Charles W. Thurston , Latin America Correspondent12.21.22
Mexico is becoming a magnet for nearshoring, or transfers of manufacturing capacity from Asia and other regions to countries close to the end market, like the United States.
“Mexico has a golden opportunity in the form of nearshoring, as it could drive investments, exports, and overall economic growth, especially in the manufacturing sector,” according to a recent report by market analysts at Deloitte.
Others agree. “Nearshoring will generate approximately $30 billion in Mexico by the end of 2022,” according to a statement by Sergio Arguelles, the president of Asociación Mexicana de Parques Industriales Privados (AMPIP), the Mexican association of private industrial parks.
Perhaps the strongest meter for the potential of such nearshoring growth is the rate of foreign direct investment (FDI), which is up. FDI in Mexico amounted to $32.1 billion between January and September of 2022, a yearly jump of almost 30% and the highest FDI volume recorded for a comparable period since 1999,” according to Nearshore Americas.
Drilling down further, analysts at Deloitte see new tooling as a key investment target. “As of August 2022, investment in machinery and equipment in Mexico was already 17.4% above levels seen in January 2020, that is, just before the pandemic hit, and 8.3% higher than in the fourth quarter of 2018, when investments reached their peak,” the analysts observe.
The United Nation’s Economic Commission for Latin America and the Caribbean (Eclac) in December presented a less sanguine prediction for Mexico growth, positing GDP expansion of only 2.9% for 2022 and 1.1% for 2023. Eclac’s regional office in Mexico serves 10 countries: Costa Rica, Cuba, Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua and Panama.
Driving this GDP growth in Mexico is increased manufacturing, within which there was a 17.2% rise for the exports of manufactured goods during Q3 2022, according to Deloitte. For full-year 2022, the analysts predict a 2.6% rise in overall GDP, up from a 2.1% increase anticipated previously.
Auto production in Mexico was up over 30% as of August 2022, thanks in part to the nearshoring trend (See CW 9/21/22: Mexico Powder Coatings Demand Revives). One major automotive move to Mexico recently was announced by Stellantis, which will transfer operations from its plant in Belvidere, Illinois and move Jeep Cherokee production to its Toluca plant in Mexico.
Tesla, too could site its next EV factory in Mexico. Recent news reports suggest that Tesla’s sixth Gigafactory might be sited in Nuevo León state, involving an investment estimated from $800 million to $1 billion.
Among the many international producers of automotive coatings in Mexico, PPG plans to open an expanded powder coatings plant in San Juan del Rio, Mexico by the middle of 2023, doubling production there.
“This boom has resulted in manufacturing activities as a percentage of GDP to reach 16.5% from 15.9% in 2019,” Deloitte adds.
Semiconductors too may become a near-shoring star in Mexico, especially since chips represent close to 40% of the cost of a new car. The U.S. CHIPS Act, which has nominal funding of $52 billion could open up “substantial prospects” for Mexico in the energy- and water-intensive semiconductor sector, according to press statements by U.S. Commerce Secretary Gina Raimondo.
Mexico’s Economy Minister Raquel Buenrostro recently stated that an as-yet planned economic region in the south of the country could become the geographic center for new semiconductor growth. At the same time, several states, like Sonora, have multi-billion dollar plans to develop energy generation, EV production and other high-tech production centers.
In November a Memo of Understanding was signed between Arizona State University and Esteban Moctezuma Barragán, the Mexican ambassador to the United States, for the training and other support of semiconductor workers in Mexico. “Remember that almost 40% of U.S. semiconductor plants are in border sites,” he said at the signing, noting that Intel and Texas Instruments already maintain facilities in Mexico.
Some of the support for the creation of a U.S-Mexico border chip center is coming from Intel and the Taiwan Semiconductor Manufacturing Company (TSMC), according to BNAmericas.
Arguelles suggest that most of the companies seeking out new warehouse and production space in Mexico are in the auto parts, manufacturing, metal mechanics, furniture and textile industry segments.
“Construction of industrial plants and warehouses grew 12.9% between January to August 2022 compared to the same period in 2021. However, it is still 35% below the Q4 2018 levels,” reports Deloitte. “This implies that industrial plants and warehouses that are already installed in Mexico continue to invest further, but the expansion of plants or the installation of new ones is more limited,” they say.
“Mexico has a golden opportunity in the form of nearshoring, as it could drive investments, exports, and overall economic growth, especially in the manufacturing sector,” according to a recent report by market analysts at Deloitte.
Others agree. “Nearshoring will generate approximately $30 billion in Mexico by the end of 2022,” according to a statement by Sergio Arguelles, the president of Asociación Mexicana de Parques Industriales Privados (AMPIP), the Mexican association of private industrial parks.
Perhaps the strongest meter for the potential of such nearshoring growth is the rate of foreign direct investment (FDI), which is up. FDI in Mexico amounted to $32.1 billion between January and September of 2022, a yearly jump of almost 30% and the highest FDI volume recorded for a comparable period since 1999,” according to Nearshore Americas.
