Nearshoring is expected to generate extra $78bn annually in exports of goods and services from Latin America and the Caribbean (LAC) in the near and medium term, according to estimates by the Inter-American Development Bank (IDB) published on June 7.
This includes $64bn in exported goods and $14bn in services, with opportunities for “quick wins” in the auto industry, textiles, pharmaceuticals, and renewable energy, among others, the IDB study says.
Global concerns including environmental and health crisis and the war in Ukraine have “presented an opportunity in which the region can contribute to the global economy and the fight against inflation by taking a more active role in global supply chains in a way that is sustainable and equitable,” IDB president Mauricio Claver-Carone said in the statement on June 7.
US companies have outsourced their business to third countries to lower the labour costs and access growing consumer markets. According to the US International Trade Commission, China has been the most popular offshoring destination for US companies. However, the trade war between two countries, Covid-19 pandemic and supply chain disruptions have altered the situation. Unctad said in the World Investment Report 2020 that near-shoring will gradually increase as a result of the pandemic.
The IDB assessed both the near- and mid-term trade gains that nearshoring can generate across the LAC region.
Nearshoring is now expected to add $43.8bn of exports to the US in goods produced in LAC countries in the near term, with another $13.3bn of exports to other LAC countries, the IDB estimates. In the mid-term, overall trade gains are estimated to amount to about $7bn.
Brazil and Mexico will benefit the most from this exports boost, with Mexico gaining $35.2bn in total exports of goods ($29.6bn of which is bound for the US market), and Brazil gaining $7.8bn ($4.1bn to the US), according to IDB’s data.
For the US companies, the LAC is considered as a natural nearshoring region. For instance, the US-based toy maker Mattel announced on March 15 it had spent around 1bn pesos ($47m) to consolidate facilities in Tijuana, Mexico, and Montreal, Canada into a Montoi facility in Nuevo Leon, Mexico.
“Today we celebrate and reaffirm our long-term presence in Mexico with the consolidation of North American manufacturing operations and expansion of our Montoi manufacturing facility in Nuevo Leon,” Ynon Kreiz, chairman and CEO of Mattel said in the statement on March 15. “Montoi plays a central role in our reimagined global supply chain operation, providing a strategic footprint for our network in the Americas.”