For decades Mexico’s the three most potent cards that the country has had to play when attracting foreign direct investment in manufacturing plant and equipment to its territory have been its competitively priced labor, its geographical proximity to the largest consumer market in the world and the tariff and duty benefits that it enjoys as being one of the NAFTA region’s signatory countries. Although there have been a battery of strategically significant reforms that have been devised, passed and implemented over the last several years, the one that seems to be having the most immediate and positive effect on the nation’s fortunes has to do with the electricity rates for manufacturers in Mexico.
Increasingly competitive electricity rates make Mexico even more attractive of a location
According to Duncan Wood, director of the Mexico Institute at Princeton University’s Wilson Center, “Probably, of all the energy reforms that have been passed, the changes in the electricity sector are going to be the most helpful to Mexican productivity and competitiveness.” Additionally, Wood also pointed out in his comments that “When you come to the electricity sector, peak rates for industrial consumers were sometimes 120 to 130 percent higher than what their counterparts in the United States were paying.” More competitive electricity rates for manufacturers in Mexico has become another card that the country has added to its economic deck.
The progress that has been made towards offering cheaper electricity rates for manufacturers in Mexico has had an impact on large investment decisions that have recently been made by companies to sink large sums of foreign direct investment money in the country. Among these companies are BMW, Nissan and Daimler, Ford and Audi. In late 2014, BMW announced that it had chosen Mexico as the country in which to build a new $1 billion dollar automotive production facility to service North America. That will come online in 2019, while Nissan and Daimler made the decision to team up to build a shared $1 billion Mexican manufacturing facility, as well. Last year both Ford and Audi decided to build automotive manufacturing facilities in Mexico, and, since these decisions were made, The head of Mexico’s national electrical utility (CFE), Enrique Ochoa Reza, announced that, between March of 2014 and March of the present year, electricity rates for manufacturers in Mexico dropped in a range of between 18 to 26 percent for industrial users nationwide.
Access to plentiful and attractively priced US natural gas has been a factor in rate declines
Cheaper electricity rates for manufacturers in Mexico have largely resulted from the country’s proactive moves to change much of the nation’s power-producing infrastructure to natural gas technology in order to capitalize on the import of plentiful, advantageously priced supplies of that resource from the United States. Although, at the time of the enactment of the reforms, oil prices were up to four times that of national gas, natural gas still maintains a 2 to 1 price advantage. Both Mexican officials and foreign manufacturers are optimistic in a continuance of the movement toward cheaper electricity rates for manufacturers in Mexico. It is anticipated that this trend will continue in a significant way as more capital, both foreign and domestic, is invested in the extraction of domestic natural and shale gas.