Economics: FDI sustains positive trajectory but the country is failing to fully reap the benefits of nearshoring
Foreign direct investment (FDI) has performed favorably during the current administration, and its potential can increase if appropriate measures are taken to attract nearshoring investment. It is important to consider, however, that although the nearshoring phenomenon has been recurrently mentioned by both authorities and analysts, current figures show that it has yet to materialize, at least through the first months of 2023.
When weighing whether to invest directly in Mexico, the relevant actors observe that the country is at a disadvantage to China on several key issues such as proximity to suppliers, many of whom are based in Asia; a relative lack of skilled labor; low local economic growth; lack of integration in supply chains; and inferior infrastructure quality when it comes to water and, especially, electricity. These disadvantages require joint action between government and private initiative, as well as concerted efforts to attract nearshoring investment, but there are no signs that the issue is being addressed through concrete actions.
If it were possible to attract an additional 5 billion dollars in FDI each year on top of the 26 billion dollars recorded in 2022 (excluding extraordinary operations), it is estimated that the country could add to 1.5 percentage points to its GDP growth, which would bring it to a range of 3-3.5% per year. In this week’s Economic Outlook, we analyze the recent performance of FDI and the considerable advantages Mexico offers for nearshoring investment even now, as well as the economic benefits such an influx of investment could generate for the country if it were to expand.
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