The organization emphasizes that despite its proximity to the United States, economic growth in Mexico has seen a limited boost in foreign direct investment due to ‘nearshoring.’

Economic growth in Mexico is projected to be 3.2% in 2023, above the 2% expected for the Latin American region on average, the World Bank recently reported. Despite the solid macroeconomic management of the region, including measures to contain the level of debt, growth prospects remain at a  relatively low level, the multilateral agency expressed in its most recent Economic Report Latin America and the Caribbean. Additionally, the entity estimates growth of Mexico’s Gross Domestic Product (GDP) will be 2.5% for 2024 and 2% for 2025.

Certain factors affect Mexico’s ability to capture FDI

Latin American governments have not done enough to address “structural” issues that drive growth, the Bank’s economists wrote, and an example of this is Mexico. “In the last five years even, Mexico experienced minor increases in FDI (foreign direct investment) flows, despite its obvious proximity to the United States.” Although salaries in Latin America’s second-largest economy are competitive in relation to China, factors such as taxes, cost of capital, limited educational level of the workforce, challenged infrastructure policies, and social factors affect the attractiveness of the country as a destination for the nearshoring, the tendency of companies to leave Asia to locate closer to their target market.

This not only applies to economic growth in Mexico but to other countries in the region. “Regional growth continues to be hampered by the low level of capital accumulation and productivity growth. Despite the increase in foreign direct investment in Argentina and Brazil observed last year, there is little recent evidence to demonstrate that the region is taking full advantage of the realignment of global value chains,” the report says.

While at the regional level, the level of business confidence decreased this year compared to its peak in 2021, it remained strong in Brazil, Costa Rica, and Mexico. “These indicators, added to an increase in the cost of financing and concerns regarding the global economy, point to a moderation in consumption and a persistently low level of investment in Chile and Colombia,” wrote the Bank’s specialists.

As a component of economic growth, Mexico is the main recipient of remittances sent by compatriots abroad in the entire region, receiving 42% of the region’s total and the second in the world, after only India. The Bank estimates that Latin America received $146 billion in remittances in 2022, “becoming one of the main recipients of these flows in the world, surpassed only by South Asia among emerging markets,” the report states.

Economic Growth in Mexico is powered by multilateral trade accords

One of the pivotal factors fueling economic growth in Mexico is its strategic participation in international trade agreements. The North American Free Trade Agreement (NAFTA), and its successor, the United States-Mexico-Canada Agreement (USMCA), have been instrumental in expanding Mexico’s trade horizons. These agreements have effectively created a massive regional market encompassing over 490 million consumers. The accords provide Mexican exporters with access to the world’s largest economy, the United States, as well as neighboring Canada. This preferential access has stimulated the country’s exports, particularly in the manufacturing sector, driving economic growth in Mexico by boosting production and employment opportunities.

The main drivers of Mexican economic expansion are outlined below:

Manufacturing and Exports

Mexico’s manufacturing industry plays a significant role in its economic development. Sectors such as automotive, electronics, and aerospace have flourished, driven by Mexico’s proximity to the United States and its cost-effective labor force. Multinational corporations have established a strong presence in Mexico to take advantage of these favorable conditions, investing in production facilities and supply chain integration. This, in turn, fosters export-oriented growth, as Mexican-made goods are shipped worldwide. Mexico is now one of the world’s top exporters of automobiles and electronic products, and the manufacturing sector is a crucial driver of the country’s economic growth.

Foreign Direct Investment (FDI)

Foreign Direct Investment (FDI) has been a catalyst for economic growth in Mexico. The nation’s appeal to foreign investors is multifaceted, encompassing factors such as its strategic location, access to global markets, and a skilled labor force. FDI inflows have not only provided a much-needed capital injection but also contributed to technology transfer, job creation, and the expansion of production capabilities. Furthermore, as foreign investors establish and expand their operations in Mexico, the local supply chain benefits, boosting the broader economy.

Demographics and Human Capital

Mexico’s demographic profile presents both opportunities and challenges for economic growth. With a large and relatively young population, there is the potential for a demographic dividend, as this labor force can drive productivity and economic expansion. However, for this dividend to be fully realized, it is essential that the workforce is well-educated and equipped with the necessary skills. Investment in education and vocational training is crucial for unlocking the potential of Mexico’s youth, enhancing their employability, and fostering innovation.

Macroeconomic Stability

Maintaining macroeconomic stability is a prerequisite for economic growth. A stable environment characterized by low inflation, consistent exchange rates, and sound fiscal policies is crucial for businesses and investors to plan, invest, and operate confidently. Mexico has made substantial progress in this regard, bolstering its economic resilience and attracting investments that promote growth.

