In recent months, whenever I ask bankers active in Mexico – both those who work in the country and those who are based outside it – about the practical and discernible effects of nearshoring, they have been evasive.
The consensus view is usually that the large international companies that will drive new foreign direct investment – those that will substitute manufacturing capacity from Asia (either at the margins or entirely) – will be financed by large global banks and international capital markets transactions.
Identifying national loan growth – or Mexican capital markets transactions linked to nearshoring activity – will take longer, they say, adding that we need to wait for the first wave of FDI to move into its operational stages before local banks can benefit from a second wave of investment by Mexican companies building scale and capacity to serve these new international clients.
The bankers don’t expect to see any evidence of nearshoring having an impact on the local financial system until around 2024.
Model answers
Nevertheless, banks are beginning to produce reports on the subject. Mostly they are speculative exercises on the potential benefits should nearshoring manifest itself in Mexico as the US’s next-door neighbour.
Some models predict potential increases in exports. Others revise and upgrade long-term GDP trends. Others model the scale of potential capital investment that would be needed. Few look for evidence that the generational trend that saw US companies establish manufacturing bases in China has been thrown into reverse gear.
Some point to macro data points that are trending above recent averages, but, given the statistical skews caused by a global pandemic, could a spike in exports to the US really be down to nearshoring? Or is a rebound in existing Mexican production the more rational explanation?
I began to feel an excitement not usually associated with reading a rating agency report
And then on December 5, a Spanish language report from Moody’s arrived in my inbox. The subject – Mexican regional banks – was relevant enough, and as I slowly picked through its main points, I began to feel an excitement not usually associated with reading a rating agency report: the analysis laid out by Vicente Gomez, is the first I have seen that draws a direct link to bank loan growth and nearshoring.
More such reports will come – of that, I am sure. If the regional banks in Mexico are reporting booming business off the back of growth in Mexican manufacturing capacity, then such additional finance is surely already flowing through the wider capillaries of the country’s larger banks.
It will grow into capital market deals. It will move into the pension funds. It will slowly but surely become detectable throughout private and public finance systems.
The next question is how important nearshoring will be – for Mexico and other countries in the region. The only certainty, at this point, is that nearshoring is going to be one of the themes of 2023 – not just in Latin America but globally. And I look forward to following the story.
