Nearshoring Investments: Hard Data | Special report | February 2024

There has been a lot of discussion about Nearshoring, which is defined as the relocation of production chains. On several occasions, Foreign Direct Investment (FDI) data has been cited in an attempt to understand this phenomenon, without conclusive information. In an increasingly less globalized and fragmented world, it is essential to categorize investments correctly, distinguishing between those resulting from structural changes in global trade and those arising from the natural course of past investments (profit reinvestment). Despite the difference between the two, growth in foreign direct investment results from optimism about a country’s ability to attract resources from a wide range of countries, either due to inherent economic reasons or its strategic position relative to other economies. Specifically, we’re talking about exports to the United States, the world’s primary market – whether it be manufacturing or value-added products.

We believe that in both cases, it should be noted that the growth in FDI is evidence of a preference to invest in new markets or expand existing ones compared to other economies. This should be a reason to highlight that Mexico has benefited in a world where most countries experienced decreasing FDI flows. While official and complete information for 2023 from the Mexican government is not yet available, according to the UNCTAD (United Nations Conference on Trade and Development), Foreign Direct Investment in Mexico exceeded $43 billion, making it one of the few economies that recorded growth in FDI last year.

We know that, by the third quarter of 2023, most FDI came from profit reinvestments, reducing expectations about Nearshoring, arguing that only 8% comes from new investments. However, we have pointed out that Nearshoring takes time; it’s not a phenomenon that can be clearly evidenced overnight, and certainly does not structurally change the way FDI has originated in our country in previous years. Moreover, we must recognize that the challenges are enormous, and if Mexico wants to capitalize on the potential offered by this structural change in global trade, there are still many pending tasks. Nevertheless, the gears are slowly starting to move.

According to the Ministry of Foreign Trade, between January 1st and November 30th, 2023, 363 investment announcements were made in Mexico, with an expected $106.418 billion in total. This amount is expected to enter the country in the next two or three years. Five of the top ten countries of origin represent 54%. There is also a notable entry of investments from countries with previously lower participation, such as China, Denmark, Australia, Korea, and Taiwan, thus diversifying the origin of investments. These investment announcements cover all 32 federal entities of Mexico, from Baja California to Yucatan, reflecting a national redistribution.

Investment is mainly concentrated in Nuevo León ($24.4 billion), Sonora ($15 billion), Oaxaca ($10.6 billion), Tamaulipas ($7.2 billion), Querétaro ($4.156 billion), Chihuahua ($2.914 billion), and Guanajuato ($2.216 billion). 

According to a report published by CBRE in the third quarter of 2023, demand for industrial spaces from Nearshoring totaled 11.2 million square meters, representing 26% of the absorption of available square meters in the industrial sector. When comparing figures on an annual basis (3Q23 vs. 2Q22), the automotive sector accounted for 52% of the total demand for spaces, followed by manufacturing (24%) and transportation and logistics (8%).

Major Investments

By sector, investments this year have been distributed as follows:

MANUFACTURING: 49% of investment announcements have come from the manufacturing industry, primarily in the automotive and semiconductor sectors:

1. Tesla: With an amount equivalent to $10 billion, Elon Musk’s company has been in talks with the state government to establish one of its gigafactories.

2.  KIA Motors: The Korean company seeks to invest $6 billion to expand and produce its electric car models.

3. Ternium: The steel company will invest $3.808 billion to increase steel production in Nuevo León.

4.  Jetour: Investing in both Guanajuato and Aguascalientes, the Chinese automotive company aims to expand its activity in Mexico with a total investment of $3 billion.

5. Pegatron and Wistron: The Taiwanese semiconductor companies will invest around $2 billion in Chihuahua.

6. BMW: The company will establish its electric vehicle assembly in San Luis Potosí with an investment of $800 million.

7. Foxconn: With an amount of $500 million, the Apple supplier will arrive in Chihuahua.

ENERGY: Three notable projects:

1. Copenhagen Infrastructure Partners: With $10 billion, the Danish fund, in collaboration with the federal government, agreed to produce green hydrogen from Oaxaca, thereby boosting the Interoceanic Corridor of the Isthmus of Tehuantepec.

2. Woodside Energy: Reaching an investment of $7.2 billion, the Australian company has entered into an agreement to produce oil in partnership with Pemex from Tamaulipas.

3. Mexico Pacific Limited: In collaboration with CFE, a strategic agreement was signed for the construction of a liquefaction plant and a gas pipeline in Sonora; the deal reaches $15 billion.

TRANSPORTATION: This sector highlights logistics and energy exports:

1. Mexico Pacific Limited: Its project overlaps in this segment.

2. Amazon: The e-commerce and logistics company will open a $100 million distribution center in the state of Jalisco.

3. DHL: With $350 million, facilities will be built near the AIFA in the state of Hidalgo, and an additional $120 million will be invested in Querétaro to expand and automate its Domestic Air Hub.

CONSTRUCTION: Investment in this sector is focused on industrial parks and data centers:

1. LGMG Group: The Chinese manufacturing company will invest $5 billion in the construction of an industrial park in Nuevo León.

2. CloudHQ: Reaching an investment of $3.6 billion, the U.S. firm will install a data center campus in Querétaro.