Venture Capital in the Mexican moment: an investment strategy

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In the last decade, analysts and economists have pointed out the country’s potential to become one of Latin America's most important emerging economies. With the country’s economic growth of 3.2% annually in 2023according to the INEGI’s Estimación Oportuna del PIB,INEGI)and the rise of Nearshoringwe are in a new Mexican MomentAccording to analysts and specialists of the industry in the region this economic phenomenon is attracting global attentioncreating promising forecasts for investors.

The economic and financial context of the country makes it one of the leaders in the region in attracting investment, which leads various players in the private equity industry to consider it as a strategy to boost market expansion.

For specialists and economists, one of the factors that encourage the Mexican Moment is the advantage created by the Nearshoring and for this, the country must anticipate the needs of this sector and thus gain leadership within this trend.  

In this regard, Paulina Anciola, sub-director of research and macroeconomic analysis at Citibanamex, in an interview, reiterated the potential that the Mexican economy has with its peers in North America. 

“This trend is starting to yield results. The country has been the main exporter to the United States for four months and has a 15% market share, exceeding China and Canada”. 

Paulina Anciola, sub-director of research and macroeconomic analysis at Citibanamex. 

The subdirector of research and macroeconomic analysis notes thatin addition Nearshoring, industries such as manufacturing, financial services, mining, non-residential construction, temporary housing services, and transportationare experiencing growth making the country an attractive destination for investors. 

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 What is the Mexican Moment?

The Mexican Moment refers to a period of significant economic growth in the country, which attracts international attention and generates opportunities for both local and foreign investors.

It is seen as a window of opportunity to promote the country’s economic and social development, as well as to encourage investment and innovation.

This term emerged in 2012. The term “Mexican Moment” was coined by The Economist, to describe the belief that Mexico was experiencing a favorable moment to take advantage of its economic potential and achieve greater development. The reforms implemented in that year, such as the energy, education, telecommunications, and financial reforms, were expected to generate greater economic growth, more employment, and greater well-being for the population.

However, not all the potential was realized as expected to begin positioning Mexico as a global power., como la reforma energética, educativa, la de telecomunicaciones y la financiera, generaran un mayor crecimiento económico, más empleo y un mayor bienestar para la población. Sin embargo, no se sacó todo el potencial, como se esperaba, para comenzar a posicionar a México como una potencia.

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Strategic conditions for investing in Mexico

Investment grew by 20% in the last year, reaching a historic high since 1993. This is related to the strength of the currency and the growth in exports, as Paulina Anciola explains. Paulina Anciola

Despite Mexico’s expected economic slowdown this year, indicators such as a strong labor market, opportunities for innovation in supply chains, and domestic consumption demonstrate the resilience of the economy and a positive trend toward investment.  

Additionally, according to the Organization for Economic Cooperation and Development (OECD) 2023 Economic outlook report, private investment will be significantly benefited with a projected inflation decrease to 3.9% this year and 3.2% in 2025..  

“The development of Nearshoring and investments in this industry are expected to lead to much higher growth in the next 5 years than what has been seen in recent years” 

Paulina Anciola, sub-director of research and macroeconomic analysis at Citibanamex.

A growing economy

Investors seek stable and predictable environments with adequate infrastructure for transportation and business communication. Mexico’s growing economy and unique characteristics make it an attractive investment destination. 

The country is currently experiencing moderate growth, as indicated by Mexico’s National Growth Stoplight. Although certain economic indicators are growing, there are still challenges to achieving sustainable growth.

Mexico requires a growth strategy that strengthens the domestic market through investment and a robust labor force, while also prioritizing social impact initiatives. As an investor, it is crucial to remain aware of the challenges confronting the Mexican economy to assess potential mitigation strategies. 

According to Paulina Anciola, the subdirector of macroeconomic research and analysis at Citibanamex several factors impact economic activity. 

Factors that impact economic activity 

  • High global inflation is caused by the various post-pandemic conflicts and the economic and political circumstances of each country or region.
  • Adjustment in financial conditions. Most central banks raised interest rates to address inflation above their targets.

Factors in favor of economic activity

  • Geographic position,and proximity to the United States, position us as the main option for building supply chains.
  • Favorable climates for the development of renewable energy projects.
  • Low costs investors in human capital. 
  • High rates of young and specialized population. 

The expert specifies that the sectors that drive the country's economic growth are: 

Thanks to its strategic geographic location, Mexico has become a crucial reference point for both Latin America and the United States, serving as a fundamental bridge for trade and economic cooperation in the region. Additionally, Mexico has established many trade agreements that reinforce its role as a center of commercial exchange in the region.

On the one hand, Mexico is a party to the Treaty between Mexico, the United States, and Canada (T-MEC), which replaced the previous North American Free Trade Agreement (NAFTA). This agreement, which came into force in July 2020, promotes economic integration and trade facilitation among the three countries, strengthening commercial ties in the North American region. 

On the other hand, Mexico has established trade agreements with countries in Latin America, as well as with other important trading partners around the world, including the European Union. These agreements promote trade and economic cooperation, consolidating Mexico's position as a key player in the regional and international economic landscape.

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Mexico's strengths to attract Venture Capital

This time is ideal for investors to focus on innovation. Nearshoring Nearshoring presents an opportunity to fully realize Mexico's potential as an investment destination.

However, in addition to Nearshoring, existen otros other innovative and technology-driven sectors are promoting the entrepreneurial ecosystem, mainly through the Venture Capital industry. 

These sectors include fintech, e-commerce, agrotech, and foodtech.They represent unique opportunities for investors seeking to invest in the future and be part of Mexico's growth and transformation.

The value of Venture Capital investment in Mexico has been instrumental in boosting the country's economy in recent years. According to TTR's report “A new take-off for Venture Capital in Mexico and LATAM”, capital raised in the last year amounted to 13.4 billion dollars Latin America is a leader in the industry, with Mexico being. the second most important country in the region 

También puedes descargar nuestro e–book Sectores prometedores para invertir con Venture Capital de cara a 2024

Investing in the Mexican Moment

Investing in the Mexican Moment offers an exciting opportunity to capitalize on Mexico's growth and innovation. The country has several strengths that make it an attractive destination for venture capitalists. These are the country's strengths:

  • Sustained economic growth
  • Strategic location
  • Growing technology ecosystem
  • Favorable trade agreements

Going forward, the country's actions and strategies will be fundamental to encourage private capital investment. 

Mexico offers a favorable environment for investment and business growth; therefore, creating a scenario that generates confidence among industry players and international investors will be fundamental to detonating strategic sectors that drive sustained growth.

WORTEV CAPITAL is an impact venture capital fund dedicated to stimulating business growth in Mexico. Our goal is to create an ecosystem for investors and entrepreneurs that generates a positive social and economic impact.

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México ofrece un entorno propicio para la inversión, por ello, un escenario que genere confianza es fundamental.

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