Can Mexico Become America’s API Pharma Powerhouse?

The COVID-19 pandemic exposed critical weaknesses in global pharmaceutical supply chains, particularly in North America and Latin America, where reliance on China and India for Active Pharmaceutical Ingredients (APIs) and essential medications revealed significant vulnerabilities. Over 70% of APIs used globally are sourced from these two countries, and this dependency is a pressing concern for both healthcare access and national security. Reducing this dependency requires a phased strategy to avoid disrupting supply chains.

Mexico is strategically located and already integrated into North American supply chains. The country is uniquely positioned to rise as the pharmaceutical hub for the Americas, but significant challenges — both internal and external — must be addressed to make this vision a reality.

The Pandemic's Wake-Up Call for Pharma Supply Chains

The pandemic forced nations to confront the dangers of concentrated pharmaceutical production. Supply chain disruptions originating in China and India highlighted the fragility of global dependency, particularly in times of crisis. Both countries dominate the global production of APIs, with India also leading in finished generic medicines.

This overreliance became stark during COVID-19 as lockdowns, labor shortages, and export bans disrupted the flow of life-saving drugs and raw materials. In the Americas, this dependency underscored the critical need for regional alternatives to safeguard public health and economic security.

Mexico’s geographic proximity to the United States, its manufacturing capabilities, and its trade agreements position it as the ideal candidate to fill this gap. However, realizing this potential is contingent on addressing a series of systemic and geopolitical challenges.

The Challenges: A Political and Economic Crossroads

1. The Shadow of Protectionism in the US

The return of the Republican Party in 2025, with potentially more protectionist policies, presents both challenges and opportunities for Mexico. Campaign promises and subsequent actions to impose tariffs on goods entering the United States from other regions, such as China, through Mexico could disrupt existing trade structures.

While this poses a risk to current trade practices, it also opens a door for Mexico to attract investment in localized API and finished drug production, reducing dependency on China and India. However, this requires Mexico to swiftly adapt its trade and production strategies to align with potential shifts in US policy.

2. USMCA Under Scrutiny

The United States-Mexico-Canada Agreement (USMCA) is at risk of being renegotiated or undermined under a renewed protectionist agenda. Stricter rules or penalties could affect Mexico’s export-driven economy, particularly in the pharmaceutical and healthcare sectors. Strengthening regional collaboration and ensuring compliance with USMCA provisions will be critical to mitigating these risks.

3. Domestic Hurdles Under a New Mexican Administration

Domestically, Mexico faces significant hurdles that continue to cast a shadow over its investment climate. Addressing these issues head-on is crucial to attracting and retaining the high-value, long-term investments required to establish Mexico as a pharmaceutical hub.

• Rule of Law and Judicial Reforms: Uncertainty in the judiciary threatens foreign direct investment (FDI) as companies require legal clarity for long-term commitments. Proposed reforms, including electing Supreme Court justices and judges through popular vote, could lead to delays in cases not covered by the USMCA. Additionally, plans to dismantle independent regulators and transfer them to federal institutions conflict with USMCA's market access and competition policies.

• Regulatory Bottlenecks: COFEPRIS, Mexico's health regulatory agency, faces a significant backlog, delaying approvals for critical medicines and creating barriers to rapid pharmaceutical growth.

• Energy Reform Bill: This bill seeks to constitutionally enshrine state dominance in the electricity sector, among other objectives, thus limiting the participation of private and foreign companies. This poses a challenge to the transition to greater use of clean energy sources.

• Infrastructure and Resource Gaps: Water shortages and limited electricity in key industrial hubs could hinder large-scale manufacturing operations. Moreover, a shortage of specialized labor remains a hurdle. Addressing these issues will be critical for sustained growth.

• Security Challenges: Increasing violence and drug cartel activity jeopardize the safety of personnel and the secure transportation of goods.

Strategic Opportunities: Mexico as a Regional Hub

While challenges abound, Mexico's potential remains compelling. Proximity to the United States, a growing skilled workforce, and free trade agreements like USMCA make it an attractive candidate for reshoring pharmaceutical production. Key strategies to achieve this transformation include:

1. Strengthening the Rule of Law and Security
Ensuring a stable legal environment and addressing security concerns will be paramount for attracting foreign direct investment and sustaining long-term growth in the pharmaceutical sector. Mexico needs to:

• Implement judicial reforms that enhance transparency and reduce legal uncertainties.

• Increase investment in law enforcement to combat drug cartel violence and ensure the safety of personnel and secure transportation of goods.

Example: Establishing specialized courts for commercial disputes can expedite legal processes, providing faster resolutions for business-related cases.

2. Streamlining Regulation

COFEPRIS must undergo modernization to reduce approval timelines and increase transparency. Adopting best practices from agencies like the FDA could improve efficiency and attract investment.

• Digitalization of regulatory processes to minimize paperwork and enhance tracking of applications.

