Nearshoring in Mexico Held Back by Infrastructure, Security: CMIC

Despite the various opportunities that the nearshoring promises to bring to Mexico, the country faces significant challenges that could jeopardize both investments and economic opportunities. Among the most pressing issues are security and infrastructure, which are crucial for the success of nearshoring and the country’s economic growth. In response to these challenges, the Mexican Chamber of the Construction Industry (CMIC) has developed a strategic project bank, which will be presented to the incoming government led by President-elect Claudia Sheinbaum. 

The CMIC issues a stark warning about the urgent need for infrastructure investment to fully capitalize on Mexico's nearshoring potential. Luis Méndez, National President, CMIC, highlights that without significant improvements in logistics and transportation infrastructure, Mexico's economic potential could be severely hindered. 

According to data from the Logistics Performance Index (LPI), made by the World Bank, Mexico has fallen from 55th place in 2018, to 66th in 2023, among 139 countries. 

MBN previously reported that Mexico ranks ninth in Agility’s 2024 Emerging Markets Logistics Index. While the report argues that the country has potential for logistics investment, it also highlights deficiencies in digital readiness and basic business fundamentals, which could limit the country’s future growth.

Agility’s report claims that security is one of the major challenges Mexico faces, revealing that 60% of respondents saw an increase in security incidents that reflect ongoing problems in the country. 

"Logistical and transportation deficiencies cost Mexico about MX$169.3 billion (US$8.82 billion) in 2023, equivalent to 4% of the country’s GDP," says Méndez. He adds that this loss is comparable to the total economic output of Sinaloa, Durango, and Nayarit combined. CMIC’s proposals include gradually increasing public investment to 5% or 6% of GDP, with a significant portion allocated to logistics and transportation infrastructure, such as the modernization of roads, railways, ports, airports, and sustainable urban mobility systems.

Mexico’s Ministry of Economy reported that in 1Q24, Foreign Direct Investment (FDI) in Mexico was predominantly driven by reinvestments of earnings, accounting for 97% of total investments or US$19.6 billion. New investments accounted for only 3%, or $0.6 billion, reflecting the cautious approach of foreign investors. The United States was the leading source of FDI, followed by Germany, Canada, Japan, Argentina, Switzerland, and South Korea. While these figures highlight international interest in Mexico, they also underscore the need for improved domestic conditions to attract new investments.

Industry experts from various sectors agree that Mexico's primary challenges lie in its lack of infrastructure, particularly in logistics and energy. Claudia Castaños, Managing Director Mexico, Worldwide Logistics Group, tells MBN that Mexico needs better roads, industrial parks, and energy facilities to support the increasing activities from nearshoring.

Security also remains a significant concern. Justin Facey, CEO, KENSA Logistics, tells MBN that without addressing energy availability, water supply, security, and infrastructure, the potential benefits of nearshoring in Mexico could be diminished. Likewise, Benjamin Estrella, CEO, SafeLinkGroup, tells MBN that the new administration needs to prioritize highway security to protect transport operators and drivers from increasingly violent theft.

CMIC states that it fully supports Sheinbaum’s announced initiatives for infrastructure development, particularly the Economic Corridor of the Isthmus of Tehuantepec and regional development hubs, which are expected to significantly impact southern and southeastern Mexico.

CMIC’s strategic proposals include:

1. Gradual Increase in Public Investment: Increase public investment to 5% or 6% of the GDP, focusing on logistics and transportation infrastructure, including road and rail maintenance, port modernization, airports, multimodal terminals, and sustainable urban mobility systems.

2. Improved Investment Efficiency: Enhance the profitability of public investments and infrastructure quality by strengthening planning, project development, execution, and evaluation processes, alongside fostering innovation and transparency in public works contracts.

3. Creation of a Long-Term Planning Institute: Establish an institute or committee responsible for long-term infrastructure planning and prioritization, involving public, private, academic, and specialist sectors.

4. Public-Private Investment Mechanisms: Promote transparent public-private investment mechanisms in logistics and transportation infrastructure to complement federal budget resources, which are insufficient.

5. Environmental Compliance: Ensure that all projects comply with environmental regulations, responsibly use natural resources, and minimize construction industry impacts to achieve sustainable development.

6. Strengthening Global Value Chains: Prioritize infrastructure projects that enhance global value chains and stimulate regional economic activities by improving key transportation and logistics hubs.

7. Focus on Regional Development Hubs: Give top priority to logistical projects that accelerate the development of the 12 regional development hubs and interoceanic economic corridors, such as the North Economic Corridor and the Isthmus of Tehuantepec Corridor (CIIT).

8. Multimodal Connectivity: Drive multimodal logistical connectivity projects to integrate different transportation modes and address bottlenecks in last mile delivery services.

9. Increased Maintenance Investment: Significantly increase resources allocated for the maintenance of logistics and transport infrastructure to ensure optimal functionality.

10. Address Nearshoring Obstacles: Prioritize logistics and communications infrastructure projects that eliminate obstacles to fully capitalize on nearshoring opportunities.

The Inter-American Development Bank (IDB) in 2022 estimated that nearshoring could bring US$78 billion annually to Latin America, with Mexico poised to capture US$35 billion of this total. However, Méndez cautions that to fully seize this opportunity, Mexico needs more and better investments in road, port, airport, and multimodal infrastructure.

Pablo Treviño, Co-CEO, TREBOTTI, tells MBN that distribution, transformation, and generation infrastructure needs significant investment, which is crucial not only for nearshoring but for Mexico's overall growth.