Mexico City — Mexico seeks to occupy a privileged place in the nearshoring phenomenon, the new puzzle of global trade. The government and the private sector have begun to take steps this year to ensure the successful relocation of companies and their production processes to the country. But there are challenges. Companies are looking for guarantees in access to water, clean energy and infrastructure services.
How long will it take for the full potential promised by nearshoring to materialize? In answering this question, the country has a new “Mexico Moment” at stake.
During the Bloomberg Línea Summit Mexico 2023 in Mexico City this week, José Luis Ortega, director of debt and multi-asset teams at BlackRock Mexico; Josefina Moisés, CEO of AMEFIBRA, and Juan Gonzalo Flores, country manager Mexico at the World Bank’s International Finance Corporation (IFC), conveyed an optimistic vision regarding the evolution of this international trade trend, although they warned that the country must do its homework to see it flourish with greater momentum.
To illustrate the boost that taking advantage of this opportunity would imply for Mexico, Flores pointed to the example of Tesla, arguing that its entry into the country would multiply tenfold the 127 suppliers that Elon Musk’s automaker has in the country.
He highlighted the exponentially positive impact that nearshoring could have for the country’s small and medium-sized enterprises (SMEs), which represent more than 90% of the companies in Mexico.
“We are not going to finance Tesla, it does not need us, but we can create products to finance the suppliers of these large buyers,” said Flores.
Along the same lines, Moises referred to a multiplier effect as a result of nearshoring: “Obviously it has a mainly industrial component, but it is going to affect all sectors, including the hotel industry; schools are going to be needed and shopping centers are going to be required for these locations.”
“We see a long cycle coming,” she added.
A boost for all economic sectors
Moisés stressed that nearshoring is not limited to the industrial sphere, but has a much broader scope. It affects all sectors, from industry to tourism and education. Moisés stressed the need for additional infrastructure, such as schools and shopping malls, to meet the demands of this growing wave of investment.
Regarding long-term growth, she argued that experts predict a 10-plus year cycle for nearshoring in Mexico. This is backed by solid data, as since 2019, there has been a steady increase in available industrial space, with an expansion from one million to three million square meters by 2023.
Moisés also pointed to unmet demand in the north of the country and growing interest in the Bajío region, in the country’s center, which is already a hub for the automotive industry.
The IFC’s Flores highlighted the diversification of sectors benefiting from nearshoring, including services, construction, industrial parks, hotels, housing and telecommunications. He stressed the importance of infrastructure investment to meet the demands of new companies coming to Mexico.
Financial evidence of nearshoring
Flores shared evidence, which he considered compelling, of the rise of nearshoring. He noted that growth rates in nearshoring-related infrastructure investment and development are exceptional.
IFC has identified 12 loan projects worth $1.5 billion specifically related to nearshoring in a variety of sectors, he added.
This would confirm a growing interest and financial investment in nearshoring in Mexico, he argued.
José Luis Ortega, from BlackRock Mexico, provided insight from the point of view of a financial giant such as BlackRock. He noted that the nearshoring boom has boosted foreign investment and reinvestment by international companies already operating in Mexico.
He noted that even Asian companies have been using Mexico as a platform to export to the United States through the USMCA tripartite free trade agreement. This interest from Asian companies is a sign that Mexico is attracting global investment.
Ortega mentioned that Mexico is one of the most attractive emerging markets due to its economic and fiscal stability, despite an exchange rate that is not necessarily cheap.
He also noted that although interest rates in Mexico are high, this has not stopped economic growth, and long-term investors are looking for solid opportunities.
Challenges and security
In addressing the issue of security, Moisés acknowledged that it is a major problem and needs to be addressed. While efforts have been seen to address this challenge, he emphasized that the next administration has a crucial role to play in improving the situation and providing a safer environment for businesses and their employees.
In summary, the evidence presented by these business and financial leaders underscores that the nearshoring boom in Mexico is not a passing illusion, but a solid trend backed by steady growth in several economic areas.
With nearshoring booming, Mexico is uniquely positioned to become a global leader in production and technology, promising a richer and more prosperous future.