Mexico policy ambiguity may hinder nearshoring

Significance

The investment is expected to amount to at least USD5bn. Its announcement followed tussles with President Andres Manuel Lopez Obrador (AMLO), who had stated that he would not grant the necessary permits. The deal represents a rare example of accommodation on the part of AMLO, who is generally assertive and uncompromising on industrial policy.

Impacts

• The strong peso, widely perceived as a temporary phenomenon, is unlikely to discourage investments.
• With the government approaching the end of its term next year, no new announcements of major industrial projects are likely.
• Mexico’s low wages will incentivise foreign investment, but high levels of crime will counter that effect somewhat, acting as a deterrent.