Unleashing The Mexican PowerhouseThu, 01/11/2018 - 10:40
Mexico has always strived to be an economic powerhouse. For years, its growth has been comparable to other developing countries but it has faltered and its full potential has yet to be unleashed. Mexico will be among the Top 10 economic powerhouses in the years to come but how can it achieve this with such low levels of infrastructure development, ranking 62 of 137 in competitivity? The infrastructure that exists in Mexico does not match the potential power of the country.
The reasoning behind this chasm between economic growth and infrastructure is that Mexico has not established infrastructure as an implicit long-term policy. For centuries, the country has developed six-year infrastructure plans that align with the presidential terms and not beyond. The complex nature of infrastructure makes it difficult for the president who develops the plan to actually finish it in just six years. A good example of this is NAIM, which is a project that no matter what, could not be finished in one term. The country should remove this six-year restriction on planning and look to the future. Projects should be prepared with anticipation; they should be well thought-out and well-crafted so they are attractive for any type of investment. Ultimately, it does not matter whether it is the public or the private sector that carries out the project but that the project is pertinent, solves a problem and adds value to the country.
Infrastructure directly impacts the quality of life of its citizens. The Durango-Mazatlan highway was an incredibly difficult project to complete as it splits the Western Sierra Madre into two. Nevertheless, the benefits outweighed the challenges and once it was completed, it cut down transportation times from six to two hours. Interconnecting two once-isolated areas not only cut down travel times, it awoke activities that were dormant as a result of the isolation. The local economies grew and this was reflected by the boom in real estate development in those areas. For the country to reach its full potential, it needs to realize that infrastructure has the power to facilitate the development of activities that will boost the economic growth of the country. Its multiplier effect will benefit us all.
The government no longer has to do this on its own. Infrastructure is a good business for investors and now with a larger participation from Afores in the sector, the possibilities continue to grow. Pension funds feel comfortable with infrastructure as it matches their long-term investment requirements. Project financing will always be jeopardized by ejidos and rights of way but these challenges only represent areas of growth for companies to improve their communication channels with communities and involve society in projects.
But investors do not want to hear the announcement of one or two projects. They want to see 100 or more new projects in Mexico. It is only then that they can decide to set up offices in Mexico and make a long-term commitment to the country. Certainty and transparency among developers, investors and society are key to boosting the infrastructure industry. If the country can ensure these two factors, it will not only open the market and bring in new players but these players will bring with them technology and innovation that will ultimately transform the country. The industry knows what needs to happen to unleash its power but the private sector continues to be divided. The private sector must raise a unified voice to push the agenda for long-term infrastructure planning in Mexico. If we organized ourselves correctly, the government would pay more attention to the changes that could help us advance as a society.
Countries such as Australia and Colombia have created their own independent entities to oversee infrastructure planning and align the needs and skills of the public and private sectors. In Mexico, however, planning in Mexico continues to be a duty that only the government can execute. The country has taken steps to incorporate the private sector into planning through PPPs and USPs in recent years. USPs were intended to be the private sector’s bridge for the country’s infrastructure gaps that were not included in the government’s plans. In theory, it was a perfect match but in practice it has yet to live up to expectations. USPs should bring in innovative solutions to the market and create healthy competition among players to see who has the best ideas and skills to develop them.