Daily Update: Nearshoring Provides Opportunity for Mexico

Today is?Monday, September 11, 2023, and here’s your?curated selection of essential intelligence on financial markets and the global economy?from?S&P Global. Subscribe?to be notified of each new?Daily?Update.?

Profound opportunities lay before Mexico as companies with and without existing operations in the North American country engage in a new round of nearshoring investments.?

Low costs and geographic proximity to the world's largest market make Mexico a near-ideal destination for nearshoring, yet some challenges remain. Mexico's energy dependence and transmission infrastructure are key challenges preventing it from becoming a nearshoring hub.

On the energy production and power generation side, Mexico depends heavily on natural gas imported from the US and has limited renewable capacity. On the transmission side, infrastructure is concentrated in industrial corridors that emerged after the North American Free Trade Agreement (NAFTA) was established in 1994. These corridors are, however, saturated and require more transmission infrastructure, independent consultant Rosanety Barrios told S&P Global Commodity Insights.

Competition from other nearshoring destinations, such as Vietnam, is another challenge to Mexico's future as a reshoring hub. Vietnam has lower labor costs and operational risk scores than Mexico, but Mexico's proximity to the US helps balance that.

But what's driving this new wave of nearshoring investments and supply chain shuffling?

Several geopolitical factors play important roles. Supply chains for every industry, are adjusting not only to the impacts of COVID-19 and the war in Ukraine, but also to trade spats between the US and China and the renegotiation of NAFTA that resulted in the US-Mexico-Canada Agreement.?

Rafael Amiel, director of Latin America and Caribbean economics at S&P Global Market Intelligence, said that the new agreement gives Mexico preferential access to the US market and increases stricter rules of origin to pressure companies to increase production in North America.

Mexico also has several demographic assets that attract companies. The country’s labor force availability, for example, is attractive for companies looking to reshore as the median age in Mexico is 29, according to Emily Crowley, a principal economist in S&P Global Market Intelligence's Pricing and Purchasing labor team.

While the opportunity exists, Mexico's energy generation and transmission infrastructure around industrial corridors require work to enable it to fully realize the benefits of becoming a reshoring hub.

Today is Monday, September 11, 2023, and here is today’s essential intelligence.

Written by Wyatt Scott.

Economy

India's GDP Growth Remains Buoyant In 2023

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—Read the article from S&P Global Market Intelligence

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Capital Markets

Short Interest Grows Across The Property Sector

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—Read the article from S&P Global Market Intelligence

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Global Trade

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—Listen and subscribe Maritime and Trade Talk, a podcast from S&P Global Market Intelligence

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Sustainability

Sustainability Insights: Research: Decarbonizing Chemicals Part Two: The Credit Risks And Mitigants

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—Read the report from S&P Global Ratings

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Energy & Commodities

Proposed Offshore Wind Capacity Boosts Battery Storage Economics In New England

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—Read the article from S&P Global Market Intelligence

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Technology & Media

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—Read the article from S&P Global Market Intelligence

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