By Andrei Skvarsky.
The chief executive of Abraaj, a global private equity firm, argues that “diverse urban economies” in Mexico offer “unique” opportunities to international private equity investors.
“While a few large cap companies dominate the public equity markets, private businesses are by far the dominant force in Mexico’s underlying economy. Their need for growth capital and assistance with regional and global expansion is largely unmet,” Arif Naqvi says in an article entitled “Unlocking Mexico’s Potential”.
Private equity penetration in Mexico makes up about 0.04% of GDP and is “well below the level in other large growth markets”, he says.
Mexican pension funds have deployed less than one quarter of what they would have been able to in private equity and other alternative investments, Naqvi says.
“Favorable demographics and the inexorable growth of urban centers underpin Mexico’s long-term expansion in domestic demand and private consumption—especially among the young, rising and economically active middle class. Add in continuing economic and institutional reforms under President Enrique Peña Nieto and it is clear that Mexico is on a path to sustained economic development,” he says.
Furthermore, membership of the Pacific Alliance, a pro-business bloc whose other members are Chile, Colombia and Peru, “makes the Mexico investment story even more attractive,” the Abraaj chief says.
Cities in the four nations account for some two-thirds of the alliance’s combined GDP, and the group’s economic growth is more than twice as fast as that of Brazil or Mercosur, a bloc comprising Brazil, Argentina, Paraguay, Uruguay and Venezuela, he says.
Abraaj “identified the opportunity in these core markets well before the Pacific Alliance took off”, Naqvi says.
“From 2004, our local teams noted a trend of Mexican and Colombian businesses expanding into Central America, and Chilean businesses into Peru. We responded with a distinctive investment strategy tailored to local markets that enables partner companies to scale up and grow beyond their national borders.”
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