Near-shoring is currently the most popular economic concept in Mexico. As a result of the Covid-19 pandemic, Russia's invasion of Ukraine, and the trade and technological tensions between the United States and China, global companies are shifting their supply chains and relocating their manufacturing plants to closer countries, not only in terms of geography but also trust.

In this complex environment, Mexico finds itself in a privileged position to expand its leading role in the global economy. Our advantages are well known: a location in the North American Region, coastlines to the East and West, several international treaties, and the potential to magnify our installed capacity for exports, becoming a leader in highly specialized industries. The moment for which we have diligently prepared for the past three decades through trade liberalization has finally arrived.

According to the Inter-American Development Bank, near-shoring investment can increase exports of goods and services by $78 billion in the short and medium term, providing opportunities for quick wins in the automotive, textiles, pharmaceuticals, and renewable energy sectors. Near-shoring alone could add up to 1.3% to the annual GDP over the next decade, making it easy to predict this economic spillover's substantial impact on the population.

Of course, near-shoring is already a reality in Mexico. Gross Fixed Investment data shows that total investment has already surpassed pre-pandemic levels, with the most notable impact being in machinery and equipment, with an annual growth rate of 16.5%.

However, despite the optimistic expectations surrounding Mexico's historic window of opportunity created by the relocation process and increased investment, Vietnam emerges as the leading country in the Savills Near-shoring Index, while Mexico is ranked 15th. The Savills Near-shoring Index is a tool that ranks and compares the attractiveness of near-shoring locations for businesses. Surprisingly, Vietnam, whose nearest port is 18,000 nautical miles away from Los Angeles, tops Mexico, who shares a border with the United States. So, why can't Mexico fully leverage its advantages and secure a top-ten spot in this competitive ranking?

The Savills Near-shoring Index has four key components: economic openness, labor, energy, and infrastructure costs. Firstly, let's begin by highlighting Mexico's positive attributes, particularly regarding economic openness. The visionary decision to join the North American Free Trade Agreement (NAFTA), recently updated through the United States-Mexico-Canada Agreement (USMCA), has propelled Mexico to the forefront as the leading exporter to its northern neighbor, surpassing China. Notably, those who were loud opponents of trade liberalization just a few decades ago are now enthusiastic supporters of the increased foreign investment in Mexico.

Notwithstanding Mexico's openness to global trade and investment, economic openness alone is no longer sufficient in this competitive near-shoring landscape, especially since other countries have caught up and even topped Mexico. For instance, while Mexico's economy is one of the most open in the world (78.5% compared to Canada's 65.4%), Vietnam has an openness index of 261%.

The negative scores for Mexico in the near-shoring index relate to labor, energy, and infrastructure costs. When considering labor costs, Mexico's main competitive advantage no longer lies solely in low wages, which is a positive outcome that labor activists rightly celebrate. There is a need, however, to strengthen the quality of human capital by aligning educational programs to the digital economy, which is crucial for sustainable wage increases. By 2050, three of every four jobs will be related to STEM. Moreover, currently, the 20 highest-paying careers are related to these professions, and the Mexican workforce will require access to quality education that enables them to compete globally for better-paid positions.

Let’s then consider than to position Mexico more competitively within North America, we could strive for an even more open economy and undoubtedly aim for a higher-quality education system. Of course, there are many challenges, but it must be said clearly: the high energy and infrastructure costs keep Mexico out of the near-shoring top ten.

According to the infrastructure IMD World Competitiveness Ranking, Mexico ranks 58th out of 63 countries.   To accommodate the arrival of new companies, it is necessary to increase infrastructure in roadways, water, energy, and telecommunications by 50% to 60%, equivalent to 3% of GDP.

Currently, Mexico pays the cost of insufficient public investment and entrusting its essential industries to public and private monopolies. These industries are expected to generate the necessary infrastructure to attract the most valuable ties in the global supply chains of goods and services, providing the inputs and outputs that international companies need to produce in a country.

Furthermore, access to reliable and clean power at reasonable prices, from diversified suppliers, is crucial. For example, Mexico's electricity costs for businesses are 106% higher than Canada's and 261% higher than Vietnam's. In addition to the high costs, the lack of supplier diversification increases the perceived risk for global companies assessing potential investment destinations.

The appetite for investment in clean and affordable energy has been fueled by initiatives such as the U.S.'s Inflation Reduction Act, which emphasizes the role of energy transition. The potential of this initiative alone exceeds $350 billion. The energy transition is not only necessary to slow down climate change but also essential to trigger investment in other sectors of the economy.

Mexico's transportation infrastructure also lags when compared to other countries. Roadway, rail, port, and airport systems complement international trade and the digital economy, which require efficient and secure movement of goods within the territory.

It is also worth noting Mexico's delay in digital connectivity. Expanding the capacity and coverage of telecommunications networks to meet industry demand through the large-scale deployment of fiber optics and the introduction of 5G is essential for triggering other industries. Connectivity and 5G will be necessary to digitize the economy and automate high-value-added industries, potentially impacting the economy by up to $1.3 billion on global GDP by 2030.

Today, Mexico finds itself in a better position than it did three decades ago to attract near-shoring investments. However, we must recognize that the world has changed significantly since the outset of this endeavor. As a result, the conditions that were once deemed necessary to attract such investments are no longer sufficient.

We must learn to better understand what is happening in the world. To seize the opportunities presented by the new international context and advance to the next level of development, we must surpass the stage of being a low-cost labor manufacturing country and transition towards combating monopolies and oligopolies, whether public or private, in essential industries. This is what those who outperform Mexico in the near-shoring index do, without exception, demonstrating that it has less to do with geographical proximity and is increasingly related to reliable and trustworthy infrastructure and systems.

Near-shoring is more like ally-shoring.

Let's also consider the excellent opportunity to implement comprehensive public policies that will allow us to finance the upgrade of our communication infrastructure, electricity, housing, comprehensive transportation, and public services—leveraging the economic boost of near-shoring. This planning process would also enable us to prepare more regions in Mexico, especially the South and Southeast, to be capable of receiving these investments. Conversely, if we do not deploy essential infrastructure throughout the territory, the most significant investments will be limited to the North and Bajío regions, perpetuating and even deepening the regional inequality between the North and the South.

To ensure that near-shoring propels Mexico to higher levels of development and well-being, let's advance economic openness, education for skilled human capital in the digital economy, competitive and diversified essential infrastructure, public security, and respect for the rule of law.

Let's seize this historic opportunity for Mexico to unleash its full potential. Hand in hand with the United States and Canada, let's achieve the foundational vision of NAFTA to make North America the most competitive region in the world. If Mexico succeeds in near-shoring, all three countries win by complementing our strengths to successfully face current geopolitical risks, leading to better living standards for our residents. Let's write the most extraordinary regional success story together, the three countries of the USMCA.