Government Coordination Stabilizes IndustryThu, 01/11/2018 - 10:08
Q: What subsectors within the infrastructure industry should be given priority by the next administration?
A: The first project that must be carried out is long-term urban planning to cater to city growth. San Luis Potosi’s capital grew based on its industrial zone, but without considering logistics. We must map our growth for up to 30 years with the goal of solving city mobility problems. For example, the San Luis Potosi state government has begun a project to connect the city’s Periférico ring road to alleviate its mobility struggles. The planned investment in 2018 is MXN$1.7 billion and MXN$5.1 billion over the next three years.
CMIC’s role in bringing about the construction of better infrastructure starts by monitoring the three levels of government and encouraging incoming administrations to finish the projects started by the prior one. This highly depends on the relationship between the federal and state parties in power. Differences between political parties should not be reflected in the agenda and yet this has significantly affected the country. For example, if the party ruling a state differs from the federal party, it is likely that the state will have less economic support. This is echoed in PPPs, as private investors need guarantees that their investment will be paid.
Q: What regulations and policies should be improved to boost the country’s infrastructure development?
A: I think Mexican politics have eroded as the existing laws are encouraging corruption and theft of public resources. We lack reliability and legal certainty. Those in a position of political power should have clean backgrounds. This may seem utopic, but we have to have unity and we must build an agreement between our political parties and our representatives so they can govern collaboratively. Federal, state and municipal governments, senators, local and federal congress must be united to secure the investments that each city needs to carry out its infrastructure projects and provide certainty to PPPs. This unity will also give foreign investors the confidence they need place their investments in Mexico.
Q: How are the increasing prices for cement and steel impacting San Luis Potosi’s construction industry?
A: This has had a negative impact on the generation of public and private construction projects. This is especially true for cement because it is one of the major inputs for various materials involved in construction. Excessive increases that are not in line with the inflation rate of the country cause a stagnation in large-scale projects because these materials may represent up to 40 percent of the project’s budget. Ultimately, it is the final consumer that pays these costs.
We had a disagreement with CEMEX in 2017 that was rooted in the significant rise of cement prices. If CEMEX increases prices other suppliers are likely to do the same because it is a key player in the cement producer market. This significant rise meant many businesses started seeking to import cement alternatives. Foreign companies can help the market become more competitive, but they need to organize their distribution chain first to be able to serve the market. Ultimately, we resolved our differences with CEMEX and it is likely that cement prices will not increase significantly.
Regarding the impact of cement and steel prices on the development of infrastructure, there is an agreement between the Ministry of Economy and the president’s office to keep commodity prices steady and avoid a negative macroeconomic impact. Price fluctuations have a direct impact on tender costs of constructions and in the bidding presentation. If a project were won based on a specific budget and then the price of materials went up significantly, the builders would have to apply for an adjustment of costs to absorb the increases. In the case of developers of social housing, adjustments could not be made to projects in process, because by increasing the costs the price of the property exceeds the affordable level for the target demographic. This means these developers must absorb this difference. They can either see diminished profits or cut variable costs.