Mexico’s President-elect Could Be a Boon for Nearshoring
Nearshoring could be having its moment following the election of former Mexico City mayor Claudia Sheinbaum as the country’s next president.
As a physicist, Sheinbaum, 61, was also part of the United Nations climate team that in 2007 received a Nobel Peace Prize. Some believe Sheinbaum has the understanding needed to implement the strategies required to deepen the country’s commitment to sustainability. Those strategies include renewable energy and water management, as well as investment in industrial parks. Investments in the latter would include infrastructure to foster better regional transportation, a plan that’s sorely needed to spur more nearshoring activities.
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For the last two years, S&P Global Ratings lead economist for Latin America Elijah Oliveros led studies on how nearshoring is gaining traction in Mexico. He noted that its proximity and access to the U.S. market makes it a obvious potential beneficiary for trade. But infrastructure is still considered inadequate in many parts of the country, whether due to supply of water and energy, or security-related concerns, not to mention the need for a transportation network for freight deliveries and even passenger trains for workers in their daily commute. Recent construction of industrial parks and warehousing in northern Mexico in Nuevo Leon suggested that some shift in production is taking place. The north and some center parts of the country contain already established supply chains. The big questions center on future investment and establishing manufacturing hubs elsewhere within Mexico.
Sheinbaum is the protégé of outgoing president Andrés Manuel López Obrador. While she takes office on Oct. 1, Mexico’s new congress start their terms on Sept. 1. That could give the outgoing López Obrador time to push through a reform agenda that’s considered controversial due to fiscal costs and questions over how to sustainably fund the new initiatives, according to Morgan Stanley Latin American economist Fernando D. Sedano. He added that the pressure on public spending could be on the rise, noting that Mexico’s electricity sector is in need of an upgrade and is key for the nearshoring narrative to play out.
“We are halfway through our first wave of nearshoring,” Sedano said. “Any future waves would require the establishment of new, more strategic manufacturing ecosystems in IT hardware, batteries and renewable energy, and investors are likely to wait for policy certainty as it pertains to key infrastructure and longer-term policy alignment with key partners.”