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Mexico's nearshoring poster child Nuevo León records collapse in electricity FDI

Bnamericas
Mexico's nearshoring poster child Nuevo León records collapse in electricity FDI

The northern Mexican state of Nuevo León, which is at the heart of the country's nearshoring boom, has experienced a dramatic fall in foreign investment in the electricity sector, according to a report from think tank México Evalúa.

Foreign direct investment (FDI) in electricity decreased by 68% to US$46 million in 2022 from US$208mn in 2016. FDI in the sector fell a further US$38mn in 2023, a figure which the report said may even include divestments by foreign investors.

At the same time as FDI falls in the Mexican power sector, major nearshoring investments by multinationals such as Kia Motors and John Deere are driving up electricity demand across the state.

Power demand will rise 51.9% by 2026, according to data provided to México Evalúa by the Nuevo León renewable energy agency.

The period of falling FDI in the electricity sector largely coincides with the administration of outgoing Mexican President Andrés Manuel López Obrador (AMLO), who took office in 2018. 

AMLO's government has prioritized the role of state-owned utility CFE, cancelled renewable power auctions, and delayed the award of grid connections and other permits needed by private developers.

While FDI has fallen, the federal government has increased spending in Nuevo León's energy sector. Federal investment in energy rose from just 0.34% of the government's investments in Nuevo León in 2016 to 15.8% in 2023, México Evalúa said. Most of that spending was allocated to CFE and gas pipeline operator Cenagas.

The report said that the government has not invested enough in Nuevo Leon's electricity grid to entice foreign power companies back to the sector.

"The lack of public investment in infrastructure which is the exclusive responsibility of the state, such as transmission lines and distribution ... has had a negative impact on attracting FDI in electricity," it added.


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