MEXICO CITY: Mexico must ramp up investment in the semiconductor industry in the next two years in order to avoid losing ground to competitor countries, with guarantees needed that companies will have sufficient water and energy, says a top US aid official in Mexico.

States in northern and central Mexico that already have electronics production are best equipped to receive new investment in the sector in the short-term, with Mexico positioned to participate in the lower-cost area of the production chain, including testing and assembly, said Jene Thomas, USAID’s director of Mission in Mexico.

Last week, US Secretary of State Antony Blinken met with counterparts from nations, including Mexico, to push for Latin America to boost its role in the industry.

“The competition is on, that’s what’s happening and nearshoring isn’t just about Mexico.

“Costa Rica and Panama are also very close to the United States and have similar development and experience that allows them to be competitive in this market,” Thomas said.

Additionally, countries in Asia are focused on taking advantage of the global interest in diversification of supply sources, “which is why we keep talking about two years because we’re seeing countries move quickly”.

A roadmap presented by the US Agency for International Development and the United States-Mexico Foundation for Science (Fumec), suggested that Mexican states could cut down on the US$30.94bil in semiconductors the country imported in 2022 mainly from Asia.

States such as Baja California and Jalisco could expand their participation to parts of the process such as basic and intermediate chip design, though output is expected to be concentrated in the United States.

Building out the packaging, assembly and testing processes in which Mexico has room to grow in the near-term is expected to require investment in the range of US$2mil to US$5mil per firm to start, said Fumec executive director Eugenio Marin.

In recent years, President Joe Biden’s administration has sought to increase chip manufacturing and compete with Chinese players.

Nearshoring, the process by which firms have relocated closer to US consumers to try to avoid supply chain disruptions, has been touted as a source of potential investment in Mexico.

A portion of the US CHIPS Act’s funding for academic initiatives could be used to train both Mexican students and professors, Thomas said.

“The money’s there. What we need to see is the government taking action, and that’s why we have six states that are already pretty advanced in the enabling environment. Semiconductors are one component of nearshoring.

“So we need to see more investments by the states and cities in water and energy production.

“Fortunately, Mexico has a lot of sun, so there’s a lot of opportunity.”

 - Bloomberg