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Analysis

Transparency Needed to Build the Future

Wed, 11/01/2017 - 14:03

Boosting the development of the Mexican infrastructure industry will take time, but steps must be taken now to ensure a prosperous future. Players are aware of the main factors that are weighing on the industry and what must happen to bridge the country’s infrastructure gap. But the question is: how will it be done?

Transparency continues to be the biggest concern not only for construction companies, but all participants across the infrastructure value chain. From lack of transparency stems project continuity and land acquisition issues, which are the main hurdles the sector encounters when trying to complete an infrastructure project.

WEF estimates that 10-30 percent of the value of the global construction industry is lost through corruption and approximately the same amount is lost by mismanagement and inefficiency. According to the organization, in any country, infrastructure is the sector that is the most impacted by corruption and transparency issues because of the uniqueness of each project, complex transaction chains and the scale of the investments. According to the Transparency International Corruption Perception Index, Mexico is one of the least transparent countries with a rank of 123 of 176 countries.

According to the OECD’s Partnering Against Corruption Initiative – Infrastructure and Urban Development study, the top-ranking forms of corruption experienced by the private sector in Mexico are bribery, facilitation payments and conflict of interest, while nepotism, bribery and conflict of interest are experienced in the public sector. This study says that 71 percent of the private sector has a low to moderately low level of trust in the public sector, a big change from 10 years ago, when the number was closer to 58 percent. The study says 84 percent of the private sector stakeholders are likely to engage in corrupt practices.

TRANSPARENCY EQUALS CONTINUITY

Any new administration wants to prove itself with a prolific infrastructure project and Peña Nieto’s government is no exception, with its iconic NAICM airport. But issues arise when political terms change, as in Mexico any uncompleted infrastructure project from the previous administration is unlikely to be continued. “I believe there is a lack of continuity, and we have not yet managed to accomplish a long-term vision across different governmental administrations in Mexico,” says Diana Munozcaño, Chief Investment Officer at Grupo Indi. “In the end, we have projects on hold for several years until somebody restarts work on them.”

Likewise, Francisco Ibáñez, Capital Projects and Infrastructure Leader at PwC says, “A new administration is a risk to developers because authorities with a different vision may prevent the continuation of important public projects. This creates a cycle of projects with a short-term vision as it is difficult to ensure the long-term continuity among rotating administrations.”

AN EXAMPLE TO FOLLOW

The plan to construct NAICM first took root in 2001 with then- President Vicente Fox, who began the expropriation of land. But it was not until Peña Nieto’s term that the construction actually began. Fox, the subsequent President Felipe Calderon and Peña Nieto each had their own plan for the megaproject, from architectural design to the financial scheme.

Eighteen years later, AICM is about to buckle under the weight of the country’s demand. For the 2018 elections, the construction sector is worried that the project could be canceled and all of its investment could be lost. Because this has happened before, GACM and SCT have shielded the project through its financial scheme to ensure continuity through presidential terms. “Almost 80 percent of the project’s budget will be allocated by the end of the year to the tenders that have already been published and are about to be awarded,” says Reyes Juarez, Director General of FOA Consulting, the project’s PMO.

INFRASTRUCTURE ACROSS ADMINISTRATIONS

Projects such as NAICM, the Mexico-Toluca Interurban Train and the construction of highways such as the ones in Oaxaca are extremely complex projects that require the efforts of hundreds of companies and government officials. Putting in place transparent tendering processes and setting a clear regulatory framework is crucial for projects' success.

And the lack of continuity could be addressed in a more tangible way, according to César Monroy, Director of Infrastructure at PwC. “In order to ensure the implementation of the plan despite the changes in the government, an independent body should be in charge of planning the infrastructure in Mexico and provide congruence to the development of infrastructure across all sectors, independent of any one political party,” he says. “This body will improve the productivity of investment, as well as dictate the country’s priorities and find the synergies that could be created within sectors.”