In recent months, much has been said about the possible relocation of companies from China and other parts of the Asian continent to Mexico and other Latin American economies.
This phenomenon, known by its name in English as
nearshoring,
presents interesting opportunities and challenges for potential recipient countries of these investment flows.
The opportunities are evident: according to the Inter-American Development Bank, we are talking about the possibility of increasing Latin American exports by around 78 billion dollars in the short and medium term.
The foreign investment flows that would be required to realize these opportunities would also be enormous.
Only in the case of Mexico, foreign investment announcements have already been made in the first quarter of the year for more than 16 billion dollars.
This amount is only slightly less than the new foreign investments received in all of 2022, which amounted to 17 billion dollars.
In this sense, it is reasonable to foresee a significant increase in foreign investment flows to Mexico in this and in the years to come.
The arrival of greater flows of foreign investment represents multiple development opportunities for the receiving economies.
Not only does it make it possible to generate more job alternatives, but jobs in this type of company tend to be better paid and with better working conditions.
In addition, along with foreign investment, some technology transfer and the possibility of integrating local economies into global value chains may also occur.
This can lead to improvements in productive efficiency, greater geographical or sectoral diversification, and opening new export markets.
Mexico is particularly well prepared to greatly benefit from this company relocation process: not only do we have a privileged geographical location, but we also have a wide network of trade agreements with various regions of the world.
In addition to this, Mexico has an economic, political and social stability that other countries in the region cannot offer, and a young, abundant and relatively well-qualified labor force.
Finally, the recent signing of a trade agreement with our North American neighbors implies that we are not only talking about
nearshoring,
but also what has been called
friendshoring
or
ally-shoring,
that is to say, it is not only the geographical proximity that would matter, but also the coincidence in interests and visions from a regional perspective.
However, for all this to materialize, it is necessary that the potential recipient countries do what is necessary for the investments to actually occur.
In the specific case of Mexico, it is clear that the country's port, airport and highway infrastructure must be improved.
The ability to mobilize production from within the country to international trade communication points is key.
Ports must have sufficient depth and a modern logistics infrastructure to ensure proper handling of all types of products.
Similarly, the country has to ensure the supply of key inputs for production, such as electricity, gas and, increasingly, water.
In this sense, public or private investments that guarantee the provision of all these inputs will be a key part of a successful strategy to attract foreign investment.
Of course, progress in the fight against public insecurity is also of fundamental importance.
In several regions of the country, insecurity translates into higher costs for companies that must allocate considerable financial and human resources to protect either their production, storage and distribution areas or even to transport their merchandise.
In the case of small and medium-sized companies, public insecurity is also associated with higher bank financing costs.
Finally, Mexico must demonstrate a clear commitment to the trade and investment agreements in which it participates, as well as to the dispute resolution mechanisms contemplated therein.
Although it is normal for trade partners to have discrepancies or differences of opinion on some specific issues (as in the case of the subsidy for electric cars in the United States or energy issues or transgenic corn in Mexico), the important thing here is to stick to what is established in trade agreements and settle any possible difference through the mechanisms that have been accepted and defined by all parties.
Only in this way can the necessary certainty be granted so that the investments actually occur.
These are some of the challenges and opportunities that
nearshoring
poses for Mexico and other countries in the region.
There are also other types of challenges that should lead us to try not to repeat the mistakes of the past.
This, however, will be the subject of a later article.
Gerardo Esquivel
has a PhD in Economics from Harvard University and a researcher at the Colegio de México.
He was deputy governor of the Bank of Mexico.
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