Infrastructure Development

Investments in infrastructure are fundamental for unlocking Mexico’s economic potential. Transportation, telecommunications, and energy are critical areas where improvements can enhance productivity and create economic opportunities. Modernizing and expanding transportation networks can reduce logistics costs and improve trade efficiency. Similarly, an upgraded telecommunications infrastructure supports connectivity, while a reliable energy supply is vital for powering industries and businesses.

Mexican economic growth factors are intricate

Economic growth in Mexico is driven by a complex interplay of factors. Trade agreements, particularly NAFTA and USMCA, have opened doors to international markets, while Mexico’s manufacturing prowess and export-oriented industries have propelled economic expansion. Foreign direct investment and a favorable demographic profile have furthered the country’s growth potential. Macroeconomic stability, human capital development, and infrastructure enhancements that have been made in recent years have all contributed to the Mexican economic growth story.

As the stakes in the 21st-century chip wars intensify, American companies need reliable, stable, capable, and close partners in the semiconductor industry. A semiconductor industry in Panama can be the answer.

The growing vulnerability of global supply chains and the volatile state of geopolitics are leading U.S. semiconductor chipmakers to look for alternatives to fill critical functions in their manufacturing process. Today, they have a new opportunity in a stable and reliable partner close to home: Panama.

Chips are the oil of the 21st century, and the U.S. has prioritized their importance to national security through the CHIPS Act. American chipmakers are looking to expand domestic capacity to help ensure supplies of these strategic goods.

Panama as a center for Assembly, Testing, and Packaging (ATP)

However, the industry often relies on companies thousands of miles away to complete the final stages of its chip manufacturing, known as Assembly, Testing, and Packaging (ATP). Many of these ATP facilities and warehouses are concentrated in East and Southeast Asia.

Recently, the United States and Panama made an important announcement of a strategic alliance to strengthen the semiconductor industry in Panama and its value chain. Panama was chosen as one of just a handful of countries that will benefit from State Department funding to explore ways to expand ATP capacity. The recent visit of the Secretary of Commerce of the United States, Gina Raimondo, to Panama reinforced this intention of strategic collaboration.

To diversify risk in the supply chain while improving U.S. national security, Panama may be the preferred solution for U.S. chipmakers, a hemispheric hub for ATP and a global distribution node for the industry.

A developed semiconductor industry in Panama would help move the supply chain closer to home

The semiconductor industry in Panama offers the perfect opportunity for companies to create custom ATP facilities and warehouses less than 900 miles from some of the world’s largest semiconductor plants in the United States. Since Panama is directly south of the U.S., it has a time zone advantage, essential for business coordination, that Asian options cannot match.

In addition to proximity,  a semiconductor industry in Panama offers U.S. chipmakers several other advantages, chief among them stability. Panama is a proven strategic partner of the U.S. and, more importantly, is in a region that is not experiencing high-risk tensions. Investing in Panama as an ATP hub is also a win-win proposition for U.S. states seeking to expand technology exports to the region.

Any ATP distribution center must have world-class logistics capabilities, and Panama excels in this.

The Panama Canal is the world’s most essential logistics node, providing valuable access to global supplies. The international community depends on Panama to provide political and economic stability to ensure the uninterrupted operation of the maritime passage. This, in turn, drives the country’s political decisions, ensuring predictability and stability, making it an attractive destination for long-term investments in the semiconductor industry in Panama. The 185 multinational companies maintaining their regional headquarters in Panama attest to this.

Panama also has the best air infrastructure in Latin America, according to the World Economic Forum, with direct commercial and passenger flights to major American cities and a regional hub for global cargo carrier DHL.

Panama’s regulatory environment is conducive to doing business

In addition to Panama’s pleasant climate, the country has a favorable regulatory climate.

Panama offers a Special Regime for Manufacturing Services for Multinationals (EMMA), which provides a wide range of incentives to foreign investors. This regime aligns well with U.S. goals of creating economic prosperity at home while supporting partners abroad. For example, it allows U.S. companies to establish manufacturing in Panama while maintaining the ability to bill consumers from their U.S. headquarters. Greater stability for investors is ensured by Panama’s laws, which protect foreign investments from regulatory and fiscal changes over ten years.

Panama has a free trade agreement with the United States and trade agreements involving more than 60 countries, including the E.U., Singapore, Israel, and South Korea.

The most crucial component in all of this, of course, is the people. The Panamanian Government has established a network of institutions to support the training of the workforce and the development of human capital to work in the semiconductor industry in Panama.

For example, the Higher Specialized Technical Institute is a state-of-the-art campus that promotes public-private partnerships to develop the technology sector workforce. The Technological University of Panama, which produces 4,000 high-level graduates annually, has six research facilities, including the Experimental Engineering Center, the Electrical, Mechanical, and Industrial Research Center, and a Center for Innovation and Technology Transfer. Similarly, the National Secretariat of Science, Technology and Innovation promotes expanding workforce productivity in partnership with the private and public sectors. Additionally, Panama continues actively partnering with U.S. academia to expand its capabilities.

