Let´s Talk About Nearshoring 7.0 | Quarterly Newsletter

FDI in Mexico Stagnated

In Mexico, $36.872 billion dollars were recorded in Foreign Direct Investment (FDI) between January and December 2024. As a result, FDI increased 1.1% compared to the amount reported in 2023, according to figures published by the Central Bank of Mexico in the 2024 balance of payments. In Q4 2024, FDI totaled $676 million, logging a decline compared to the same period of the previous year, when a $1.236 billion figure was recorded.

It´s worth noting that 2024 had more than 70 presidential elections worldwide, with nearly half of the global population choosing their leaders. In this context, it´s logical to expect that FDI could moderate in an environment of heightened uncertainty.

By components of Foreign Direct Investment for the January to December 2024 period, $28.71 billion entered the country as profit reinvestment, compared to $26.639 billion in 2023. Meanwhile, new investments totaled $3.169 billion in 2024, below the $5.217 billion logged the previous year. Lastly, intercompany accounts recorded inflows worth $4.994 billion in 2024, an increase from the $4.61 billion captured in 2023.

Thus, it´s important to note that by the end of 2024, profit reinvestment remained at high levels despite recording an outflow of -$1.64 billion in Q4 2024. Additionally, during the October-December 2024 period, Mexico’s FDI was largely driven by intercompany accounts, which amounted to $1.532 billion, accounting for 226% of the total investment for the quarter. In other words, without these flows, investment would have recorded an outflow. It’s worth recalling that intercompany accounts refer to money loaned by the foreign parent company to its subsidiary in Mexico, as well as fixed asset investments by manufacturing firms with funds from abroad.

2024´s FDI figures depict a relatively weak outlook. On the one hand, total inflows are clearly stagnating, as are new investments, which have declined and do not show the materialization of announcements made since 2023.

In this regard, we do not rule out the possibility that 2025 could be a weak year in terms of attracting investment, especially given the various tariff threats facing our economy and the global market. Anecdotally, media outlets in Mexico and the United States report that several companies are pausing investments in Mexico across different industries as they await greater certainty regarding trade relations.

U.S. Industrial Production Could Boost Foreign Trade

The outlook for a recovery in U.S. industrial production will be key in anticipating the trajectory of our country’s international trade. In 2023 and 2024, U.S. industrial production recorded an average annual increase of -0.1%, clearly disappointing figures that largely explain the slowdown Mexico faced in foreign trade. However, the situation could improve this year, as U.S. industrial production is expected to rise 0.9% in 2025 and 1.2% in 2026, according to data from the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters.

In various analyses, we have noted that Mexico’s foreign trade and U.S. industrial production are closely linked through supply chains and value chains, meaning that developments in the U.S. ultimately impact our country. As evidence, between 2000 and 2024, the correlation between Mexico’s foreign trade (excluding oil) and U.S. industrial production stands at 0.88.

Mexico´s Exports and Their Specialization

Mexico is a key pillar in the U.S. supply chain, thanks to its geographic proximity, a free trade agreement, and competitive costs. Its importance has increased significantly in recent decades, driven by four main factors: 1) Mexico has established itself as the United States’ top trading partner, recently surpassing China; 2) Its integration into advanced manufacturing has enabled industries such as automotive, aerospace, electronics, and medical devices to increasingly rely on its plants and suppliers; 3) The Nearshoring trend has accelerated the establishment of new foreign investments in the country, strengthening its role within global supply chains; 4) The USMCA has reinforced production integration and ensured favorable conditions for manufacturing relocation within the region.

In this context, between 1995 and 2023, Mexico has evolved from an economy based on raw material exports into a global manufacturing hub, increasing its economic complexity and solidifying its position as an essential supplier of high-value-added goods to the U.S. This structural shift has been demonstrated in an over sevenfold increase in export volumes, rising from $82.7 billion in 1995 to over $603 billion in 2023.

Three decades ago, Mexico’s export portfolio was dominated by lower-complexity products, with crude oil accounting for 8.85% of total exports, followed by low-tech manufactured goods such as electrical wiring, auto parts, and internal combustion engines. Although car exports already had a relevant share at 9.11% of total exports, their integration with U.S. manufacturing was still in its early stages, and key industries today, such as electronics and medical devices, were virtually nonexistent. In contrast, through 2023, Mexico’s export structure signals significant progress in terms of industrial sophistication and specialization. The automotive sector has expanded its share to 10.7% of total exports, with a notable increase in the production of freight trucks, tractors, and precision auto parts, further strengthening its role within North America’s supply chain.

The technology sector has also experienced substantial expansion, with computer exports accounting for 4.9% of total exports in 2023, highlighting deeper integration into global hardware manufacturing. Even more significant is the rise of the medical device industry, which reached 2.92% of exports, driven by the development of specialized clusters in Baja California and Jalisco and supported by growing foreign investment in the sector. This process has been accompanied by a decline in oil dependence, with its share falling to 5.34%, indicating a gradual shift toward industries with higher knowledge intensity and technological content.

Beyond the industrial sector, Mexico’s economic transformation has also strengthened its agribusiness industry. Products with designation of origin, such as beer and tequila, have doubled their presence in international markets, highlighting the country’s growing global competitiveness. This progress is not coincidental but rather the result of foreign direct investment, strategic trade policies, and increased integration into global supply chains.

