Nearshoring: How We’re Doing Month by Month #04 | Monthly Newsletter | February 2024

Amazon Announced a $5 Billion Investment

Amazon’s tech branch, Amazon Web Services (AWS), announced a $5 billion investment in an infrastructure cluster in the state of Querétaro, a similar figure to what Tesla announced last year for the mega-factory it will build in Monterrey. AWS’s plan is to build its “infrastructure region” in Mexico. It´s important to point out that the investment is scheduled to be carried out over the next 15 years, starting in 2025.

The cluster will provide data storage services known as “the cloud” and will also offer services to developers, entrepreneurs, businesses, as well as government and educational organizations, as an alternative to run their applications and serve end-users from data centers located in Mexico. The company aims to boost the supply of advanced cloud technologies.

This is good news because, despite the challenges the country faces and this year´s elections in Mexico and the U.S. – which are events that could complicate decision-making regarding the destination of investments made by certain companies – doubts about the relocation of production chains to Mexico dissipate. In the end, the nearshoring-related issue boils down to attracting and retaining new investments from foreign companies, regardless of whether they are labeled as the relocation of production chains or the fragmentation of production to serve from points closer to major markets.

Amazon is one of the most relevant companies at a global scale and will allocate a significant amount of investment over the next fifteen years to develop cloud services. This reaffirms the opportunities that our country offers, either to address consumption amidst growing demand for these services or to boost exports to the United States.

How´s the Trade Balance Doing? – January

In January 2024, the country’s trade balance (exported minus imported goods) recorded a deficit worth $4.315 billion, compared to the $4.106 billion deficit in the same month of 2023.

In January, there was a 1.5% annual decrease in exports, reflecting a 1.7% decline in non-oil exports and a 0.2% increase in oil exports. Regarding non-oil exports, those directed to the U.S. fell by -1.5% year-on-year, and those directed to the rest of the world decreased by -2.3% year-on-year. By type of good, manufactured exports fell by -2.0% year-on-year due to annual declines in the wood industry (-19.3%), machinery and equipment (-11.4%), and automotive products (-6.5%). The decrease in automotive exports is due to a -1.8% year-on-year decrease in sales to the U.S. and a -28.3% year-on-year drop in sales to other markets. It´s worth noting that the automotive sector was affected by the Audi strike that began in the last week of January, which is why we don’t expect a change in the trend that had been the main driver for non-oil exports in 2023. Imports recorded a -1.0% year-on-year figure in January. The setback is mainly explained by a decline in intermediate goods imports (goods imported for their subsequent exportation) by -4.0%, which could also be associated with disruptions in the automotive sector. Additionally, imported consumer goods increased by 1.5% year-on-year, while capital goods imports increased 21.6% year-on-year, maintaining the significant growth trend seen in recent months due to nearshoring needs.

Looking ahead, February´s exports figure could once again show weakness as the Audi strike ended on the 19^th. For the entire year, we maintain our estimate of a trade deficit equivalent to 0.5% of GDP.

Foreign Direct Investment Among States – Up to 3Q23

Just a few weeks ago, the Ministry of Economy reported that Mexico received $36.058 billion in Foreign Direct Investment (FDI) last year. However, for this edition, we wanted to explore state-level data to highlight trends in three areas: 1) new investments, 2) non-residential construction without public projects, and 3) auto parts. State-level data is available up to the third quarter of 2023. It should be taken into account, however, that national and state figures may show discrepancies in the “classified” categories, therefore, we are only considering categories where discrepancies are relatively small.

New investments: Through the 3Q23, just over 70% was logged in only four states: Baja California Sur, Mexico City, Jalisco, and Quintana Roo. The balance of new investments was $2.801 billion, also through the 3Q23. In 2022, the four states that received the most FDI in new investments were Mexico City, Nuevo León, State of Mexico, and Jalisco, totaling $10.577 billion, representing 58% of the total captured in 2022.

Non-residential construction without public projects: In the first nine months of 2023, $2.032 billion in FDI was captured for this category, a record high for the historical series starting in 2006. In unclassified, state-level figures, Sonora stands out with FDI totaling $1.984 billion, practically the entire amount. Other states that attracted funds in this area were Durango with $28.1 million and Coahuila with $20.1 million.

Auto parts: In the January to September period of last year, $2.087 billion was received in FDI for this concept. The states that received the largest amounts were Nuevo León ($1.403 billion), Mexico City ($623 million), Aguascalientes ($40 million), and Tamaulipas ($22 million).