Drilling down further, analysts at Deloitte see new tooling as a key investment target. “As of August 2022, investment in machinery and equipment in Mexico was already 17.4% above levels seen in January 2020, that is, just before the pandemic hit, and 8.3% higher than in the fourth quarter of 2018, when investments reached their peak,” the analysts observe.
General Economic Expansion
One supporting reason for high expectations in the Mexico nearshoring trend is the rapidly recovering economy. During third quarter 2022 the Mexican economy grew 4.1% compared to the year-earlier period, ahead of the November predictions of Mexico watchers, says the Research Department at the Federal Reserve Bank of Dallas. The growth boosted gross domestic product to over 18 billion pesos (over $900 billion), at the same level prior to the Covid pandemic.The United Nation’s Economic Commission for Latin America and the Caribbean (Eclac) in December presented a less sanguine prediction for Mexico growth, positing GDP expansion of only 2.9% for 2022 and 1.1% for 2023. Eclac’s regional office in Mexico serves 10 countries: Costa Rica, Cuba, Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua and Panama.
Driving this GDP growth in Mexico is increased manufacturing, within which there was a 17.2% rise for the exports of manufactured goods during Q3 2022, according to Deloitte. For full-year 2022, the analysts predict a 2.6% rise in overall GDP, up from a 2.1% increase anticipated previously.
Auto Production on the Rise
Mexico’s automotive industry is leading manufacturing growth in Mexico. The country’s auto parts market generates sales of $73 billion per year, making Mexico the world’s fifth-largest producer of auto parts. An estimated 2,500 companies in Mexico are involved in the production of auto parts.Auto production in Mexico was up over 30% as of August 2022, thanks in part to the nearshoring trend (See CW 9/21/22: Mexico Powder Coatings Demand Revives). One major automotive move to Mexico recently was announced by Stellantis, which will transfer operations from its plant in Belvidere, Illinois and move Jeep Cherokee production to its Toluca plant in Mexico.
Tesla, too could site its next EV factory in Mexico. Recent news reports suggest that Tesla’s sixth Gigafactory might be sited in Nuevo León state, involving an investment estimated from $800 million to $1 billion.
Among the many international producers of automotive coatings in Mexico, PPG plans to open an expanded powder coatings plant in San Juan del Rio, Mexico by the middle of 2023, doubling production there.
Other Sectors Demonstrate Growth
However, the automotive industry is not the only sector that is expanding rapidly in Mexico. “Although the main manufacturing product in Mexico is motor vehicles and parts (it is still 3% below prepandemic levels), the manufacturing sectors that are driving growth this time around include electrical equipment (22% above January 2020), computer and electronic products (+13.2%), and plastics (+15.6%), Deloitte says.“This boom has resulted in manufacturing activities as a percentage of GDP to reach 16.5% from 15.9% in 2019,” Deloitte adds.
Semiconductors too may become a near-shoring star in Mexico, especially since chips represent close to 40% of the cost of a new car. The U.S. CHIPS Act, which has nominal funding of $52 billion could open up “substantial prospects” for Mexico in the energy- and water-intensive semiconductor sector, according to press statements by U.S. Commerce Secretary Gina Raimondo.
Mexico’s Economy Minister Raquel Buenrostro recently stated that an as-yet planned economic region in the south of the country could become the geographic center for new semiconductor growth. At the same time, several states, like Sonora, have multi-billion dollar plans to develop energy generation, EV production and other high-tech production centers.
In November a Memo of Understanding was signed between Arizona State University and Esteban Moctezuma Barragán, the Mexican ambassador to the United States, for the training and other support of semiconductor workers in Mexico. “Remember that almost 40% of U.S. semiconductor plants are in border sites,” he said at the signing, noting that Intel and Texas Instruments already maintain facilities in Mexico.
Some of the support for the creation of a U.S-Mexico border chip center is coming from Intel and the Taiwan Semiconductor Manufacturing Company (TSMC), according to BNAmericas.
Warehouse Space Expanding
The factors that drive near-shoring are universal for all industries. “U.S. and global manufacturers are investing in Mexico-based facilities to reduce shipping times, labor costs, and supply chain obstacles,” said Veronica Contreras, the Vice President of Sales and Marketing at Co-Production International (CPI), which provides shelter services for foreign companies expanding in Mexico. “At close to one million square feet of new facilities, recent investments are evidence of a dramatic commitment.”Arguelles suggest that most of the companies seeking out new warehouse and production space in Mexico are in the auto parts, manufacturing, metal mechanics, furniture and textile industry segments.
“Construction of industrial plants and warehouses grew 12.9% between January to August 2022 compared to the same period in 2021. However, it is still 35% below the Q4 2018 levels,” reports Deloitte. “This implies that industrial plants and warehouses that are already installed in Mexico continue to invest further, but the expansion of plants or the installation of new ones is more limited,” they say.
