Mexican President Andres Manuel Lopez Obrador recently announced at a breakfast meeting with top American and Mexican executives the news that US companies are about to invest $40 Billion into the Mexican market, causing quite a stir among local and foreign entrepreneurs, with many offering vocal opinions as to the effect this news might have not just for local businesses, but for the prosperity of the country as a whole.
How will this affect the Mexican economy moving forward? What prospects can American investors hoping to enter the Mexican market expect? What do the Mexican and US governments hope to achieve by this? How will this affect local businesses and workers?
Will this quell the current uncertainty in the Mexican economy?
It must be said that Mexico’s economic outlook for the second half of 2022 isn’t looking too good at the moment. Domestic demand is weakening and the country continues to struggle along with the rest of the world with the effects of the pandemic and the Russia-Ukraine conflict, as well as the persistent problem of job insecurity and rising inflation.
This is not to say that the Mexican economy is bleak, far from it. After all, Mexico and the US continue to be close trading partners as proven by this recent investment agreement between President Obrador and President Biden, however current conditions have given rise to uncertainty and insecurity among American businesses looking to open their doors on Mexican soil. Will market conditions lead to profitable opportunities or investment failure?
The $40B investment from the US may just be what is needed to stabilize the current Mexican market. President Biden himself posted a comment regarding this matter on his Twitter account, saying that “It was my pleasure to sit down with President López Obrador and discuss the broad and deep partnership between our nations.”
According to Mexican officials, this is definitely good news. It is expected that pending US projects in Mexico will soon be completed between now and 2024, and there will also be plenty of time to welcome more American investors and business owners into the country, helping to stimulate the Mexican economy, create jobs, and ultimately give rise to more economic opportunities.
It is expected to reduce import dependency
Well-known Mexican billionaire magnate Carlos Slim was also present at the breakfast event, telling reporters that “The president’s position was very positive in this sense, of needing to facilitate foreign and Mexican investment”.
Overall, it is expected that the billions of dollars of investment from the United States will help Mexico reduce its dependency on imports.
By further integrating and invigorating Mexican-American trade, people hope for the further development of local and foreign-owned manufacturing companies’ ability to source and create local products, thereby reducing Mexico’s overall expenses on importing crucial goods for its people.
The expectation is for current market prices to stabilize and ultimately fall, which will be beneficial for both consumers and entrepreneurs.
Encourage private consumption
Another positive effect that economic experts and business people hope to see from this timely $40B investment is an increase in private consumption. It’s hoped that an increase in consumer demand might offer the kind of stimulation the economy needs.
Local demand for goods is currently on a downward trend within Mexico, meaning people are tightening their budgets and limiting their spending. This is of course not a good situation for domestic businesses to have to deal with, and is a discouraging sign for business owners and investors. Who will buy their products or avail of their services if the people are cutting back on their spending?
But with the huge flow of money from the US into Mexico, it is expected that more jobs will be created and additional sources of income will flourish, and that increase in consumer spending should offer businesses hit by recent global events the shot in the arm they need to recover fully.
Timely support for disrupted global value chains
The overall deceleration of economies around the globe has led to disrupted supply and value chains. Due to the problems with logistics, security and health concerns are on the rise, and higher inflation means businesses are forced to spend more (and sometimes even lose money) just to solve these issues.
If a large amount of investment capital from the US is indeed on the horizon, the Mexican market will have more robust options at hand to help domestic businesses solve these supply-chain bottlenecks. Some of that money can also be used to fund improved channels for the flow of goods as well as optimize trading processes in a way that will help both countries satisfy their current economic needs.
Optimism is high
Overall, the news of this investment has been received positively by industry figures at all levels of industry. Both the US and Mexico are looking forward to maintaining their positive trading relationship, and optimism is running high as the plan should help both countries stimulate their economies during turbulent times.
American investors and entrepreneurs who are looking to open businesses or manufacturing arms in Mexico should have a very positive outlook for any future ventures.
