Mexican businesses warmed by glow of 'nearshoring' dawn

Vesta Real Estate SAB de CV

06/11/2023 12:00

By Noe Torres
       MEXICO CITY, Nov 6 (Reuters) - Mexican businesses,
particularly those linked to real estate and construction, are
counting on investment from so-called "nearshoring" to boost
profits and economic growth, especially in industrial zones near
the U.S. border.
    Mexico's government expects nearshoring - the trend of
locating manufacturing capacity in Mexico, closer to the U.S.
market, rather than in Asia - to add up to 1.2 percentage points
to growth, which is expected to reach 3.5% this year.
    Even as analysts warn that gang violence, plus water and
energy supply snags could curb the trend, many local and foreign
businesses are looking to capitalize on shifts in production
chains, some of which have already begun.
    "Many companies are already talking about this - about
nearshoring and the economic benefits," said Gerardo Copca, an
analyst at consultancy MetAnalisis. "And I do think this will
take off." It will, however, take time, he cautioned.
    Nearshoring was on the lips of many executives during third
quarter earnings calls, and in the first six months of 2023,
Mexico raked in around $29 billion in foreign direct investment,
up 5.6% from 2022. More than half was in the industrial sector.
    One notable project - electric vehicle maker Tesla's plans
for a reported $5 billion factory in northern Mexico - has been
credited with attracting $1 billion in Chinese investments to
nearby industries.
    Mexican gross fixed investment is on track to post its
strongest annual growth since 1997, leaping 31.5% year-on-year
in seasonally adjusted terms in August, the latest data.
    Mexican real estate investment trust Fibra Uno  FUNO11.MX 
plans to launch a trust allowing investors to cash in on
expected growth of industrial assets.
    Fibra Uno expects Mexico's nearshoring momentum to continue
for the next 15 years, CEO Andre El-Mann said on Oct. 24.
        
    ENERGY WORRIES
    Meanwhile, estimated manufacturing property demand for
2023/24 stands at 2.5 million square meters, up nearly 80% from
last year, according to industrial parks association AMPIP.
    Demand was particularly strong in the auto sector, the
electronics industry and among machinery makers, AMPIP said.
    Lorenzo Berho, head of construction firm Vesta  VESTA.MX ,
said not only should the north benefit from nearshoring, but
also the central carmaking region known as El Bajio, a "very
good location" for multinationals, with strong infrastructure in
states including Queretaro, Guanajuato and Jalisco. 
    "It has a great labor pool. It has good logistics," Berho
told an analysts' call last month.
    Enrique Navarro, finance chief at Banco Regional  RA.MX ,
observed that relocation activity should fuel "a lot of growth"
in northern, western and central Mexico.
    As it seeks to lure manufacturing capacity away from Asia,
Mexico can take advantage of its shared border with the United
States, the world's largest economy, and multiple trade pacts,
including USMCA, which includes Canada.
    Mexico's lower labor costs are also a big draw, as are
growing economic tensions between the U.S. and China.
    But challenges remain because President Andres Manuel Lopez
Obrador's drive to tighten state control of energy has fed
concerns about a lack of investment in key infrastructure.
    "The investments the country is receiving are already
creating bottlenecks due to the instability of electricity
transmission, water scarcity and limited industrial space,"
Swiss bank UBS said in a recent note.
    Still, nearshoring is showing up in the real economy.
    Cement company GCC  GCC.MX  said between July and September,
greater demand for cement was driven by construction of
industrial projects in Chihuahua state, which borders Texas.
    Total Mexican construction output jumped almost by 46% in
August year-on-year, with northern states performing strongly.

 (Reporting by Noe Torres; 
Additional reporting by Dave Graham; Editing by David Alire
Garcia, Christian Plumb and Josie Kao)
 ((david.aliregarcia@thomsonreuters.com; +52 55 5282 7151;
Reuters Messaging:
david.aliregarcia.thomsonreuters.com@reuters.net))