Updated: Aug 18
Business, Escape from China, and the Economy
The most talked about subjects in the Mexican business community this year are the massive FDI coming into Mexico nationwide from abroad, for Nearshoring / Reshoring, and for development of real estate and tourism in Tulum and the Yucatan Peninsula.
Industrial parks along the border, in Monterrey and in Queretaro, can’t be built fast enough to meet demand so prices are up, and availability is wait-listed. Industry clusters are growing at their fastest pace ever (automotive, aviation, consumer etc.) as the Tier 2 and Tier 3 suppliers feeding the Tier 1 manufacturers that export to the US and Canada also need to scale rapidly. The backlog of companies escaping China who are quite late to the game is adding to what were already historically very strong inflows of FDI into Mexico with the corresponding demand for resources in Mexico.
Historically the Mexican economy gets a boost in the year leading up to an election as the central government increases spending; this is typically counteracted in the following year after the election as the central government reduces spending.
Confidence in the central bank of Mexico is high and there is no concern over the “Super Peso” at all as it is perceived as being directly and primarily caused by the immense wave of nearshoring and reshoring to Mexico, primarily from China.
The major intermediate-term concern is of inflation reaching US levels.
Political Risk – Mexican Business Perspective
Concern over control of the Instituto Nacional Electoral being taken by AMLO and his political party, and concern over both the upcoming June 2, 2024 presidential election itself - as well as the results of it.
This risk concern is taken serious enough that there is another wave of Mexican business owners and entrepreneurs that have done well and are now expanding to the US and creating a physical presence in the US, often in Texas.
Concern over the ongoing security issues though Mexico City has improved dramatically in this regard as the disproportionate positive economic impact the community of ex-pat and “digital nomads” brings is a goose laying golden eggs that the government wants to keep laying.
Politically the sentiment, and fear, is that we have returned to the Mexico of old, that is pre-2000 Mexico effectively defined by an authoritarian central government in which AMLO will continue to have power behind the scenes even after the 2024 Mexican presidential election. It’s again a government management culture of loyalty vs. the culture of capability and modernization that it was under the PAN.
In addition to, yet distinct from, the previously referred to political risk concerns there is also the concern amongst companies reshoring and nearshoring from China to Mexico of whether the anti-freemarket government of Mexico will provide the implicit and explicit incentives that most other nations that are options for FDI do.
In particular will the Mexican government provide and / or support the infrastructure investments needed to maintain this economic growth such as upgrading and expansion of both inland and coastal ports, affordable power generation not limited only to State electricity providers, land and roads for industry parks etc.
Andrew Barker MBA
Middle Market Advisory LLC
Financial and M&A Leadership
M&A Advisory – Consulting CFO – International Tax