As the stakes in the 21st-century chip wars intensify, American companies need reliable, stable, capable, and close partners in the semiconductor industry. Panama is an answer.

Investment in Quito offers six factors that make it one of the most attractive Ecuadorian cities for Foreign Direct Investment (FDI).

Quito attracts, on average, 25% of Ecuador’s Foreign Direct Investment (FDI), equivalent to USD 200 million per year.

This positions Quito as one of the cities with the greatest attraction of resources from abroad, above Guayaquil.

This is outlined in the 2023 Investment Guide, produced by the Quito Chamber of Commerce (CCQ) and the Development Secretariat of the Municipality of the capital.

For Francisco González, coordinator of the Quito Opportunities Center project, the capital, like the rest of the country, can potentially attract more resources from abroad.

Advantages of investment in Quito

According to the 2023 Investment Guide, Quito can attract more capital due to six advantageous factors:

International Airport

Being the capital of Ecuador, Quito has an international airport that is essential for the growth of business through foreign trade.

In 2022, more than 239,000 tons of merchandise were exported through the Mariscal Sucre International Airport in Quito, and more than 47,000 tons of products were imported.

In the ten years of operation of the air terminal, nearly 2.3 million metric tons of cargo have been moved. More than 97.5% corresponds to international cargo, explains Corporación Quiport, which operates the airport

Infrastructure

The city also has a road system that allows merchandise transfer to the rest of the country, which translates into greater economic dynamism.

In addition, it is expected that this year, the Quito Metro will begin operating, which will cover 22.6 kilometers.

“The project for infrastructure investment in Quito will be the backbone of the city’s future integrated transportation system, which will shorten distances,” which means saving time and money, explains the World Bank.

The city is also attractive for business because it has convention centers and large hotels for holding national and international meetings, conferences, and congresses.

Institutions

Another advantage of investment in Quito is that, being the capital, businesses have greater access to public institutions to obtain permits and comply with procedures.

There is greater access to financial institutions and offices of international organizations that support small businesses, such as the Inter-American Development Bank (IDB) and the Latin American Development Bank CAF.

Professionals

Many of the country’s universities and institutes are located in Quito.

Ecuador has 71 registered and accredited higher education institutions, 32% in the capital.

The presence of universities and institutes means greater access to education, which translates into prepared professionals. For this reason, 37% of the Economically Active Population (EAP) of Quito has higher education. The figure is above the national average, which reaches 20%.

In addition, 6% of the city’s EAP have a postgraduate degree. That’s four percentage points above the national average, which is 2%.

Business environment

The country has nearly 850,000 business establishments, according to the Business and Commercial Establishments Directory of the National Institute of Statistics and Censuses (INEC).

About 186,000 of them, or what is equal to 22%, are in Quito.

If analyzed by size, there are 16,572 large and medium-sized companies in Ecuador, which is equivalent to 2% of the entire business sector.

The reality of the capital is different; 4,424 or 27% of its companies are large or medium-sized, which means that, at least, they register sales of USD 2 million per year and have at least 100 workers.

Sectors related to commerce, other service activities, scientific and technical professional activities, manufacturing industries, and transportation and storage comprise approximately 73% of the total companies domiciled in Quito.

Tourist destination

The international airport and geographical location make Quito one of the main tourist destinations in Ecuador, which means income from accommodations, entertainment, and commerce, among other activities.

In total, 15 passenger airlines connect Quito directly with 14 international destinations and eight destinations within Ecuador, making the capital the most connected city in the country by air.

The city has one of the main tourist attractions in the country: the Middle of the World.

Tourists visit Quito to appreciate its historic center, which earned the city recognition as the First Cultural Heritage of Humanity. In 2022, 531,097 national and foreign tourists visited the capital, according to Quito Turismo.

The foreign citizens who visit Quito the most come from the United States, Colombia, Spain, Peru, and Canada.

Paperwork and red tape

The city also has particular pending challenges that affect Foreign Direct Investment in Quito

One of them is the excessive paperwork in some processes, says the coordinator of the Quito Opportunities Center project.

The World Bank agrees with this, stating that a person needs to complete 11 procedures that take 48.5 days to open a company in Quito.

Among them is the Single Metropolitan License for the Exercise of Economic Activities (LUAE).

On the other hand, in Santiago de Chile, it takes four days to establish a company.

González adds that the arrival of investment in Quito is also threatened by a degree of uncertainty.

