The Mexico Plan Advances with Sheinbaum’s Decree

by | Jan 26, 2025 | FDI Latin America

President Claudia Sheinbaum Issues Decree to Promote Nearshoring with Tax Incentives

President Claudia Sheinbaum’s government has issued a new decree to incentivize nearshoring through tax benefits. The decree, published on Tuesday, January 21, 2025, in the Official Gazette of the Federation, represents a significant step in strengthening Mexico’s local economy while fostering innovation. This strategic move aims to attract companies to relocate their manufacturing operations to Mexico, particularly in high-value sectors such as technology, research, and development.

The decree outlines a series of fiscal stimuli for both domestic and foreign companies operating in these fields. These tax deductions will remain valid until October 2030. Furthermore, businesses that invest in workforce training through partnerships with educational and research institutions will be eligible for additional benefits, underscoring the administration’s commitment to enhancing human capital.

Goals of the Mexico Plan

The Mexico Plan seeks to achieve several objectives. Primarily, it aims to reduce reliance on imports from China by strengthening local industries and increasing national content in key sectors by 15%. Among the targeted industries are automotive manufacturing, aerospace, and semiconductors—fields where Mexico has significant potential for growth. The plan also sets an ambitious goal: ensuring that 50% of the products and materials used in these industries are manufactured domestically.

In addition to industrial growth, the plan promotes the development of value chains that support Mexico’s broader economic objectives. By increasing the use of local inputs, the government hopes to enhance the competitiveness of Mexican products in global markets, particularly in North America, given the country’s proximity to the United States and its participation in the United States-Mexico-Canada Agreement (USMCA).

Encouraging Foreign Investment

In 2023, Mexico attracted $36 billion in foreign direct investment (FDI), representing a 27% increase compared to the previous year. Much of this growth has been fueled by nearshoring trends as global companies seek to diversify their supply chains and reduce dependence on Asia. However, limited access to essential services like electricity and water has hindered Mexico’s ability to fully capitalize on its nearshoring potential.

President Sheinbaum’s administration is working to address these infrastructure constraints to ensure Mexico remains a competitive destination for foreign investors. Enhancing energy and water availability will be critical to achieving the goals outlined in the Mexico Plan.

Navigating Trade Tensions

Another crucial aspect of the plan involves aligning Mexico’s trade policies with the interests of its USMCA partners, the United States and Canada. This alignment comes against the backdrop of ongoing trade tensions, particularly following the election of Donald Trump in the United States. Trump’s administration has previously threatened to impose tariffs on Mexican goods if issues such as drug trafficking and migration are not adequately addressed.

President Sheinbaum emphasizes cooperation and integration within the USMCA framework to mitigate these tensions. By strengthening economic ties with its northern neighbors, Mexico aims to solidify its position as a critical link in North America’s supply chain.

Tax Incentives

The Mexico Plan allocates 30 billion pesos ($1.6 billion) in incentives to promote nearshoring. Of this amount, 28.5 billion pesos will be dedicated to tax deductions for investments in fixed assets, while 1.5 billion pesos will support spending on workforce training and innovation.

The decree specifies that these fiscal benefits will be available starting in 2025 and will extend through 2030. Businesses will be eligible for deductions ranging from 35% to 91%, depending on the type of assets acquired and the industry in which they operate. The automotive, aerospace, and semiconductor sectors are expected to benefit the most from these incentives.

Support for Micro, Small, and Medium-Sized Enterprises (MSMEs)

Recognizing the importance of smaller businesses in driving economic growth, the government has reserved at least 1 billion pesos of the total incentives for micro, small, and medium-sized enterprises (MSMEs). With annual revenues of up to 100 million pesos, these businesses will have access to significant tax benefits under the plan.

The Mexico Plan aims to foster a more inclusive economy by supporting MSMEs. This will enable smaller enterprises to participate in high-value supply chains and contribute to national growth.

Evaluation of Applications

To ensure transparency and effectiveness, the government will establish an Evaluation Committee to oversee the allocation of incentives. This committee, comprising representatives from the Ministries of Finance and Economy, will review investment projects, dual-training agreements, and technological developments seeking access to fiscal benefits.

Within 60 days of the decree’s enactment, the committee will publish detailed guidelines for applying for the incentives. Additionally, it will determine the maximum stimulus amounts available for each fiscal year and issue compliance certificates to eligible applicants.

Nearshoring: A Strategic Opportunity

Nearshoring refers to relocating business operations, such as manufacturing or services, to countries closer to a company’s primary market. For Mexico, nearshoring represents a strategic opportunity to integrate more deeply into global value chains and leverage its geographic advantages.

With a 3,152-kilometer shared border with the United States, Mexico is uniquely positioned to serve as a nearshoring hub for companies seeking proximity to North American markets. The country’s extensive transportation infrastructure, competitive labor costs, and trade agreements make it an ideal destination for businesses looking to streamline operations and reduce supply chain risks.

Broader Economic Impact

The Mexico Plan’s focus on increasing domestic content and fostering innovation is expected to have far-reaching economic implications. By integrating more local suppliers into high-value industries, the plan will stimulate job creation and enhance Mexico’s industrial capabilities. Sectors such as electricity generation, metallurgy, and paper manufacturing are also expected to benefit from the plan’s emphasis on local sourcing.

Ultimately, the Mexico Plan aims to position the country as a global leader in manufacturing and innovation. By capitalizing on its geographic location, skilled workforce, and supportive policy environment, Mexico is poised to attract significant investment and drive sustained economic growth in the years to come.