next five years in investment at E&P oil and gas round fields, pipelines, electricity transmission and distribution lines, etc. Other reforms that will also increase FDI are in the telecommunications in which the increase in competition of the sector already has proved transactions in M&A in excess of $4 billion USD and contemplates increased investment in areas such as the universal broadband and others. It can be argued that the Structural Reforms and further measures to improve the country's competitiveness have yet to yield results and one or two years are still required so they may look more consistent. Favorable responses of business community in our survey perceive the approval of Structural Reforms as positive (63%), but the remaining sample expressed its disappointment owing to the fall in internal consumption and insecurity, followed by delays in bureaucracy in support programs. We think the reforms that were approved a year and a half ago are also what makes Mexico very attractive for investors. The structural reforms have raised the expectations of growth for Mexico. The OECD has rated Mexico as the most reformist country in the world, stating that about 60% of their recommendations have been passed through structural reforms, while OECD countries are at 30%.

When investors come to you what are their main concerns in terms of investing in Mexico?

One is the rule of law, the judicial system and the tax regimes. The lack of security in some areas of Mexico remains and the power of the drugs cartels is a challenge. It has been claimed time and time again that insecurity and crimes do not necessarily bring foreign investment to a halt and this is confirmed by our 'Top Management Perspectives in Mexico 2015' survey. Under current conditions, 43% of executives have upheld their investment decisions, vs. 38% in 2014. It is interesting to imagine how the market would behave if enterprises were not affected by theft, threats and extortion. In that respect, in some ways Mexico is privileged to neighbor the US, the largest market in the world. On the other hand, I am highly optimistic about our country and the many advantages that we have. Demographic growth is expected in the next few years, and young people will drive our economy. However, industry needs to create employment for youth. Besides, our labor is highly appreciated among the global markets, for its quality and its balance between productivity levels and costs. All these aspects have derived in having the highest level of international trade among the Latin American countries and one of the highest in the globe with almost US$800 billion (between imports and exports, almost equally divided). Finally, for 2014, Mexico received US$22.5 billion, 57% of this corresponds to manufacturing industry, including the automotive industry.