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Sunday, April 14, 2024

Nearshoring or ‘just’ more investments? – The financial

There is a discussion, which sometimes seems idle, regarding whether The growth of productive investment in Mexico is part of the nearshoring or not.

As with many relevant questions, the answer is not simple.

Let me put some facts on the table.

1.- He growth of gross fixed capital formation last year was 19.5 percent. I have already told you that this is the largest increase on record and the highest absolute level we have reached. Of that amount, approximately 88 percent corresponds to private investment and 12 percent to public investment. But, of the private investment made, we do not know how much it is associated with the nearshoring.

2.- We also know that there is a very strong growth in demand for spaces industrial, which grew by more than 100 percent between 2021 and 2023, which corresponds to the growth of private investment that has been made. The figure reported by consulting firms such as CBRE indicates that last year the demand was 1.7 million square meters, the highest on record, which tells us about the great flow of investments.

3.- According to Report on Regional Economies of the Bank of Mexico, In the fourth quarter of this year, it was detected that 21 percent of companies that received foreign investment before 2023 improved production, sales or investments, due to industrial relocation or nearshoring. This percentage is 13.4 percent for Mexican exporting companies of the manufacturing sector. These figures give at least an idea of ​​the proportion of the impact of the nearshoring. It is more relevant among already established foreign companies and among Mexican exporting companies.

4.- The Ministry of Economy has just updated its investment announcements that were released between January 1 and March 15. The figure is again very high and reached 31 thousand 512 million dollars. It includes the expansion programs of the FEMSA group, now more focused on commerce; AWS investments in data centers; from DHL and Mercado Libre in logistics; from Walmart, in commerce; from Ternium, in the steel industry, or from VW, in the automotive industry, to name just a few of the most important.

5.- Despite all of the above, those who question the dimension of the call nearshoring in Mexico they assume that The relevant indicator is foreign direct investment, which had marginal growth in 2023 if preliminary figures reported by the Ministry of Economy or even a slight fall, if the reference is the data from the Bank of Mexico. Even if the amount of new investments is taken as a reference, what can be seen is a drop from 18,145 million dollars in 2022 to 4,816 million in 2023.

Still many things have to be explained regarding these foreign direct investment figures, but they certainly support a reasonable doubt regarding the impact of the relocation process on foreign investment.

It could be that In the following months these capital inflows will skyrocket. Or maybe they will do it after the election.

What can we conclude from all these figures?

Regardless of the way in which foreign direct investment data are being recorded, there is a sufficient amount of evidence to detect that industrial relocation, directly or indirectly, has produced an unprecedented boost in investment in Mexico, whether foreign investment. or Mexican.

And, there are conditions for this trend to continue.

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