Downturns Part of an Evolving Process

Q: How has the Energy Reform accelerated or deaccelerated infrastructure development?

A: The market was hoping the sector would accelerate quickly but it did not predict the period of adjustment the drastic changes brought on by the reforms would require. The drop in oil prices is an additional bump in the road. As a builder, we realize that downturns are part of the process and the situation will eventually improve.

The sector has gone through an evolution. We used to offer PEMEX 50 percent of our proposals and now it only encompasses 20, with the rest allocated to private companies. The shift is part of an open sector in which more players are entering. Local businesses need to take advantage of this new phase and actively seek contact with international companies. The market is looking for cyclical sectors to mitigate the risk of bear market conditions. For instance, if the oil sector is falling, our projects in the rising infrastructure market can balance the workload.

Q: What infrastructure is the company betting on?

A: We have an appetite for PPP projects as we are experts in putting together complex projects and financial structures. Arendal is using its strengths to approach and execute projects. The company is sending proposals to hospitals and the New Mexico City International Airport (NAICM). The megaproject requires world-class international firms with expertise because it is the biggest airport in Mexico’s history. Our company can participate by sharing local knowledge with foreign companies that are not familiar with the Mexican context. NAICM truly is impacting the country because it shows the government’s commitment to create intelligent bidding rounds.

PPPs are a necessity here because many sectors are demanding more social infrastructure that the government cannot afford to provide. The main challenge is to gain a foothold in the market because some companies already have a strong position in certain sectors due to the length of time they have worked in the industry. We need to convince the existing market that we want to play fair, add value to the sector and complement its abilities.

Q: How does Arendal work with PPPs in infrastructure?

A: Development has two main pillars, technical and financial. On the technical side, we make sure we do not jump into a project unless we have the right expertise or can find a partner to fill any knowledge gap we may have. To finish building a hospital, we partnered with technical experts who had experience operating hospitals in South and Central America. Their expertise ensured the project’s success because they bridged the gaps in our construction knowledge.

On the financial side, Arendal provides liquidity to the market and looks for operators with the right expertise and reputation for delivering solutions and projects to the final client. We are closely connected to this community and can provide case-by-case solutions for different types of projects. Arendal ensures the money flows to the project and that it is executed efficiently.

Q: How does Arendal see the market evolving and what challenges lie ahead?

A: The main challenge is dealing with the landscape roller coaster. As seen in previous crises, the economy suffered and employment dropped. The funny thing is that during the recovery, Wall Street won back its previous position but employment levels continued to languish. The phenomenon implies that companies found strategies to become more productive with fewer employees. Higher productivity means a change in mentality and processes. Our next step is to maintain the same margins and to do more with less. That does not necessarily mean having fewer employees but producing more without increasing expenses. Productivity in Mexico is relatively low in comparison to other countries and the economic landscape is forcing companies to reduce costs and somehow manage to maintain their levels of productivity. We envision the Mexican market will become increasingly efficient.