Despite budget cuts, the current administration prioritized development and investment in vital infrastructure projects for Mexico, such as NAICM and the Mexico-Toluca Interurban Train. With 2018’s presidential elections approaching, the infrastructure sector is feeling uneasy about the prospect of a radical president distorting the industry’s goalposts, given its dependency on business-friendly policies and federal budgetary strategies to promotes PPPs. In an exclusive preview of 2018’s edition, Mexico Infrastructure & Sustainability Review asked industry leaders about their outlook on the results of the election.
HOW WILL THE INDUSTRY BE IMPACTED BY 2018 PRESIDENTIAL ELECTIONS?
We feel comfortable there will be a smooth transition regardless of whoever comes to power. There are new options where third parties develop projects, the private sector absorbs most risk and public expenditure is kept to a minimum while the projects produce clean energy at competitive prices. It would be unlikely for new administrations to effect changes that could damage these options. GBM Infraestructura is prudent about the volatility stemming from the upcoming Mexican elections and the volatility we experienced throughout 2017. GBM Infraestructura is very conservative about where it identifies value and deploys capital.
Mexico has a large infrastructure gap and I believe that whoever runs in the next election will have to address the solutions to bridge it. We will see a different process. We are more democratic in the way we access information and the population is better informed. It will be more difficult for a candidate to promise that they will build an exaggerated number of hospitals without saying how. Access to information allows the population to easily discern whether or not proposals are viable. Candidates are in for a challenge in the next elections.
The government certainly provides a great deal of the infrastructure projects and it has slowed down a little recently with the upcoming elections and other political factors. However, it is time to start finding a real solution to infrastructure and the private sector should not necessarily be relying on the government for their entire pipelines. Not every project is a social-interest project, and these are the ones that should be tendered by the government. Another area of opportunity for foreign direct investment is in infrastructure for growth, such as fast-food chains, gasoline stations and small supermarkets. The government is not the player investing in these projects. When the projects generated by the Energy Reform start to take off, they will begin to move more and more away from cities. There is so much free space and the reform is a great way of generating jobs in nonurbanized areas.
Investors must ensure that their concessions are respected, regardless of how elections unfold. The solid legal framework in place helps to maintain the certainty of concessions. Most companies hold international bonds or equity stakes, especially large developers. These types of deals are protected by NAFTA, among many other free trade agreements, which is why the Canadian and Mexican governments have asked that Chapters 11 and 19 of NAFTA be respected. These chapters regulate foreign investment and the arbitration and dispute resolution when investment is not respected in a country. Mexico is among the countries with the freest trade agreements in the world and Chapters 11 and19 forms a good framework for protecting investment in concessions.
This is an exclusive preview of the 2018 edition of Mexico Infrastructure & Sustainability Review. If you want to get all the information, plus other relevant insights regarding this industry, pre-order your copy of Mexico Infrastructure & Sustainability Review.