Mexico’s hopes for US may not be justified
2022.12.14 06:19
Mexico’s hopes for US may not be justified
Budrigannews.com – Companies’ concerns about energy supply, overdependence on fossil fuels, and a lack of financial incentives could stymie Mexico’s efforts to benefit from a U.S. initiative to increase semiconductor production in North America.
In September, U.S. Commerce Secretary Gina Raimondo stated that the $52.7 billion Chips Act would also provide Mexico with “significant opportunities” in the energy- and water-intensive semiconductor industry.
However, interviews with over a dozen people who are privy to investment discussions indicate that Mexico may lose out if it does not swiftly improve power transmission networks, increase access to renewable energy, and design competitive incentives.
The largest and most costly segment of the semiconductor industry, high-tech chips, are being produced in enormous facilities being constructed in the United States. Mexico, on the other hand, is focused on parts of the supply chain that are easier to access, like design, packaging, and testing.
Mexico must dispel business concerns about the availability of electricity, which were sparked by President Andres Manuel Lopez Obrador’s campaign to grant market control to Mexico’s cash-strapped, fossil-fuel-dependent national energy companies, in order to create those jobs.
Manufacturers attempting to reduce their carbon footprint have been perplexed by his pursuit of “energy sovereignty” by limiting privately funded renewable output while assisting the state-owned oil company Petroleos Mexicanos and the utility Comision Federal de Electricidad.
According to Neil Herrington, senior vice president for the Americas at the U.S. Chamber of Commerce, “Mexico’s current energy policy is severely undercutting the country’s ability to attract new investment, especially when it comes to strategic sectors such as the semiconductor industry.”
This story did not receive a response from the office of Lopez Obrador.
Semiconductors, which are utilized in telecoms, defense, automobile manufacturing, and computing, made headlines during the COVID-19 pandemic due to a lack of supply, which severely restricted global manufacturing.
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In contrast to the United States, Mexico has not yet specified the incentives it will provide to companies in order to assist North America in reducing its reliance on semiconductor hubs like Taiwan in light of the prolonged uncertainty in relations between the United States and China.
Roberto Arechederra, the economy minister of the opposition-run western state of Jalisco, whose capital Guadalajara is known as Mexico’s Silicon Valley, stated, “The government has done almost nothing on attracting investment and incentives.”
Leftist resource nationalist Lopez Obrador asserts that investor conditions are “unbeatable” and that foreign direct investment is on track for its best year in nearly a decade.
However, official data indicate that gross fixed investment remains 11% lower than when he was elected in the middle of 2018.
The Mexican semiconductor push will fail without a better power grid, according to officials, executives, and lawmakers. In January, U.S. Energy Secretary Jennifer Granholm warned that Mexico’s treatment of energy companies could impede growth.
“If you want to be a team player, you can’t do stuff like that,” said Democratic congressman Henry Cuellar, who chairs the U.S.-Mexico Interparliamentary Group. especially when you’re a part of a supply chain in North America. It’s all connected.”
Economy Minister Raquel Buenrostro stated last week that a planned business corridor in southern Mexico could become a center for semiconductor investment. Additionally, Mexico has pledged to provide nearshoring incentives by the end of February.
States like Jalisco, home to a significant Intel Corp. facility, according to minister Arechederra, are providing their own incentives in the form of tax breaks and cheap land.
According to executives, Mexico provided a significant catalyst for cooperation on semiconductors.
According to Carlos Salazar, who was the president of Mexico’s Business Coordinating Council at the time, during a trip to Washington in June 2021, U.S. Commerce chief Raimondo pitched the idea.
Following that, commitments to strengthen supply chains were made, and in August 2022, Mexico hosted a conference with companies like Intel and Skyworks Solutions (NASDAQ:) aimed at semiconductor investment. Inc, a significant employer in Mexicali, a border city.
Skyworks’ vicepresident of operations in Mexico, Josep Marce, urged the nation to seize the opportunity.
According to him, Mexico must continue to invest in energy and water infrastructure in a sustainable manner, citing client pledges to assist in the fight against global warming.
On the U.S. side of the border, industry giants like Intel and Taiwan Semiconductor Manufacturing Co. Ltd. have made multibillion-dollar investments; however, Mexico has yet to announce major projects that could supply those factories.
The head of the Mexican manufacturing export industry group Index, Luis Manuel Hernandez, stated, “The United States is thinking regionally, but Mexico is still thinking as one country.” We need to make different choices if we want to sit at the big table.”
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Tensions over energy escalated in July into a formal dispute with the United States and Canada, who claim that Mexico discriminates against their businesses.
Mexico’s government stated on Monday that it wanted the dispute resolved to encourage business investment.
According to Lopez Obrador, corrupt governments in the past rigged the energy market to benefit private interests at the expense of the state.
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In Jalisco, public energy strategy has required to be postponed seven confidential sustainable power projects – five sun oriented and two breeze – enveloping $1.1 billion in all out venture, as per figures from the state’s energy office.
Businesses, particularly automakers, are paying attention.
According to Julian Eaves of CW Bearing, a central Mexican automotive supplier owned by China, businesses want to take advantage of Mexico’s strategic location and low labor costs.
However, he stated, firms must demonstrate to customers how they will reduce global emissions in order to win new business, a goal that is hindered by government policies.
According to Eaves, CW’s director of operations and manufacturing for North America, “This is a potential golden age for Mexico.” Yet, it hasn’t advanced to meet market prerequisites.”
Francisco Fiorentini, executive vice president of industrial park developer PIMSA in Mexicali, estimated that foreign investment in the state of Baja California could have increased by up to 45 percent if government policy had not restricted power supply.
When Lopez Obrador canceled a largely completed billion-dollar Constellation Brands (NYSE:) in 2020, Mexicali served as a warning to investors. brewery after holding a referendum against the plant, arguing that it threatened the supply of water, there.
According to Hernandez of Index, another border state that is tightly integrated with the U.S. economy, Chihuahua and Baja California have lacked approximately 1.8 gigawatts of combined power supply over the past three years, making it difficult to meet demand.
According to Monica Duhem, who up until October oversaw efforts at the economy ministry to attract investment, Mexico has made progress working with academia to accelerate the training of engineers and analyzing areas where U.S. companies could convert factory floors to focus on semiconductor assembly, packaging, and testing.
She asserted that despite the president’s private assurances to businesses that investing in Mexico was worthwhile, his frequent public attacks on energy companies raised questions.
I was told by multinationals: What is your plan for moving to renewable energy? Duhem remembered.
When he was speaking with executives about investing in semiconductors in the border city of Tijuana, Foreign Minister Marcelo Ebrard stated recently that Mexico needed to invest $50 billion in order to double its capacity for renewable power by the year 2030.
He stated, “You won’t be able to export to the United States if you’re not producing with clean energy.”
