Mexico offers Northern Ireland proven manufacturing capacity at wages one-third that of the United States and free trade privileges. Mexico also has a murder rate four times higher than the United States and there were about 8,000 truck hijackings last year.
The economy and crime have reached a sort of stalemate under President Andrés Manuel López Obrador, who will hand power to his presumptive successor, Claudia Scheinbaum, after elections on June 2. Foreign direct investment has stabilized at 2% to 3% of gross domestic product, compared with nearly 5% in Asian export powerhouse Vietnam.
“We see a lot of headlines about Mexican nearshoring, but where is that reflected in the data?” asked Sarah Glendon, senior sovereign analyst for Latin America at Columbia Threadneedle Investments.
Like the US's war on drugs, Mexico's war on drug cartels has changed tactics without success, but former President Lopez Obrador pursued a “kingpin strategy” to take down drug cartel bosses like Joaquin “El Chapo” Guzman, says Brian Phillips, a professor at Britain's University of Essex who studies the issue.
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This has led to existing criminal empires fragmenting into more fluid fiefdoms that are competing with each other and increasingly frightening the public. “Gangs now make as much money from extortion, kidnappings and truckjackings as they do from drugs,” says Ryan Berg, director of the Americas Program at the Center for Strategic and International Studies.
AMLO, as the outgoing leader is known, has reversed course with a “hugs, not bullets” policy, targeting the supposed roots of crime with increased social spending and cuts to law enforcement. It's worked politically; opinion polls show Sheinbaum on track to win in popularity as leader. But violence has only increased.
Sheinbaum herself appears to have had some success reducing crime in Mexico City, where she served as mayor from 2018 to 2023. But Phillips doubts she can scale those gains nationwide. “Mexico City is very different from the rest of the country,” Phillips says.
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Portfolio investors tend to highlight Mexico's positives: “Crime is a factor to watch in Mexico, but it's not the most important factor,” says Alejo Cherwonco, chief investment officer for emerging markets Americas at UBS Global Wealth Management. (He's more concerned about pre-election spending that has ballooned the budget deficit to 3% to 5% of GDP.)
He added that gangs are much more under control in states close to the U.S. border, where foreign investment is concentrated. “If you go to Monterrey or Nuevo Leon, you can clearly see the booming economy,” he said.
The criminal background could also represent a “competitive advantage” for Mexico's big publicly listed companies, said Malcolm Dawson, head of emerging markets strategy at Global X exchange-traded fund.
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The company, one of his top local stock picks, is able to protect cargo more effectively than independent rivals.
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Still, this is not the way to run a country when the geopolitical winds are blowing so strongly. Mexico's leadership doesn't seem to have a crime-fighting mindset right now. “Security is a top priority for both sides.” [Sheinbaum and opponent Xochitl Galvez]”But specific details are hard to come by,” Glendon said.
Perhaps as a result, Berg says, foreign direct investors will stick to the North and avoid regions where products have to make long, dangerous journeys to reach the U.S. That exacerbates regional inequalities and limits overall investment flows.
“Companies want to go to Monterrey,” he said, “because it's only a 30-minute drive from there to the border.”
