Energy Problems Hinder Investment Opportunities In Mexico

Electricity shortages and energy policies are deterring investors from bringing new capital to Mexico, slowing the country's nearshoring boom, a phenomenon occurring when companies move their supply chains to countries closer by. Experts said that if the outlook does not improve, not only will the country fail to meet its environmental targets, but key sectors such as the automotive industry will decline.

Recently, Morgan Stanley estimated that Mexico's exports could increase in value by some US$155 billion in the coming years due to nearshoring’s benefits, of which US$22 billion would go to the battery and electric vehicle sector. However, the bank said the investment could be halted by the country's lack of electrical infrastructure and recent regulatory changes.

According to the Confederation of Industrial Chambers (CONCAMIN), cities such as Ciudad Juarez, Guanajuato and Queretaro face major problems in attracting and retaining investors because they cannot provide sufficient energy. Although many companies seek alternatives for acquiring electricity, this continues to be one of the greatest deterrents to investment.

In addition, the panorama becomes more uncertain as regulator CRE is slowing down projects. The Confederación Patronal de la República Mexicana (COPARMEX) stated that the lack of clear rules for investing in the energy sector is causing projects that are ready and could help with the energy shortage in the country to be put on hold or canceled.

"We have information from Texan companies with investment projects in Mexico that have said that it is better not to invest here, even though a range of opportunities has opened up with nearshoring," said José Medina Mora, National President, COPARMEX.

The President of the Business Coordinating Council (CCE), Francisco Cervantes, emphasized that since Mexico's energy problem is expected to worsen, the council is in dialogue with the federal government to address the situation. For its part, CONCAMIN has called on the government to increase energy generation in all states and to establish when the 34 projects in which the Federal Electricity Commission (CFE) has said it will invest will be put into operation.

In addition, the private sector has warned that the country will not meet its 2030 climate goals, such as making 50 percent of cars run on clean energy. Experts assured that if the country's problems are not addressed, it will cease to be a key global automaker. "If we do not join the clean energy trend. We are going to have big problems, not only environmental ones but also economic issues," said José Abugaber, President, CONCAMIN.

According to the Program for the Development of the National Electricity System (PRODESEN) 2022-2036, Mexico requires at least US$26 billion of investment in electricity generation and a US$20 billion investment in transmission and distribution infrastructure to cover an energy demand of 110GW in the next three years.