Experts from the International Monetary Fund (IMF) propose opening strategic markets to private sector participation, introducing regulatory reforms, and expanding access to financial services.
According to IMF experts, accelerating public infrastructure projects in energy, transportation, and water in Mexico will help reduce bottlenecks and attract more global operating companies looking to relocate their supply chains. This advice comes in a working paper titled “Relocation of Global Value Chains: The Role of Mexico.”
Leveraging Mexico’s Integration with the US Market
The experts highlight Mexico’s increased integration with the US market as a significant advantage, improving investment conditions. They emphasize that enhancing the private investment environment will foster business development amidst global value chain restructuring.
US-Mexico Consultations on T-MEC
On September 17, the US and Mexico initiated public consultation processes related to the USMCA (United States-Mexico-Canada Agreement) to gather comments, evidence, and proposals from citizens, businesses, organizations, and experts. Canada will start its consultation process shortly.
IMF Experts’ Proposals
Led by Francisco Arizala, Tomohide Mineyama, and Hugo Tuesta, the IMF experts analyzed bilateral trade data to identify recent trends in US import origins. They confirmed that reduced Chinese imports have been accompanied by increased Mexican and other Asian trading partner imports.
Electronics and Semiconductors
The relocation of tech and telecom operations to Mexico is boosting nearshore operations, strengthening connections and making partnerships more efficient. Mexican electronics and semiconductor exports have gained a significant share of the US market previously held by Chinese imports between 2017 and 2023, according to IMF economists.
Transportation Equipment Industry
Other sectors, such as transportation equipment (including automobile and truck production), have also increased their US market participation, as tracked by the IMF.
Addressing Long-standing Challenges
To capitalize on this potential and compete with other production locations, Mexico must tackle long-standing structural challenges, including increasing worker skills and female labor force participation.
Mexico’s Strengths
The document states that Mexico benefits from a developed manufacturing system, human capital availability, cost competitiveness, and proximity to the US market. Increased participation in supply chains has led to higher imports of various inputs from numerous countries and products, enabling Mexico to build an industry with substantial added value.
Foreign Direct Investment (FDI) in Mexico
IMF economists emphasize that FDI in Mexico has been crucial for developing Mexican productive capacity, with a significant portion originating from the US. In the first half of the current year, US-sourced FDI accounted for 42.9% of total FDI in Mexico, according to Banco de México trade data.
Regional Integrated Markets to Enhance Attractiveness
IMF economists warn that greater regional market integration and addressing structural investment barriers in regional markets will support more inclusive growth throughout Mexico.
They note that Mexico has benefited from strong US demand due to the pandemic, resulting in solid investment inflows, primarily benefiting the manufacturing sector. Consequently, the Mexican industry is increasingly integrated into global value chains connected to the US, allowing for significant internal added value.
