Economics: New stimulus measures for export-oriented companies could fall short of the need to more fully exploit nearshoring

MEXICO - Report 24 Oct 2023 by Mauricio Gonzalez and Francisco González

The Federal Government published a decree on October 11 awarding fiscal stimulus to 10 key sectors of the country’s export industry, consisting of immediate deductions of investments in new fixed assets during the remainder of 2023 and throughout 2024. This measure seeks to promote investment and growth in specific export sectors in the context of nearshoring and as a response to the multiple complaints that the government has not done enough to take fuller advantage of the economic development opportunities that this phenomenon offers Mexico.

However, it is not clear that the tax mechanisms awarded in the decree can be effective in promoting investment that would not otherwise have occurred, and they may well pose the risk of sparking non-conformity procedures within the USMCA, given the conditions the decree stipulates for authorizing exporting companies in specific sectors to accelerate income tax deductions. Likewise, the decree does not address the main obstacles to greater investment in the context of nearshoring, such as the government’s energy policies that discourage the production of clean energy, the low quality of the country’s transportation infrastructure, and problems with compliance with the rule of law.

In this report we analyze the implications of the decree and the recent performance of the economic sectors to which it applies. Regarding last week's economic news, retail trade registered 3.2% annual growth in August 2023 and an accumulated increase of 4.5% in the January-August period.

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