Nearshoring Expansion Spurs Upswing in Foreign Direct Investment in Mexico

A recent analysis by the Mexican Institute for Competitiveness (IMCO) reveals a noteworthy 47% increase in Foreign Direct Investment (FDI) linked to nearshoring in Mexico during the first nine months of 2023.

Throughout this period, 57 industrial branches across six sectors (manufacturing, agriculture, transportation, mining, professional services, and mass media information) were identified as directly tied to nearshoring. These activities attracted a total investment of $15 billion, signaling substantial growth compared to the same period the previous year.

Current Integration

IMCO emphasizes that these industrial branches are strongly connected to global production chains, either due to their current integration or their potential to become part of them. In contrast, FDI not directly associated with nearshoring decreased by 27% during the same period, indicating a shift in preference among foreign investors towards activities more aligned with the nearshoring phenomenon.

Aguascalientes' Remarkable Performance

The state of Aguascalientes stands out as the most benefitted by nearshoring, witnessing an impressive 310% increase in FDI related to this phenomenon from January to September 2023. This figure represents a substantial surge compared to the same period the previous year, rising from $330 million to $1.35 billion.

This performance is largely attributed to foreign investment in the automotive manufacturing sector, totaling $1.31 billion, five times more than in the corresponding period the previous year. IMCO highlights that this reflects Aguascalientes' favorable structural conditions in terms of labor, basic input infrastructure, and regulatory quality.

Other States Leveraging Nearshoring

Following Aguascalientes, Nuevo León has experienced a 265% growth in FDI linked to nearshoring, primarily driven by the beverage industry and communication equipment manufacturing.

Mexico City has also benefited with a 27% increase in foreign investment related to nearshoring. However, some states like Oaxaca, Jalisco, and Veracruz have seen a decline in FDI associated with nearshoring, with drops of 93%, 37%, and 20%, respectively.

Involvement of Foreign Countries

Regarding the origin of foreign investment, Japan has stood out with a 38% increase in its FDI in Mexico during the first nine months of 2023, mainly directed towards the manufacturing of automobiles and trucks.

Chile has increased its participation in Mexican investment, with an almost fivefold increase compared to the same period in 2022, driven by wholesale trade and manufacturing industries.

Hong Kong has also strengthened its presence in Mexico, going from contributing 0.2% of FDI in 2019 to nearly 1% in 2023.

Proposals to Harness Nearshoring Benefits

IMCO proposes a series of actions to maximize the benefits of nearshoring in Mexico, including public investment in basic infrastructure to reduce regional gaps, workforce training for high-value-added activities, the adoption of technologies to modernize the manufacturing industry, and the implementation of a rule of law that provides certainty to investors. These measures aim to boost the economic growth of the country and its less-developed regions.