Mexico Needs New Industrial Policy, Say Private Associations

Mexico’s pursuit of an open trade policy and strengthening of its manufacturing sector has led to significant economic benefits. However, the country lacks a coherent industrial policy that supports its incorporation into global supply chains. To address the key challenges the industry faces, experts call for a comprehensive policy that addresses innovation, infrastructure development, digitalization, and environmental sustainability. 

Mexico’s industrial policy is designed to promote sustainable and inclusive economic development, with a focus on progressive actions and a gender perspective to enhance social mobility. This vision aims to boost the competitiveness and productive capacity of Mexican industry by encouraging technological and scientific modernization, fully embracing the tools of the new industrial and technological revolution. This policy focuses on five strategic sectors: agri-food, electrical-electronics, electromobility, medical and pharmaceutical services, and creative industries.

One of the key pillars of the policy is the transformation of Mexican small and medium-sized enterprises (MSMEs) into highly competitive, tech-savvy players. This vision for the new MSMEs emphasizes the extensive use of Industry 4.0 technologies, a more sophisticated and technologically advanced supply chain, and stronger integration with regional and global markets.

The policy also seeks to strengthen the domestic market by leveraging international trade tools and the country’s industrial capacity, while ensuring that Mexico’s internal economy benefits from these advances. Despite this, according to the Mexican Institute for Competitiveness (IMCO), while Mexico has become one of the world’s largest economies and a key exporter, the country’s contribution to the value of its exports has remained stagnant. 

Nearshoring and Manufacturing’s Current Challenges

In 2003, Mexican-made inputs accounted for 40.2% of the value of its manufactured exports; by 2022, that figure had only increased to 40.4%, reports IMCO. Much of Mexico’s export production continues to rely heavily on imported intermediate goods, limiting the benefits of its export-led growth strategy.

Nearshoring has become one of the most promising trends for Mexico’s industrial sector, according to Banxico. In its Monitoring Business Perception of the Impact and Perspectives of the Relocation Process in Mexico report, Banxico writes that nearshoring has continued to benefit a significant proportion of companies in Mexico. From July 2023 to June 2024, 12.9% of firms with over 100 employees reported increased production, sales, or investment due to nearshoring.

The impact varies across regions, with the northern region leading at 16.9%, followed by the central-north (13.2%), central (11.4%), and southern regions (7.8%). By sector, the manufacturing industry saw the most significant benefits, with 16.6% of firms reporting positive effects, compared to 10.6% in the non-manufacturing sector.

Despite these nearshoring gains, Mexico’s manufacturing output has struggled in recent quarters. Banxico’s Regional Economies Report for the 2Q24 revealed that national manufacturing recorded four consecutive quarterly contractions. Manufacturing activity experienced its largest contraction in the northern region (-2.6%) compared to the same period in 2023. This was followed by the central-north (-1.2%), central (-0.7%), and southern (-0.4%) regions. 

Manufacturing production in the country recorded four consecutive quarterly declines, reflecting weak performance. The broader manufacturing sector continues to face challenges, partly due to weaker demand both domestically and internationally, with US manufacturing — highly integrated with Mexican supply chains — also experiencing a slowdown. 

As previously reported by MBN, Alejandro Malagón, President, CONCAMIN, points out that the lack of a comprehensive industrial policy may hinder Mexico from fully capitalizing on the nearshoring trend. He outlines five key factors to enhance industrial policy:

1. Increase investment in infrastructure: Currently, public sector infrastructure investment stands below 2.2%, but it needs to be raised to 5%.

2. Support self-generation and cogeneration electricity projects: This should be paired with a priority focus on green energy.

3. Reactivate development banking: Implement funding programs that guarantee support for MSMEs.

4. Leverage trade agreements: Strengthen national value chains and capitalize on Mexico’s network of free trade agreements.

5. Implement a national strategy for innovation and digitalization: Only 30%-40% of Mexican industry is digitized, highlighting a significant opportunity for growth.

A New Industrial Policy

IMCO suggests that a new industrial policy could enhance the competitiveness of Mexican products in the global market, while fostering stronger links between national producers and export-oriented industries. This is especially critical in sectors like electronics, technology, and automotive manufacturing.

IMCO calls for a comprehensive approach that addresses key challenges facing the industry, focusing on several strategic pillars:

1. Innovation, which is essential for driving business productivity through new technologies, research, and scientific development.

2. Digitalization, which requires infrastructure and regulations to ensure the economy can constantly adapt to technological changes.

3. Productive chains, as strengthening the national productive fabric is necessary to create more links between global value chains and national supply companies.

4. Access to financing, as diversifying and increasing sources of financing is necessary to boost infrastructure, real estate, and business projects.

5. Infrastructure and logistics, as modernizing and building physical infrastructure facilitates connectivity and allows for the optimization of production processes.

6. Environmental sustainability, as regulations are increasingly necessary to ensure the sustainable use of natural resources.

7. Rule of law, as legal certainty is essential to foster investment and the country’s economic development.

8. Fiscal policy, as the implementation of fiscal measures must take into account the country’s fiscal capacities.

9. Trade policy, as strengthening ties with international markets and expanding the network of trade agreements can generate benefits for the productive sector.

10. Human capital, which requires improving the education of Mexican talent and enhancing its ability to adapt to changes in production processes.

Regional Specialization and Collaboration

The Friedrich Naumann Foundation states that one of the challenges for Mexico’s industrial policy will be to foster collaboration between states, allowing each region to capitalize on its unique advantages. The policy should be designed not only to enhance competitiveness but also to ensure that economic development is inclusive and sustainable. By focusing on innovation, infrastructure, sustainability, and human capital, Mexico can position itself as a leader in the global market while reducing socio-economic disparities across the country.

The future of Mexico’s industrialization lies in a strategic approach that leverages its strengths, integrates domestic industries into global supply chains, and promotes sustainable practices, says the foundation. With the right policies in place, Mexico can achieve greater economic growth, create more job opportunities, and build a more equitable society for all its citizens.

Private Sector’s Take

Since 2023, Mexico’s Business Coordinating Council (CCE) has proposed the creation of a Mexican Digital Industrial Policy System, which may require addressing several critical areas, including telecommunications, digital transformation powered by sustainable energy, and alignment with global sustainability goals. 

As part of embracing this digital industrial policy, the United Nations suggests that the policy must align with four global megatrends that will shape the future of industrial development: the reorganization of global value chains, the energy transition, the fourth and fifth industrial revolutions driven by digitalization, and significant demographic shifts, for it to help Mexico maintain its competitive edge.

These trends also need to include bridging the gender gap, says Arturo Oropeza, President, the Industrial Development and Digital Transformation (INADI). And at the same time, policy should aim to close the technological gap between developed and developing countries, guide innovation, and promote productive diversification that encourages employment while reducing carbon emissions.