For Mexico’s Economy To Grow, Security Issues Need To Be Addressed

Until Mexico reduces the risk of cargo truck hijacking, the country is likely to miss out on billions of dollars of potential new foreign investment.

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Source: Guillermo Arias/AP.

Foreign executives looking at Mexico are constantly evaluating the country’s evolving profile of advantages and risks. If Mexico is going to capitalize on the current investment trend of nearshoring, local, state, and national leaders in Mexico will need to coordinate with industrial business chambers to effectively address Mexico’s longstanding and alarming security problems. One under-the-radar risk is the constant threat of cargo truck hijacking on Mexico’s major highways. The ongoing risk of such crime is part of the reason why the World Justice Project’s 2023 Rule of Law Index ranks Mexico at 116th overall, among the world’s worst performers. In spite of the generally high levels of violence, growing investment in Mexico’s northern states may highlight an opportunity to develop the rest of the country’s lagging economy.

In 2023, the automotive sector was a catalyst for economic growth in Mexico. The country’s economy expanded by around 3.2 percent in 2023, driven in part by continued expansion of its well-developed automotive manufacturing sector. During the first nine months of 2023, car manufacturing totaled 2.85 million units, up 13.5 percent (year-on-year) from 2022.  

The top seven states in terms of total foreign direct investment in 2022 were all traditional manufacturing and business hubs with strong urban economies: Mexico City, Nuevo Leon, Jalisco, Mexico State, Baja California, Chihuahua, and Guanajuato. The recent boom in nearshoring investment—as executives at foreign companies look to diversify their supply chains away from China and move manufacturing closer to the U.S.—has tended to favor existing industrial hubs in northern Mexico. While proximity and ease of access to the U.S. are certainly a major advantage for the north, the security risks affecting highways in central and southern Mexico have also discouraged investors from moving too far from the border.

Cargo truck hijacking is a major risk for logistics companies in many rural regions of central and southern Mexico. Criminal groups in Mexico are using sophisticated technology, including GPS jammers and techniques such as creating fake police checkpoints to stop trucks, provoking roadway accidents to stop vehicles, and, in many cases, using gunmen in passenger vehicles to force cargo truck drivers to stop. In many incidents, criminals temporarily kidnap drivers along with the trucks.  

These types of hijackings are a constant concern on the highways near Mexico City. More broadly, violent crime is a major risk factor that foreign companies in Mexico need to understand. According to the Citizen Council for Public Security and Criminal Justice, a Mexican NGO that tracks violence per capita around the world, in 2023, half of the world’s top ten most violent cities were in Mexico. In 2022, the five most violent cities in Mexico recorded a total of 6,217 murders, and the term of Mexico’s controversial populist president, Andres Manuel Lopez Obrador, bears the dubious distinction of being the most violent sexenio (the term of office of Mexico’s president) in modern Mexican history.

According to data published by Mexico’s federal government that was compiled and analyzed by Reliance Partners, during the first nine months of 2023, Mexico reported 6,030 hijackings, up over 8 percent from 5,578 during the same period of 2022. Mexico’s largest industrial business chamber, CONCAMIN, calculates that cargo hijacking imposes annual costs of up to 5 percent of GDP on companies in the country’s private sector. Overall, according to the Mexico Cargo Hijacking Data Portal, 85.5 percent of hijackings recorded during the first nine months of 2023 took place in 3 states: Mexico State, Puebla, and Michoacan. 

All of these states are in the central/southern region of Mexico, near Mexico City, a relatively long distance from the U.S. border. By contrast, just 1 percent of all hijackings occurred in Mexico’s northern border states during the same period. The southern state of Oaxaca, one of Mexico’s least industrialized states, saw a 110 percent jump in cargo hijackings during the first nine months of 2023. Tellingly, eight out of the ten states that received the lowest levels of foreign direct investment are in Mexico’s under-developed south. States that are largely missing out on the influx of foreign capital include Tabasco, Veracruz, and Oaxaca.

Executives looking at the nearshoring trend in Mexico and considering investing in manufacturing and logistics operations in Mexico also have to consider the different levels of risk in northern and southern Mexico.

Until Mexico’s police are capable of improving highway security in its central and southern regions, it’s likely that most nearshoring investment will continue to flow towards states in the north that have better security schemes, and, therefore, that do a better job of protecting cargo trucks from hijackers. More broadly, however, until Mexico reduces the risk of cargo truck hijacking, the country is likely to miss out on billions of dollars of potential new foreign investment.

 

Mark E. Vickers is a leading expert in trade and risk management between the United States and Mexico. Mark is the founder of Borderless Coverage and currently serves Reliance Partners as their Executive Vice President and Head of International Logistics. 

Global Americans takes pride in serving as a platform that offers in-depth analyses on various political, economic, environmental, and foreign affairs issues in the Western Hemisphere. The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the views of Global Americans or anyone associated with it, and publication by Global Americans does not constitute an endorsement of all or any part of the views expressed. 

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