Is Nearshoring the End of the AMLO Era?

122

Mexico was on the radar of investors this year and attention was particularly focused on the alleged effects of nearshoring, at the same time that President Andrés Manuel López Obrador heads to the final stretch of his Government and in 2024 Mexicans will return to the polls for federal elections.

Between January and September 2023, Mexico registered US$32,926 million of foreign direct investment, which represented an increase of 2.4% compared to the figure published in the same period in 2022, when US$32,147 million entered the country, according to the Ministry of Economy.

Official data show that, as of the third quarter of 2023, and amid the relocation of companies to Mexico, 76% of the foreign investment that has arrived this year comes from the reinvestment of profits and only 8% corresponds to new investments.

This composition contrasts with that observed last year, since of the US$32,147 million that entered FDI in the same comparison period, 44% of the flows were reinvestment of profits and 45% corresponded to new investments.

Mexico expects foreign direct investment (FDI) for US$106,418 million in the next two or three years, a figure anticipated by the Government based on the plans of international companies, amid the trend towards relocation of supply chains, a phenomenon known as nearshoring.

The announced plans, which on average could represent US$35,472 million annually, come mainly from companies dedicated to the manufacturing sector (40%) and represent the expansion of companies created in Mexico by foreigners (67%), announced the Ministry of Economy.

Moody’ considers that there is “a greater risk of regulatory changes and interventions in certain sectors” in the framework of political transition in Mexico, so “decisions that contribute to an uncertain operating environment and infrastructure limitations will reduce the benefits of nearshoring ”.

The risk will intensify, he adds, “as the government rushes to complete its emblematic projects and accelerate administrative processes, including the Maya Train, the Dos Bocas refinery and the Interoceanic Corridor of the Isthmus of Santo Domingo de Tehuantepec.”

Source: El Financiero

The Mexico City Post