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Analysis

Uniting Mexico's Southern States for Economic Growth

Thu, 11/01/2018 - 11:51

The Pena Nieto Administration’s goal was to transform Mexico into a world-class logistics hub through 104 Government Commitments (CG) that included the construction, modernization and maintenance of roads, railways, ports and airports throughout the country. Most of these commitments were completed or are under construction. Most CG projects targeted roads. From 2013-2018, over 2,424km of new roads were constructed and over 57,951km of rural roads were modernized. But by far the three states with the least connectivity are Guerrero, Oaxaca and Chiapas.
Andrés Manuel López Obrador’s administration has ambitious goals to increase the prosperity of these states through key infrastructure priorities such as the construction of rural roads, the Tren-Maya and the Transisthmian Corridor. But just like those of previous administrations, these projects are expected to encounter the same hurdles: low federal budget, rights of way, environmental permits and insecurity. A prime example of how these issues have the power to completely halt a project are two highways in Oaxaca that have been undergoing construction for more than one political administration. The Oaxaca-Puerto Escondido and Oaxaca-Istmo de Tehuantepec are two highways that once completed would drastically shorten travel times and safety, but due to a combination of these three factors, have experienced significant delays.
According to México Evalúa, from 2000-2015 the federal government spent more resources than it received and allocated more money than approved by the PEF. Mexico pays hefty subsidies, and its public debt has been like a snowball that continues to grow with rising interest rates. From 2005 to 2015, the public debt increased from MX$153 billion to MX$549 billion. Mexico is spending a great amount of money, but not a lot of money is coming in.
The low public expenditure for infrastructure development has led to higher private sector participation in the construction of transport projects in the last years. Guerrero, for instance, is 95 percent dependent on federal resources, according to Guerrero Minister of Economy Álvaro Burgos. More PPPs were tendered for the modernization, construction and maintenance of the country’s road network to fill in the financing gap. Not only did Mexico receive the highest private sector investment in infrastructure in 2017 with US$8.6 billion across 20 projects, but it has seen the highest private investment in the sector in the last 25 years. USPs were also introduced, and one of the first to be approved, the Las Varas-Puerto Vallarta is under construction and when finished will interconnect Jalisco to the Riviera Nayarit.
Another problem transport infrastructure projects face is right of way. “When a highway is modernized and expanded, the project may need to adjust its path. Years ago, the modifications were far more modest and roads were constructed with high slopes for a much faster and cheaper construction. Today, many communities are claiming the historical ROW from highways that already exist. ROW has the power to derail a project, especially since now many ejidos do not even have the proper documents to accredit the property,” says Arias.
Environmental regulations are also playing a crucial role in the development of highway projects, especially in change of zoning and land use permits. “There are many laws that do not allow for progress in the development of infrastructure in the country. For example, to obtain an explosives permit to create a tunnel for a road, the process could take more than six months as it goes through the various entities and levels of government,” explains Arias. Finding a middle ground between ejidos, environmental impact and the construction of infrastructure will be necessary for projects such as the Oaxaca-Puerto Escondido highway to be completed and encourage the settlement of industries such as mining operations.
The last factor is insecurity. “The biggest issue the country faces is its insecurity. This is especially important in growing states like Guerrero that have high levels of insecurity and projects in areas that are not urbanized,” says Ricardo Díaz de León, Infrastructure, Mining, Logistics and Tourism Coordinator at ProMéxico. Guerrero and Oaxaca have been particularly prone to insecurity problems in the past due to drug trafficking and high poverty levels. “Insecurity levels the country has experienced creates nervousness for some investors. Federal and local governments need to continue working to improve the country’s security conditions,” says Enrique Escalante, CEO of Grupo Cementos de Chihuahua.