“Unique opportunity”: Mexican firms go for “nearshoring” to grow

From real estate firms to financial and hotel groups in Mexico They are making bets because the investments derived from the phenomenon known as “nearshoring” strengthen the domestic economy and radiate to its sectors.

The Government estimates that the growing trend of moving the production of large corporations to the country to bring it closer to the US market and away from Asia, could add up to 1.2 percentage points to the local GDP, which this year would grow at least one 3.5%.

But experts assure that the Latin American nation first needs to resolve some challenges, such as insecurity and the supply of water and energy. Even so, many Mexican and foreign companies are seeking to capitalize on the benefits of relocating production chains.

Only Tesla’s plans to build an electric vehicle plant for about US$ 5,000 million in the north of the country have brought the announcement of Chinese investments for almost an additional US$ 1,000 million for the area, while authorities plan to disburse another US$ 130 million in infrastructure works to support the project.

Leading Mexican real estate investment trust Fibra Uno, which plans to soon launch a new fiber with its industrial assets, said it expected the boost from “nearshoring” lasts for the next 15 years.

“The opportunity we have in front of us in Mexico is a unique opportunity,” stated Gonzalo Robina, deputy director of the firm, in a recent press conference. Currently, he maintained, spaces for storage and light manufacturing show a “overdemand”.

Data from the local association of industrial parks, AMPIP, show that last year the demand for real estate spaces was 1.4 million square meters (m2) and an additional demand of 2.5 million m2 is expected in the 2023/24 period.

Lorenzo Berho, head of the construction company Vesta, dedicated to the development of industrial warehouses, said that, although the greater demand for capacity would benefit the northern border, regions such as Bajío, in the central north and which concentrates a huge automotive industry, would also have great opportunity.

“El Bajío has a huge infrastructure, it has a great job pool, good logistics and, in fact, it has proven to be a very good location for global companies in different sectors.s,” he said a couple of weeks ago during a quarterly corporate earnings call with analysts.

However, for many there is still a long way to go. The Swiss bank UBS warned that although the investments received so far in Mexican territory have surpassed much of Latin America, this boom faces a difficult environment.

“The investments that the country is receiving are already creating bottlenecks due to the instability of electricity transmission, water scarcity and limited industrial space”he asserted.

Multiplier effect

As a result of the pandemic, which caused serious disruptions in global supply chains, a growing number of companies began to redesign their production processes seeking to bring them closer to large consumers, such as the United States.

The proximity of Mexico to that nation – both partners in the USMCA trade agreement, which also includes Canada -, its still comparatively low salaries and the growing tensions between Washington and Beijing, have made the country a favorite for the transfer of manufacturing plants. production from Asia.

From January to June, Mexico registered US$ 29,041 million of Foreign Direct Investment. More than half of the resources were destined for the industrial sector. In August alone, gross fixed investment jumped 31.5% year-on-year in seasonally adjusted terms, according to the latest data, and is on track to record its strongest annual growth since 1997.

And the expectation is that the arrival of capital from abroad will continue to flow, benefiting economic activity in the long term. “This could have a multiplier effect”said Humberto Calzada, chief economist of the Rankia Latin America firm.

For now, players from industries as diverse as the GCC cement company and the City Express Hotels chain agreed that their businesses were already beginning to feel greater dynamism in the north of the country.

GCC reported greater demand for cement between July and September driven by the construction of industrial projects in Chihuahua, a state on the border with the United States.

In August alone the value of production generated by construction companies jumped almost one 46% in the country, according to official data. Northern states, such as Chihuahua, Nuevo León and Sonora, were among the most benefited by building works.

Going forward, Enrique Navarro, head of Finance at the Regional bank, anticipated “enormous growth” in northern, western and central Mexico, due in part to the benefits of relocation trends.

“In the long term, it will be something very beneficial for the region, very beneficial for Mexico, which will help us grow.”“said Alejandro Garza, director of the investment management firm AZTLAN Equity Management, which hopes to list in November an exchange-traded fund (ETF) in New York made up of firms exposed to the “nearshoring”.

Source: Reuters