The construction sector is experiencing one of its most difficult periods, with COVID-19 still haunting companies through constant increases in material costs, high interest rates and lacking investment in infrastructure. The outlook remains uncertain as the government focuses mainly on megaprojects like AIFA, the Mayan Train and Dos Bocas. However, experts believe that the outlook could improve if Mexico takes advantage of nearshoring opportunities.
According to Ricardo Trejo, Director General, Forecastim, the construction sector’s GDP is 10 percent below the levels registered in 2019, before the COVID-19 crisis broke out. He added that the downturn trend is expected to continue with a stable 2022 and negative growth of 1 percent in 2023. “We do not see a recovery in the near term. We have a stagnated industry and potential negative indicators for next year, which make us believe that we could reach pre-pandemic levels until 2024-2025,” Trejo added.
According to Fernando Solares, President, Mexican Chamber of the Construction Industry (CMIC), due to the industry’s slowdown between August and October, year-on-year growth could only reach 2 percent in 2022. According to the Ministry of Finance (SHCP), public investment in this sector will represent 3.6 percent of the GDP, which will result in an average 2.94 percent investment for the period between 2019 and 2023. In contrast, Enrique Peña Nieto’s administration invested over 3.9 percent of the GDP in this sector, as reported by MBN.
The private sector has complained about the lack of infrastructure projects to participate in. Public-private partnerships (PPPs) had previously offered a great opportunity for both the government and the private sector. On the one hand, PPPs were said to deliver quality projects at an affordable price, providing a great source of resources on the other. Nonetheless, Mexico’s government has turned its back on these initiatives.
Industry insiders have criticized the government's position, arguing that public investment in infrastructure is essential for economic growth and social development. Regardless, most of the public infrastructure expenditure remains focused on the federal government's megaprojects.
AIFA was inaugurated on March 21, 2022. It has been highly criticized since its construction works, especially regarding access, have remained unfinished. In addition, due to AIFA’s low occupancy in flights, Mexico City International Airport’s (AICM) saturation problem has not been resolved. However, the airport is following its Master Development Program, which involves a "soft open or gradual opening, which allows the airport capacities to be in accordance with the development of air operations," said Isidoro Pastor Román, General Director, AIFA, to MBN. Pastor assured that operating at AIFA is optional to Mexican airlines, but he estimates that 45 percent of the international cargo will be moved from AICM to AIFA.
Pastor indicated that the latter airport will begin generating profits after two years of operations, approximately between December 2023 and March 2024. “Demand for passenger and cargo aviation is already reaching pre-pandemic levels and the industry is growing annually between 9-10 percent. There is not enough infrastructure in the Valley of Mexico to meet growing demand, so we are sure that additional clients will come to AIFA," Pastor told MBN.
Regarding the Mayan Train, President López Obrador said the construction continues without setbacks and assured that the project will be inaugurated in 2023. However, experts assured that none of the train’s five sections shows significant progress. Meanwhile, various civil organizations, communities, ejidos and companies have protested its development and the way the government is handling it. Consequently, the project may require more time.
Among the most recent controversies surrounding the project, five ejidos of Chetumal, Quintana Roo have opposed the Mayan Train, preventing the Xpujil section from connecting with the rest of the project. The National Fund for Tourism Promotion (FONATUR) has also said that the project struggles to purchase sufficient ballast, a key material for crossings. President López Obrador announced that the government will probably buy ballast from Cuba. However, port logistics also represents a challenge.
The Dos Bocas refinery has also presented setbacks, as it was expected to start production in 2022. Nevertheless, authorities announced that since the construction of the Dos Bocas refinery is taking longer than estimated, it will begin operations in 2023. The date has been postponed due to safety tests that are being carried out to prevent accidents. The government furthermore wants to wait for the completion of gas injection tests.
President López Obrador emphasized that the project is key to Mexico’s energy self-sufficient goal set for 2024. However, experts are skeptical, as the national refining system remains in a state of disrepair and various delays in the start of operations at the Dos Bocas refinery continue.
Despite these issues, opportunities abound for Mexico’s infrastructure industry. The country’s strategic location has allowed it to capitalize on about 80 percent of global nearshoring opportunities. “We could say we are in the fourth wave of nearshoring, which we may also call friendshoring, as this involves not only economic issues but geopolitical problems, too. However, we must be in control of this real estate niche since between 80 and 85 percent of the nearshoring opportunities are coming to Mexico," said Javier Camarena, CEO, Meor.
Carlos Serrano, Chief Economist, BBVA, noted that while many foreign companies are interested in Mexico, the lack of clean energy and incentives is slowing their arrival. Nevertheless, experts believe Mexico will remain attractive for nearshoring for at least the next five years. Market Analysis reported that at the end of 3Q22, more than 5.09 million m2 have been acquired by new companies in Mexico focused on nearshoring, 80.3 percent are Chinese companies, 14 percent are from the US, 3.9 percent from Japan and 1.8 percent from South Korea. According to Morgan Stanley and BBVA, Mexico could attract between MX$200 billion (US$10.43 billion) and MX$300 billion (US$15.65 billion) and export an additional MX$200 billion (US$10.43 billion) in the next years.