When it seems that the stars are aligning for Mexico to take advantage of the opportunity to attract investment thanks to companies seeking to shorten supply chains, a threat appears on the horizon: the energy policy of the federal government.
The coronavirus exposed the risks of having global production processes, so companies began nearshoring to bring value chains closer to end markets.
Now, with the conflict between the United States and China over Taiwan, another window of opportunity is opening for Mexico to take advantage of the relocation of companies, particularly in the manufacture of semiconductors, important for the automotive and technology sectors.
Fernando Ruiz, general director of the Mexican Business Council for Foreign Trade, Investment and Technology (Comce), and Luis Manuel Hernández, national president of the National Council of the Maquiladora and Export Manufacturing Industry (Index), agreed that the country could benefit with this new stage of friction between the two main world economic powers.
“Almost two months ago I had a meeting with Taiwanese investors who are looking at manufacturing options in Mexico,” said Hernández, without specifying the names of the companies.
China considers that Taiwan – democratic and self-governed – is part of its territory awaiting reunification, if necessary, by force. Tensions with the United States have been heightened by recent Chinese aerial incursions into Taiwan’s defense zone.
Production of semiconductors
Since Taiwan is a key player in semiconductor production, the conflict may benefit Mexico and help companies in the sector relocate to the country.
“The investment in Mexico for the production of chips, of semiconductors, could be from companies in China as well as from Taiwan. What can help us is nearshoring in terms of investment,” said Fernando Ruiz, who added that logistics costs and delivery times have risen, making relocation necessary.
What Mexico has to do to benefit from this relocation of companies is, “if Mexico has a way to generate the infrastructure quickly,” added Luis Manuel Hernández.
The United States has two options to shorten supply chains: in the south of its own territory or in Mexico.
“Taiwanese companies are looking for ways to invest in America to avoid logistical problems, the high cost and the lack of security of having all the supplies for the production processes in Mexico, the United States or Canada,” Ruiz del Comce said.
According to the Index, US companies operating in Asia have already invested $11 billion in Mexico to increase the capacity of their plants and factories in the region.
Although the stars seem to align for Mexico to take advantage of nearshoring, first due to Covid and now due to the conflict in Taiwan, there are some issues that make noise in companies and investors that can scare away investments.
Security issues, water problems and lack of energy -commercial facilitation issues-, which can prevent new investments and Taiwanese companies from arriving.
“Because there is no power, for them (the Taiwanese) it is not an option for them. Right now it is an option to manufacture in the US because you have water, you have the space and you have gas”, pointed out Luis Manuel Hernández, urging that there be the necessary infrastructure in the country.
As for the time that would have to pass between the announcement of an investment in Mexico and the beginning of operations, there is talk of a period of one to two and a half years; and another six months to start supplying the market.
However, warned Fernando Ruiz, this window of opportunity can close quickly if investors do not see the right conditions.
Although Mexico, the United States and Canada are about to begin consultations on the energy policy of the government of Andrés Manuel López Obrador, the director of the Index regretted that there is no information that can give an idea of what will happen in this matter.
He commented that there is no date on the part of the government in which information regarding what will happen in the national energy sector can be counted on.
Both Comce and Index carry out investment promotion work in Mexico, explained the directors.
On behalf of the Index, Luis Manuel Hernández underlined, a couple of weeks ago they were in Washington to encourage investment.
With regard to the federal government, there has been a constant request to eliminate the red tape to facilitate trade, something on which the Ministry of Economy has been working.
“The Ministry of Economy has just published the pilot for companies that comply with foreign trade; These fulfilled companies will have a facilitation in all the paperwork, based on the commitments that Mexico acquired in the WTO”, explained Ruiz.