2017 was a busy year for the infrastructure sector in Mexico. Many key projects successfully moved ahead, while others failed. Overall, 2018 starts in the wake of a year characterized by a boom in construction, a decrease in funding –as contradictory as that may sound—, and a compromised rule of law.
Forbes Mexico interviewed Ignacio García, Leader Partner for Infrastructure Consulting at KPGM, and analyzed the behavior of the infrastructure sector over 2017. Likewise, BNamericas spoke to Edmundo Gamas, Executive Director of the Mexican Infrastructure Development Institute (IMEXDI), for his perspective. Together, both testimonies narrate the good, the bad and the ugly features of the Mexican infrastructure sector during the recently-concluded year and outline some of the challenges this industry will face during 2018.
The boom in road construction: According Arturo Solís, writing for Forbes, the current administration has completed 85 percent of its infrastructure plan, with 80 roads and 50 highways. But according to Gamas, the strategic planning of the road projects has been more important than the volume. “Investments in special economic zones are still developing, as well as east-west road and rail corridors from and not just north-south, which I think will be very positive,” he explains.
A boost in maritime ports development: The election of President Trump in the US and his anti-Mexico rhetoric forced the country to shift its focus from its northern neighbor and look to diversify in trade. This could have been a blessing in disguise, says Gamas. “For many years the infrastructure focus was centered on trade with the US. Nowadays, both the Mexican government and the business sector are becoming more aware of the importance of improving the country’s ability to trade with Asia and Europe. This means we’ll start seeing more investments in ports,” says Gamas.
As stated in the Forbes article, the overall capacity of Mexico’s ports has increased from 500 million tons in 2012 to 500 million tons in 2017. Ports like Lázaro Cárdenas in Michoacan and Guaymas in Sonora are some examples of successful cases in this field.
A bet on mega-projects: The New Airport of Mexico City (NAICM), the winning of the competition for Hyperloop One with the MexLoop project and the Red Compartida are just a few examples of the main mega-projects undertaken in the country during 2017.
Decrease in the budget for infrastructure investment: Infrastructure spending between January and November 2017 fell 34 percent compared to the same period in 2016. García acknowledges that the government is failing to consolidate several projects, especially in water infrastructure.
Lagging water infrastructure: “The biggest lags are in two areas: water and sanitation,” says García. Investment in potable water and sewage fell 51 percent during the first 10 months of 2017 compared to the same period in 2016.
Elections and speculation: The mid-year presidential elections and NAFTA’s renegotiation roused speculation about the political and economic future of the country. Market speculation is a key driver of decreasing investment, which could potentially jeopardize the funding for several infrastructure projects. “The uncertainty we faced at the beginning of this year meant some of the projects were canceled, while others were put on stand-by,” says IMEXDI’s Executive Director.
Questioning of the Mexican Rule of Law: Corruption in the country has led to a question mark over the rule of law in the country, which according to García, hinders infrastructure development. Likewise, the increasing lack of security (Mexico closed the year with the worst homicide rate in over 20 years) negatively echoes in the sector. “The rule of law impacts the cost and quality of infrastructure, and this is one of the key challenges for the sector,” says García. Moreover, Gamas explains how lack of transparency has much further-reaching effects than just the infrastructure sector. “Rather than halting the development of the infrastructure sector, corruption has led to a loss of public trust in how the government spends taxpayers’ money,” he says.
The new year brings new challenges. Despite the improvement made in 2017, the experts believe there are still significant investment needs. “More resources are needed in the coming years, either from the government or through PPPs,” states Gamas. What is certain, according to García, is that a growing population requires more infrastructure and more money to maintain it. Only time will tell how 2018’s performs in standing up to these challenges.