In brief:  

• Greenfield FDI into Mexico rose to a record $40.2bn in 2022. 
• The country has become a destination of choice for nearshoring projects looking at the US market. 
• The harsh rethoric of president Amlo has not deterred investors so far. 

A string of major investment announcements by international corporations have raised optimism that it is Mexico’s moment in the sun, from Tesla’s $5bn gigafactory in Nuevo León to BMW’s €800m lithium battery assembly plant in San Luis Potosí. But as foreign companies look to reinforce their supply chains by moving manufacturing into Mexico, there is growing agitation that the federal government is not fully capitalising on the opportunity. 

“This is Mexico’s geopolitical moment,” Kenneth Smith Ramos, the country’s former chief negotiator for the US-Mexico-Canada Agreement (USMCA) and partner at legal firm Agon tells fDi. “We are seeing a perfect storm of huge conflicts internationally, such as the war in Ukraine and the US–China trade war, that has created a unique window for Mexico to increase investments and modernise its economy.”

However, Mexico’s federal government has been criticised for not doing enough to attract foreign direct investment (FDI), including cleaning up its energy matrix, fighting crime and enforcing property rights.

“I wouldn’t characterise president Andres Manuel Lopez Obrador (Amlo) as someone who has an ‘open-for-business’ sign on the front door,” says Ryan Berg, director of the Americas Program at the Center for Strategic and International Studies. “The Mexicans are going to have to do their part,” he continues. “This is a big opportunity for them, but there’s only so much the US and private corporations can do in the absence of real top-down policy reforms.”

The investment trend 

Beyond anecdotal evidence, a mixture of increases in FDI levels and a rise in the net absorption for industrial real estate points towards strong nearshoring into Mexico. 

The overall value of the investment projects announced by foreign investors rose to a record $40.2bn in 2022, according to greenfield investment monitor fDi Markets. Manufacturing projects alone mobilised as much as $23.8bn last year, with automotive companies leading the pack as they electrify their manufacturing capacity in the region. 

According to data provided by Grupo Prodensa, the net industrial absorption of ‘class A industrial parks’ was 37 million square feet in 2021 — that figure almost doubled to 71 million in 2022. 

“This is not just a couple of companies deciding to come to Mexico,” says Emilio Cadena Rubio, CEO of manufacturer Grupo Prodensa. “This nearshoring phenomenon is happening.”

The trend has been largely driven by US companies looking to increase resilience in their supply chain by weaning dependence away from China towards nearby (nearshoring) and friendly (friendshoring) countries. This accounted for 41% of announced FDI in Mexico in 2022, fDi Markets figures show. 

Mexico has also seen a rise in FDI from Chinese and other Asian corporations looking to circumvent tariffs and become more integrated into the North American market. 

“You can now find a lot of Chinese companies in Nuevo León,” says Enrique Perret, managing director at the US–Mexico Foundation, a binational non-profit organisation that seeks to foster cooperation and understanding between the two countries. “Most of these companies, if not all of them, are investing in Mexico to get into the US market.”

Asian investors made up 27.9% of FDI into Mexico in 2022, with European investors making up 23.5%, fDi Markets figures show. 

“Northern border states including Chihuahua and Nuevo León are best positioned to benefit from growing interest in nearshoring and are aggressively pursuing new investments,” says David Talbot, associate director for global policy at the economic think tank, the Milken Institute.

Amlo’s hard sell 

While companies are still flocking to Mexico, there is growing agitation on the ground and concerns that the federal government lacks a cohesive FDI policy.

“Mexico is attracting investment despite some of Amlo’s policies,” says Arantza Alonso, senior analyst at Verisk Maplecroft. “It could attract more nearshoring if there was a solid industrial policy and a coherent regulatory environment.”

Observers tell fDi that there are growing frustrations over the lack of investment into education, infrastructure and the development of a local supply base, which they feel prevents current FDI numbers from doubling.

Amlo also made sweeping reforms to Mexico’s energy policy, which has also pitted it against the global path towards sustainability and put it into direct conflict with its closest trading partners, the US and Canada. In July 2022, both Ottawa and Washington requested dispute settlement consultations with Mexico under USMCA provisions arguing that Amlo’s policies favoured Mexico’s state oil company Petróleos Mexicanos and national power utility Comisión Federal de Electricidad and discriminated against US and Canadian firms.

The issue forms a small part of a larger concern that Amlo’s focus on state-owned oil disincentivises any investments in renewable energy. “Given that Mexico doesn’t have enough renewable energy capacity right now, many companies that have made net-zero compromises cannot relocate to Mexico straight away,” says Ms Alonso.

Amlo’s reform ambitions suffered a setback in April 2022, when he failed to gain a big enough majority in congress to roll back previous constitutional reforms that liberalised the electricity market.

“Amlo hasn’t been able to make structural changes because despite being very strong politically, he is not strong enough for constitutional reform,” says Jimena Blanco, head of Americas at Verisk Maplecroft. “But businesses have been feeling the pain of Amlo tapping into secondary regulations and making changes that fit within the current realm of the law.”

More on Latin America:  

• Costa Rica again tops list of FDI overachievers
• Latam weighs the cost of Chinese infrastructure
• Can Lula rally Mercosur?

The future of Mexican FDI

Next year is set to be pivotal for North American trade, with the Mexican presidential elections set to take place in June and the US general elections in November.

“Those elections are going to define a lot of whether these alliances that are being built at the highest political level can actually be translated into public policy actions that affect the everyday citizen,” says Mr Smith Ramos.

“What we want to avoid at all costs is having a repeat of what happened in 2017, where one or more of the North American partners begin to question whether there should be free trade in North America. That’s the last thing we want.” 

This article first appeared in the June/July 2023 print edition of fDi Intelligence