The analysis of export trends between 1995 and 2023 clearly illustrates a structural shift toward higher-value-added products—a change largely driven by foreign direct investment, the consolidation of the USMCA, and the increasing implementation of Nearshoring strategies on behalf of multinational companies. Mexico’s transformation into being a key provider of advanced manufacturing is not only a response to external demand shifts but also a testament to its structural strengthening in productive capacity and cost efficiencies, positioning it as an increasingly relevant player in the global economy and, more specifically, within the U.S. supply chain.

Nearshoring Specialization in Mexican States – ECLAC

The Economic Commission for Latin America and the Caribbean (ECLAC) published its latest report, Foreign Direct Investment in Latin America and the Caribbean – 2024, introducing a methodology to analyze foreign direct investment at a state level. In practical terms, if a state receives a higher share of foreign investment in a sector than the national average, it can be assumed that the state has relative specialization in that sector.

Between 2005 and 2021, nearly 6,500 foreign direct investment projects were announced in Mexico, totaling $389.5 billion. Nine states—Nuevo León, Guanajuato, Mexico City, Coahuila, Baja California, Querétaro, the State of Mexico, Jalisco, and Chihuahua—accounted for 50% of the total amount and accumulated over 4,000 investment project announcements. Additionally, ECLAC found that out of 29 sectors, only five attracted more than half of the total investment: i) Autos and auto parts; ii) Telecommunications; iii) Transportation and storage; iv) Renewable energy; v) Food and beverages. Among these, the sector with the highest concentration is auto parts, accounting for 23.6% of total investment and 15% of project announcements, followed—at a considerable distance—by telecommunications, with 9.3% of investment and 3.4% of announcements.

Analyzing investment at the state level, the nine states with the highest investment concentration exhibit a high degree of diversification, receiving foreign investment across 22 to 27 sectors, depending on the state. However, what stands out is that states like Guanajuato and Coahuila show a highly specific specialization. For example, Guanajuato has relative specialization in only four of the 24 sectors present, while Coahuila specializes in six of its 22 sectors. Furthermore, in both states, the predominant sector—autos and auto parts—accounts for more than 50% of total investment.

Other examples of sector predominance include Oaxaca and Tabasco, as 86% and 81% of their foreign direct investment, respectively, is focused in renewable energy and coal, oil, and gas. Similarly, Aguascalientes has 66% of its foreign investment in the auto and auto parts sector.

ECLAC also reports that certain sectors have a widespread presence across much of Mexico. The food, beverage, and tobacco sector is present in 30 states, followed by transportation and storage in 29 states and autos and auto parts in 28 states. In contrast, the software and IT services sector is found in only two states, with Yucatán alone accounting for 96% of the $135 million invested in this sector. The healthcare sector is present in five states, while construction materials are present in six.

This analysis by ECLAC provides a clear picture of the distribution and specialization of foreign direct investment across Mexico’s states. While the data lags somewhat due to the long-term nature of investment, state economic structures tend to change slowly over time. Monitoring future updates will be essential to assess whether these patterns evolve in the coming years.

How´s the Trade Balance Doing? – January 2025

In the first month of 2025, a trade deficit (exports minus imports) worth $4.558 billion was recorded, compared to a deficit worth $4.134 billion a year earlier.

In January 2025, exports totaled $44.446 billion, increasing 5.5% annually, driven by an 8.7% increase in non-oil exports, while oil exports decreased -40.6%. Within non-oil exports, manufacturing expanded 8.8%, with notable increases in special machinery and equipment for various industries (54.1%), mining and metallurgy products (27.3%), professional and scientific equipment (14.3%), food, beverages, and tobacco (8.2%), and electrical and electronic equipment (2.8%). However, automotive exports fell -2.0%, signaling a -3.1% decline in sales to the United States, partially offset by a 5.2% increase in other markets.

On the imports side, total imports reached $49.004 billion, rising 5.9% annually, driven by a 5.0% increase in oil imports and a 6.0% increase in non-oil imports. By type of good, consumer goods imports fell -5.6%, indicating an -8.8% decline in non-oil consumer goods, while oil-related consumer goods rose 23.1%, driven by higher purchases of gasoline and liquefied petroleum gas. Imports of intermediate goods, which account for the largest share of total imports, increased 10.4%, suggesting a possible continuation of manufacturing expansion in the coming months. In contrast, capital goods imports fell -8.5%, potentially indicating a slowdown in investment in machinery and equipment.

Overall, the trade balance started the year with a slightly larger deficit than last year, though still within the seasonal pattern seen in recent years. For now, the deficit is not a concern, as a rebound in intermediate goods imports suggests that exports could continue to increase in the coming months. Additionally, the sustained growth in non-oil exports, particularly in manufacturing and agriculture, indicates that foreign demand remains strong, which could back a better trade performance throughout the quarter—provided there are no disruptions in supply chains or a slowdown in Mexico’s key trading partners.

Conclusions

Recently, it has been argued—based on FDI figures—that there is no evidence of Nearshoring and that Mexico has missed its opportunity. However, this argument should be questioned, as Mexico remains the United States’ top trading partner. Although exports have logged a slowdown, this is primarily due to the stagnation in U.S. industrial production. What stands out is that Mexico has gained market share in the total imports made by the U.S. at a global level.

With that being said, it´s true that expectations of seeing a surge in FDI have largely been reduced to profit reinvestment. Given the current global geopolitical realignment, foreign investment may be in a temporary holding pattern, particularly in Mexico, as investors seek greater certainty regarding trade and bilateral relations with the U.S.

We believe that North American integration remains a plausible reality in the coming years, despite the immediate noise surrounding tariffs and the upcoming USMCA review.