30 Aug 2023 Perspectives from Mexico: Escape from China, Mexican Business, and the Mexican Economy
This year, the most talked about subject in the Mexican business community is the massive FDI (Foreign Direct Investment) coming into Mexico nationwide and the corresponding demand for necessary supporting resources.
Industrial parks along the border of Monterrey and Queretaro can’t be built fast enough to meet demand, resulting in increased prices and wait-listed availability. Industry clusters (automotive, aviation, consumer, etc.) are growing at their fastest pace ever since the Tier 2 and Tier 3 suppliers need to rapidly scale as they feed the Tier 1 manufacturers that export to the US and Canada. The backlog of companies escaping China, who are quite late to the game, is adding to what were already historically strong inflows of FDI into Mexico.
Economics Risk – Mexican Business Perspective
We do not see any major risks in the economy in the near term although this could change by mid-2024 and beyond depending on the outcome of the 2024 elections. From a currency perspective, confidence in the Central Bank of Mexico is high, and there is no concern over the “Super Peso,” since it is perceived as being directly and primarily caused by the immense wave of nearshoring and reshoring to Mexico.
Historically, the Mexican economy strengthens in the year leading up to an election as the central government increases spending. This is typically counteracted after the election as the central government reduces spending.
The major intermediate-term concern is inflation reaching US levels.
Political Risk – Mexican Business Perspective
There is growing concern around the upcoming election on June 2, 2024, as well as the presidential election itself. The possibility that control of the Instituto Nacional Electoral will be taken by Andrés Manuel López Obrador (AMLO) and his political party is at the forefront of business owners’ minds. Business owners are taking this seriously enough that another wave of successful Mexican business owners and entrepreneurs are creating a physical presence in the US, particularly in Texas.
From a security perspective, concerns over safety issues in Mexico City have improved dramatically due to the disproportionate positive economic impact the community of ex-pat and “digital nomads” is bringing to the country.
Politically, the fear is that Mexico has returned to the country of old, pre-2000 Mexico, effectively defined by an authoritarian central government in which AMLO will continue to have power behind the scenes even after the 2024 presidential election. It’s again a government culture of loyalty vs. the culture of capability and modernization that it was under the National Action Party (PAN).
Will Mexico’s current anti-free market government continue providing the implicit and explicit incentives most other nations that are options for FDI offer? This is an additional concern for companies who are reshoring and nearshoring from China to Mexico.
The expansion of industries within Mexico in recent years has been significant in automotive, aviation, and consumer industries. As nearshoring/reshoring experiences create incredible demand, there is a critical need for expansion of resources throughout the country. However, it remains yet to be seen if the Mexican government will step in and provide enough support and infrastructure for continued economic growth. Current issues concerning security still plague certain areas within Mexico, though overall improvement has been noted.
With extensive business experience in manufacturing and nearshoring to Mexico, Shoreview can provide additional information regarding Mexican FDI trends or business community topics to meet your needs. Contact us for more information.