Mexico's ambitious development plans
On taking office in 2006, the incumbent Mexican government promised “six years of infrastructure.” With the completion of 75 per cent of an ambitious 300-project, US$188bn national infrastructure plan, Mexico’s infrastructure sector is surging ahead.
July 19th, 2012
The National Infrastructure Plan (NIP) is the first in Mexican history to span all infrastructure sectors from water and highways to ports, railways, airports and public transport. “That this is the administration of infrastructure is clear for everyone to see,” said Dionisio Perez-Jacome, Secretary of Communications and Transport.
From small rural paving projects to the construction of the highest cable-stayed bridge in the world, large numbers of infrastructure projects are being carried out in varying scales across the whole country. While there has been marked progress in each of the NIP’s sub-sectors, highway development is considered to be the most successful, having exceeded the targets set out in the plan. Some 21,000km of highways will be built by year-end, the largest spurt for many years.
Funding for the infrastructure boom has come from varied sources. Infrastructure spending in Mexico has risen from 3 per cent to 5 per cent of GDP over the past six years. Crucially, Mexico has managed to attract significant levels of private investment from both local and foreign sources. In 2011 alone, the private sector invested US$1.57bn in infrastructure development. While this includes heavy local participation from companies such as ICA and OMA, foreign companies have also taken advantage of the large investment opportunities.
Mexico has managed to attract some heavyweight funds to participate in the construction boom, with Australia’s Macquarie Mexican Infrastructure Fund setting up shop in January 2010. With an initial commitment of US$5.2bn, the fund plans to invest up to US$10bn in Mexican infrastructure over the next five years. Closer to home, Goldman Sachs Infrastructure Partners participated in Mexico’s largest infrastructure financing to date, the Farac 1 highways re-concession project.
While private capital has been significant, public funds have been the main driver of infrastructure development. The national infrastructure fund (Fonadin), under the auspices of national development bank Banobras, has committed US$8.5bn across 88 projects since its creation in 2008, ensuring that flagship projects remained afloat despite credit restrictions in the commercial banking sector.
Amendments to local pension fund management laws have provided the final piece in the financing puzzle. Fund managers are now allowed to invest in development capital bonds on the Mexican stock exchange. To date there have been 15 listings, raising US$3bn, half of which has been used to fund infrastructure projects.
So what’s next for the infrastructure sector? While president of the Mexican Chamber for the Construction Industry (CMIC) Luis Zarate says, “there is no city, regardless of size, without construction projects”, Federico Martinez of construction group Tradeco notes, “there is still a lot to be done.” Construction of a second airport in Mexico City is just one of the projects requiring urgent attention over the coming years. Last year, the College of Civil Engineers (CICM) estimated that US$400bn would need to be spent on infrastructure in the next six years. CMIC has also put together a comprehensive infrastructure agenda for the incoming government. Aside from an ambitious goal to increase infrastructure spending to 8 per cent of GDP, the general message is, more of the same please.
“The Durango-Mazatlan highway builds on Mexico’s geographic location to make it an international logistics platform in terms of distance savings and productivity.”
The National Infrastructure Programme has been one of the key cornerstones for Mexico’s government during the last 6 years. Dionisio Perez Jacome, Secretary of Communications and Transport, was appointed in January 2011 to oversee the final years of the programme and the completion of several mega projects.