The credit risk rating agency also highlights the threats to the country such as deficiencies in infrastructure or the Government’s intervention in different sectors, canceling concessions to private companies and handing over activities to the Army.
Due to its proximity and economic integration with the United States, Mexico will be the largest Latin American country to benefit from foreign investment that seeks to transfer operations from China to more friendly destinations with the world’s leading economy. However, analysts from the credit risk company Moody’s warned in a report on Wednesday that infrastructure limitations, risks associated with climate change and public policies continue to hinder the entry of companies into the country….
“Many companies continue to announce the relocation of their operations and the construction of plants in Mexico, and the flow of investments will intensify in the next two or three years,” says the report, signed by specialists Martina Gallardo, Marcos Schmidt and Marianna Waltz. , “However, while the change will imply tangible benefits for specific sectors and states in Mexico, nearshoring alone will not increase the country’s medium-term growth prospects above 2% without some structural changes. “Infrastructure limitations, public policy obstacles and the physical risks of climate change represent the main structural deficiencies that will limit the benefits of nearshoring in Mexico.”
The context for the Latin American region as a whole is negative. According to Moody’s, Latin American non-financial companies will face credit implications in 2024 due to four main issues: higher interest rates for longer, adaptation to structural changes, reforms and regulations, and polarization. “Geopolitical tensions and social pressures will greatly influence industry strategic priorities and public policies in emerging markets in 2024,” the report says.
High costs of living, food security, and climate disasters would intensify social tensions, making it difficult to advance domestic policies and incentivizing government intervention. This, specialists say, will repress investment and affect business conditions, margins and tax revenues. In this context, Mexico stands out among its peers as a “safe destination in the face of the intensification of social risks in Latin America.”
The risk in Mexico, they warn, is regulatory, since under the presidency of Andrés Manuel López Obrador, the Government has intervened in different sectors, canceling concessions to private parties and handing over productive activities to the Armed Forces. The mining industry is the one most at risk from possible government intervention, notes Moody’s. “These risks will weaken business confidence in Mexico, although we hope that Congress and the Mexican Judiciary will exercise their authority to review the consistency of the government’s measures with current legal and regulatory frameworks, which would ultimately limit the measures that exceed legal frameworks,” the report says.
“Decisions that contribute to an uncertain operating environment and infrastructure limitations will reduce the benefits of nearshoring,” say the firm’s specialists. “The 2024 elections, including the presidential elections in Mexico, could change public policy priorities with a change of government and would offer the opportunity to have more favorable policies for investment in sectors such as electricity and renewable energies.”
Source: El Pais