In some instances, the return on investment in Quito for businessmen is lower due to the country risk, which has increased and makes the cost of credit obtained abroad more expensive, González concludes.

Investment in Quito is a viable opportunity

Despite its challenges, Quito, Ecuador, presents a viable opportunity for foreign direct investment due to its strategic location and a government committed to fostering a favorable business climate.

Situated in the heart of South America, Quito serves as a gateway to a market of over 100 million consumers in the Andean region, making it a pivotal hub for trade and commerce.

Ecuador’s government has implemented a series of economic reforms, offering incentives and legal protections for foreign investors, which include tax breaks, simplified regulations, and bilateral investment treaties with several countries.

Quito, Ecuador, offers investors access to a modern international airport, highly functional infrastructure, institutional stability, an educated workforce, and a vibrant environment for conducting business.

The construction of a Peruvian Port of Chancay that hopes to operate at the end of 2024 is advancing. Built with Chinese capital, it seeks to be the leading logistics center that connects both shores of the Pacific.

Chinese capital expands investment in Latin American infrastructure

A megaport for South America and the Asian giant China is advancing steadily. China views this Peruvian Port of Chancay as a symbol of its investment in South America and is of enormous importance at a geopolitical level. It is being built about 80 kilometers from Lima, and the company responsible for the project expects it to be operational by the end of 2024. Its objective is to become the regional logistics center par excellence that unites both shores of the Pacific Ocean. The project represents a $3.5 billion investment. It will include 15 terminals to mobilize more than 5 million containers annually. It will even receive the largest cargo ships in the world.

Mario de las Casas, director of Public Affairs of the COSCO shipping company in the Port of Chancay, points out: “This port will allow having a direct route to export our products to an immense market that is Asia.”

Due to its more than 16 meters depth, users can unload ships with a capacity of 18,000 containers, which cannot currently be reached in any South American port.

This way, transporting goods will be more efficient by reducing the crossing time by ten days. The Peruvian megaport project is part of the Chinese expansion through the Andean nation that is also occurring in sectors such as mining or energy.

A strategic variable

At a recent international port forum held in Lima, the deputy general manager of Cosco Shipping, Gonzalo Ríos, stated that “beyond just being the port, it is a strategic variable in regional distribution chains.”

“The growth projected by the agricultural sector in Peru, all the large irrigation projects mean almost doubling Peru’s agricultural output, and that means enormous market growth that requires a concentrating port to reach consumers in Asia, particularly,” said Ríos.

The manager stressed that “the Asian market for this type of (agricultural) product is still about to grow a lot” and that in Peru, “making logistical ‘ clusters ‘ (groups) in each of its regions is the development path. “

” The Port of Chancay is becoming a player with a lot of modernity, with a lot of efficiency, with significant volumes of movement that, together with the ports of Callao, will mean that Peru is a leading regional ‘hub’ in this logistics component,” he said.

In the opinion of the president of the Maritime, Port and Customs Affairs Commission of the Lima Chamber of Commerce, Alberto Ego-Aguirre, since Peru is a small country, “success has to be achieved through exporting so that Peru continues to grow.”

“Ports move 85% of the products. Air travel will always be more expensive,” he noted.

For the union representative, his country’s economic growth “has to go hand in hand with the growth of the ports” and, related to the ports, “better roads.”

The Port of Chancay is a linchpin for Peru’s foreign trade

The Port of Chancay is a pivotal gateway to Peru’s international trade efforts, serving as a linchpin in the nation’s economic development and global connectivity. Situated on the Pacific coast, Chancay plays a vital role in facilitating the import and export of goods for Peru and the wider South American region.

This port’s strategic location is a cornerstone of its significance. With its proximity to Lima, Peru’s capital and economic hub, the Port of Chancay offers a convenient and efficient means of transporting goods to and from the country’s interior. This connectivity reduces transportation costs, fosters economic growth, and improves the country’s overall competitiveness.

Moreover, the Port of Chancay plays a pivotal role in Peru’s ambitious trade ambitions. As Peru continues to expand its trade relationships globally, particularly with the Asia-Pacific region, Chancay’s deep-water harbor has emerged as a critical asset. It enables larger vessels to dock, allowing for the efficient transfer of goods and enabling Peru to tap into the vast markets of Asia and beyond.

Additionally, the Port of Chancay is a vital node in Peru’s export-oriented economy, particularly in the mining and agricultural sectors. The port’s modern infrastructure and logistics capabilities ensure that Peruvian products can easily reach international markets, bolstering the nation’s foreign trade volume.

In conclusion, the Port of Chancay is not just a harbor but a linchpin of Peru’s international trade strategy, linking the nation to global markets, driving economic development, and propelling Peru onto the world stage as a significant player in international trade. Its continued development and expansion will be pivotal to the nation’s future economic success.