Mexican 'nearshoring' fosters optimism in business landscape 

In Mexico, businesses, especially those in the real estate and construction sectors, are embracing the concept of "nearshoring" to drive profits and stimulate economic growth, primarily in industrial zones near the U.S. border.

According to Reuters, the Mexican government anticipates that nearshoring, characterised by moving manufacturing capacity closer to the U.S. market instead of Asia, could contribute up to 1.2 percentage points to the nation's economic growth, which is projected to reach 3.5 per cent this year.

Amid concerns about potential challenges like gang violence and supply chain disruptions, the allure of nearshoring has captivated both local and foreign businesses, many of which are keen to capitalise on evolving production trends.

"Many companies are already talking about this - about nearshoring and the economic benefits," Reuters quoted Gerardo Copca, an analyst at consultancy MetAnalisis, as saying, emphasising the growing buzz around the concept. However, he cautioned that while it holds potential, the transition will take time.

In the first half of 2023, Mexico attracted around $29 billion in foreign direct investment, representing a 5.6 per cent increase from 2022, with over half of this investment being directed into the industrial sector.

One notable example: the reported $5 billion investment by electric vehicle manufacturer Tesla in a new factory in northern Mexico. This initiative has attracted $1 billion in Chinese investments to neighbouring industries. Mexican gross fixed investment has surged, marking the most substantial annual growth since 1997, with a year-on-year increase of 31.5 per cent in seasonally adjusted terms recorded in August, as per the latest data.

Real estate investment trust Fibra Uno in Mexico is planning to launch a trust that enables investors to benefit from the anticipated growth in industrial assets. CEO Andre El-Mann of Fibra Uno envisions the momentum of Mexico's nearshoring to continue for the next 15 years.

Rising demand and opportunities in the industrial sector

The expected demand for manufacturing properties in 2023-24 is estimated at 2.5 million square meters, marking an 80 per cent increase from the previous year, according to the industrial parks association AMPIP. This heightened demand is particularly pronounced in the automotive, electronics, and machinery sectors.

Reuters quotedLorenzo Berho, the head of construction firm Vesta, as saying thatthe potential benefits not only for northern Mexico but also for the central car making region known as El Bajio, which is deemed an attractive location for multinationals. This region, encompassing states like Queretaro, Guanajuato, and Jalisco, has a strong labour force and robust logistics infrastructure.

Enrique Navarro, the CFO at Banco Regional told Reuters that he foresees substantial growth in northern, western, and central Mexico driven by the relocation of manufacturing capacities from Asia. Mexico's strategic location adjacent to the United States, the world's largest economy, and its participation in various trade agreements, including USMCA (United States-Mexico-Canada Agreement), are significant advantages.

Additionally, Mexico's lower labour costs and the escalating economic tensions between the U.S. and China are attractive factors for businesses seeking to reshore their operations. However, some challenges persist, such as President Andres Manuel Lopez Obrador's efforts to tighten state control over the energy sector, raising concerns about the adequacy of infrastructure investment. Swiss bank UBS warned about bottlenecks caused by electricity instability, water scarcity, and limited industrial space.

Nonetheless, the impact of nearshoring is becoming tangible in the real economy. GCC, a cement company, reported that between July and September, the increased demand for cement stemmed from the construction of industrial projects in Chihuahua state, bordering Texas. Total Mexican construction output exhibited growth of nearly 46 per cent in August year-on-year, with northern states showing increased performance.

(With inputs from Reuters)

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