Nearshoring is considered one of the greatest opportunities for economic development in the region, but so far it has not reached its full potential in Mexico.
Driven by the readjustments of supply chains following the Covid-19 pandemic and the trade war between the United States and China, this productive model remains one of the main issues on the national agenda, but its impact on the economy is still a matter of debate.
According to data from the Ministry of Economy, foreign direct investment (FDI) reached a record $32.9 billion between January and September 2023.
However, most of that investment was from companies that already had a presence in the country.
Meanwhile, the English investment bank Barclays estimated that nearshoring could have contributed between 0.3% and 0.4% of the country’s Gross Domestic Product (GDP) in 2023, figures that are still low.
So far in 2024, relocation in Mexico has faced significant challenges, including:
The presidential elections
Persistent deficit in infrastructure and technology
Worrieder water crisis in the north and center of the country
Security problems in key regions
Mexico reports 93 foreign investment announcements for $36.153 billion in 2024 ↗
Foreign companies have made 93 investment announcements in Mexico
3 warning signs for Mexican nearshoring
Although many analysts suggest that the true results of business relocation in the country could be reflected until 2026, in recent months there have been signs of a certain slowdown in the drive for new foreign investment.
We list some of the most important ones.
- Elon Musk pauses Tesla’s plant in Mexico
On July 23, Tesla CEO Elon Musk announced that the investment the company planned to make to build a car gigafactory in Nuevo Leon has been halted.
Musk indicated that the fate of the gigafactory will not be decided until after November 5, when the presidential elections are held in the United States.
“I think we should see what happens with the election. Donald Trump has said that he will put tariffs on vehicles produced in Mexico. So it doesn’t make sense to invest a lot in Mexico if that’s going to happen,” said the owner of Tesla.
- The World Bank doubts the impact of nearshoring
In April of this year, the World Bank indicated that it has not observed a great impact of new foreign investments in Mexico, so it revised its growth forecast for this year downwards.
The organization explained that it even foresees a lower dynamism in this area in the medium term.
“This is a surprise, because it was thought that Mexico would be the main representative of how important the relocation of companies can be,” said William Maloney, chief economist for Latin America and the Caribbean at the World Bank during the presentation of the Economic Report of Latin America and the Caribbean 2024, Competition: the missing ingredient for growth?
- FDI falls 150% in Aguascalientes
Foreign direct investment fell 150% in Aguascalientes during the first quarter of 2024, according to an analysis by the College of Economists of that state.
Although a 13% contraction is recorded at the national level, the entity was the one that registered the greatest decrease compared to last year.
This despite having been identified as one of the most attractive destinations for nearshoring.
The College of Economists identifies the stabilization of international markets, high relocation costs and the requirement for labor as factors that negatively influence the decision to relocate companies.
2 great opportunities
Mexico remains an attractive destination
Despite the impact of the global slowdown, Mexico remains one of the most attractive countries for nearshoring and attracting foreign direct investment from companies.
This is due to its proximity to the United States and its generation of human talent.
According to statements by Jene Thomas, director of the Mission of the United States Agency for International Development (USAID), our country continues to stand out as one of the destinations with the greatest opportunity for organizations seeking to move operations, plants, factories or warehouses from Asia, Europe and the United States.
“Currently Mexico produces more engineers than any other country in the world; it is not India but Mexico that produces more engineers,” Thomas pointed out during the presentation of Roadmap: Opportunities for semiconductor nearshoring in Mexico.
In case you missed it:
Hall of Fame: Mexican Leaders 2024. Meet Simon Cohen, living fully and working to serve, translates into productive talent
UPS to buy Estafeta
UPS, a transportation and logistics company based in Atlanta, reached an agreement to buy Estafeta for an acquisition price that has not been confirmed, but is valued above one billion dollars.
“As the shift to nearshoring continues, our combined business will provide customers in Mexico with unprecedented access to global markets with seamless service and greater efficiency,” said Carol Tomé, CEO of UPS, confirming that the purchase agreement could be completed by the end of this year.
Source: thelogisticworld
