Sunday, May 19, 2024

Fitch Ratings director says nearshoring is an $80B opportunity for Mexico

Nearshoring represents a US $80 billion opportunity for Mexico, according to some Fitch Ratings analysts.

Regional directors from the firm — one of the “Big Three” credit rating agencies — predicted that companies relocating to Mexico from China will attract US $80 billion in investment.

A highway in rural Mexico
To maximize potential investment opportunities, some experts say that Mexico needs to properly upgrade infrastructure, such as this upgrade work on a highway in the state of Sonora. Water access, electricity supply and clean energy sources are other types of infrastructure in need of improvement in Mexico, say experts. (Presidencia/Cuartoscuro)

Mexico’s proximity to the United States makes it an attractive destination for nearshoring. And due to the trade war between China and the United States in recent years, such opportunities in Mexico have significantly increased.

At Tuesday’s “Fitch on Mexico” forum at the Mexico City Hyatt Regency, senior agency director Guillermo Vilchis Gurza claimed that while it will take time to consolidate the nearshoring process, foreign direct investment (FDI) has already reached significant levels.

“Today [FDI captured through nearshoring] has already reached US $40 billion, so in the future, we hope — if the required infrastructure conditions are met — to continue with this growth, since that figure could double,” Vilchis said, further noting that Mexico will likely receive half of all investment in Latin America.

González said that the material impact of increased foreign investment will be seen within the next few months. However, experts have noted that a lack of sufficient infrastructure in Mexico could make it more difficult to attract this type of investment.

Puerto Progreso, Yucatán
Ports are another area in which up-to-date infrastructure is lacking, say experts. “As soon as progress in infrastructure is made, opportunities will open up for new companies in the country to take advantage of nearshoring…” said Fitch senior director Guillermo Vilchis (Martín Zetina/Cuartoscuro)

“As soon as progress in infrastructure is made, opportunities will open up for new companies in the country to take advantage of nearshoring since, obviously, the investment will then increase,” Vilchis emphasized.

According to the director, the country’s skilled workforce is primarily concentrated in Mexico’s northern states, where much of its manufacturing sector is located.

“It is a matter of making sure that there is investment in all states, not only in those in the north. We can create infrastructure opportunities throughout the country,” he said.

There are also important challenges regarding energy and water supply, and the problem of insecurity.

Primary rating analyst Rogelio González claimed that despite the challenges, investments in Mexico are expected to continue over the next three to four years. He predicted that while companies will require financing to make Mexico investments, their credit profiles will remain stable due to lower costs and greater efficiency of production and logistics processes.

During the first quarter of the year, González said, FDI in Mexico rose to US $18 billion, a 48% increase compared to 2022. Most investment opportunities are in industrial real estate, transportation and manufacturing, particularly in the automotive sector.

With reports from Forbes México and  El Economista

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