Lack of Clean Energy Poses a Threat to Mexico’s Nearshoring
In recent times, Mexico has become the quintessential nearshoring hub due to the amplifying tensions between China and the US. Nevertheless, it may have insufficient clean energy infrastructure in place to cater to the demands of international players, which could hinder the country’s capacity to benefit from the developments.
According to Forbes, up until now, China and other Asian countries were the main offshoring hubs for companies around the world. However, amid mounting tensions between the US and China due to China-Taiwan relations, COVID-19, inflation and a lack of commodities, Mexico is now poised for success as it has become an attractive nearshoring destination for companies located in the US, Canada and Latin America.
The pandemic highlighted the disadvantages of offshoring, a common practice in previous decades that consisted of moving factories to other countries, generally to Asia. Companies did so in the search for cheap labor, to diversify risks, open new markets and increase productivity at a low cost. However, with recent disruptions in the supply chain, nearshoring has surpassed this practice.
Nuvocargo describes nearshoring as outsourcing manufacturing to a nearby country so that the company can benefit from its proximity, time zone and overall business environment. Mexico´s proximity and time zone alignment with the US and Canada create advantages for the country, along with its skilled and educated workforce and overall trade conditions.
Ruben Iman, CEO, Onset Logistics, told Mexico Business in 2022 that many analysts globally agreed that Mexico is ranked fourth in terms of generating the most interest in nearshoring investments, after Japan in third place, Canada in second place and the US in first.
Some of the industries that have found success with nearshoring in Mexico include automotive, aerospace, electronics and medical devices. Mexico has established itself as a leading player in these industries, offering a wide range of services and capabilities to companies looking to nearshore their operations.
However, experts have concluded that despite Mexico offering various advantages, it does demonstrate certain challenges, particularly issues stemming from the government. Ryan Berg, Director of the Americas Program, Center for Strategic & International Studies told Forbes that President López Obrador’s policymaking shows occasional erraticism, which includes his efforts to revoke Mexico’s 2014 Energy Reform that liberalized the market. The president instead prioritizes the state-run utility company CFE. Other controversial moves include his desire to ban GMO corn, upending contracts previously signed with oil and gas companies and nationalizing lithium.
Similarly, Iman emphasized that Mexico’s lack of renewable, affordable and reliable energy could deter investments. The lack of access to cheaper, cleaner, and more reliable energy is a priority for investors seeking to relocate their operations to the country.