• Training programs for COFEPRIS staff to align with international standards.

Example: Implementing an online portal for application submission and status tracking, similar to the FDA’s electronic submission process, can significantly reduce delays.

3. Infrastructure Investment

Addressing water and electricity shortages in industrial zones is critical. Public-private partnerships can help bridge infrastructure gaps, enabling Mexico to meet the demands of advanced manufacturing processes required for API production.

• Water Scarcity: Pharmaceutical manufacturing is water-intensive, and Mexico faces growing       concerns over water availability. Investment in desalination technologies, improved resource management, and efficient usage practices will be critical.

  Example: Projects like the Rosarito desalination plant can provide a sustainable water source for industrial hubs in Baja California.

• Energy Reliability: Reliable electricity is another key factor for industrial success. Ensuring a stable and sustainable energy supply — possibly through renewable energy investments — is vital.

Example: The Yucatan wind power project demonstrates the potential of renewable energy to support industrial growth.

• Skilled Workforce: The pharmaceutical industry demands expertise in fields like chemical engineering, biotechnology, biosimilars and regulatory compliance. Strengthening educational and vocational training programs, focusing on pharmaceutical manufacturing, will be essential.

Example: Partnerships between government, universities, and the private sector, such as the Technological University of Querétaro’s collaboration with Bayer, can help bridge skill gaps.

4. Innovation Hubs

Developing innovation hubs focused on biotechnology and pharmaceutical advancements will foster R&D and position Mexico as a leader in innovation-driven production.

• Establish dedicated biotech parks with tax incentives for R&D activities.

• Encourage collaboration between academic institutions and the pharmaceutical industry.

Example: The Monterrey Innovation Hub, with its focus on advanced manufacturing and biotech research, serves as a model for fostering innovation.

Seizing the Opportunity on the Policy Front

To overcome these challenges, Mexico must foster partnerships between the government and private sector. These collaborations can drive investments in infrastructure, regulatory modernization, and workforce development / upskilling.

1. Public-Private Partnerships

Fostering collaborations between the government and private sector can drive investments in infrastructure, regulatory modernization, and workforce development.

• Establish frameworks for PPPs in critical sectors like water management and energy.

Example: The Aguascalientes PPP for water supply management has improved efficiency and service delivery.

2. Tax and Investment Incentives

Providing tax breaks and other incentives for pharmaceutical manufacturers is essential. Policies should target companies willing to produce APIs and finished drugs locally, reducing dependency on imports and incentivizing local production. Additionally, a focus on sustainability in production could align with global ESG standards, further enhancing competitiveness.

• Offer tax credits for R&D activities and capital investments in pharmaceutical manufacturing.

• Provide grants and low-interest loans for infrastructure projects that support the pharmaceutical sector.

Example: Tax incentives similar to those offered by the Irish government to attract pharmaceutical giants can be implemented.

3. Trade and Tariff Policy Alignment

Aligning trade and tariff policies with cross-border collaboration efforts can help protect the market while promoting regional pharmaceutical production.

• Negotiate trade agreements that reduce tariffs on pharmaceutical imports and exports within the Americas.

• Implement policies that support free trade zones for pharmaceutical manufacturing.

Example: The Free Trade Zone in Panama has been successful in attracting pharmaceutical companies due to its favorable tariff policies.

4. Strengthening Trade Relations

Maintaining the integrity of USMCA is essential. Collaborative efforts between Mexico, the United States, and Canada can ensure trade policies support regional pharmaceutical production without punitive tariffs or unnecessary barriers.

• Regular high-level meetings between trade officials to address and resolve trade disputes.

• Joint initiatives to harmonize regulatory standards across the three countries.

Example: The US-Mexico High-Level Economic Dialogue (HLED) can serve as a platform to strengthen trade relations and address issues impacting the pharmaceutical sector.

Why Reducing Dependency Matters

Diversifying API production is not merely an economic opportunity, it is a matter of national security. The pandemic exposed the risks of relying on a concentrated supply chain, with global shortages of critical medications threatening healthcare systems. By developing a robust pharmaceutical manufacturing ecosystem, Mexico can:

• Mitigate supply chain disruptions.

• Reduce drug costs by cutting transportation expenses and tariffs.

• Strengthen the Americas' ability to respond to future health crises.

A Roadmap for Action

To achieve its potential as a pharmaceutical hub, Mexico must adopt a phased approach. Immediate steps include addressing regulatory inefficiencies and providing targeted incentives for manufacturers. Long-term success will require overcoming political and infrastructural challenges while fostering regional collaboration.

The benefits of increased local production — job creation, enhanced supply chain resilience, and improved healthcare access — make this effort worthwhile. Mexico has the opportunity to redefine its role in the global pharmaceutical landscape, but seizing it requires decisive action and strategic alignment across governments and industries.