Recent FrontierView polling shows GMs believe production is on track to ramp up in Mexico
Amid a gloomier international landscape, where geopolitical tensions are rising, a global economic slowdown is on the horizon, and ongoing regulatory uncertainty continues to vex the overall business climate in Mexico, firms should continue to prioritize Mexico despite current headwinds, as the country’s fundamentals remain strong and its nearshoring attractiveness will continue to increase, generating myriad opportunities across the economy.
On September 6, FrontierView held its latest Mexico Executive Roundtable in Mexico City, where one of the key takeaways was Mexico’s continued nearshoring attractiveness. Indeed, most of Mexico’s GMs believe firms are strongly considering ramping up their production in Mexico, regardless of the country’s political headwinds, and for that matter, in the US. On the question, “Is your company waiting on the results of either the Mexican or US presidential elections in 2024 to pull the trigger on local production plans?” 82% of those present responded “not really,” meaning that Mexico’s nearshoring opportunity is here to stay.
Against the backdrop of US-China decoupling, supply chain strains because of the China’s zero-COVID strategy and the ongoing war in Ukraine, and the López Obrador administration’s policies disrupting the operating environment, FDI flows continue to increase in Mexico, particularly toward its strategic manufacturing sector. Indeed, at the same pace the global economy decelerates, FDI in Mexico has increased in H1 2022 by 24% YOY (worth US$ 27 billion), a trend that indicates that the country is likely to receive more than US$ 40 billion in FDI in 2022. The most important fact comes from looking at where FDI is heading. Out of the US$ 27 billion, the transportation sector received US$ 4.4 billion (90% YOY), mainly driven by AeroMexico’s restructure. Mass media/telecom received US$ 3.5 billion (833% YOY) because of Televisa and Univision’s merger. Those sectors received a staggering amount of FDI, mainly because of particular business transactions; however, manufacturing is different, because it is the sector that remains the main engine for Mexico’s FDI flows and exports. Within that framework, one needs to put the US$ 9.4 billion (12% YOY) the manufacturing sector received in H1 2022. Moreover, according to Mexico’s vice minister for finance, Gabriel Yorio, demand for land to build industrial plants increased by 42% YOY in Q1 2022, indicating that more companies are planning to ramp up production in Mexico in the years ahead. Can Mexico accelerate the nearshoring process and capitalize on the current juncture, where the US is all but set to protect its supply chains after COVID-19, the war in Ukraine, and a more assertive China? Absolutely, but the country, at this point, is just gaining a small piece because of its fundamentals rather than an active policy put in place by President Andrés Manuel López Obrador (AMLO). Perhaps AMLO can see this trend as an opportunity for Mexico, but most likely it will be a task for the next administration, which will likely benefit from firms and executives who continue to bet on the country despite the controversial policies set in place by its current president.
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