President Joe Biden’s recently approved infrastructure bill bodes well for Mexico’s economy. The bill which was passed this Tuesday represents a huge victory for the president´s administration. It is the largest infrastructure bill in decades and it aims to spur investment in roads, bridges and improved internet access. The US$1 trillion investment includes US$550 billion in new spending, while the rest of the US$1 trillion is comprised of previously approved funding. Its effect would also stretch into the Mexican Economy in the form of opportunities for the medium term.
The new spending projects of the bill include:
- US$110 billion for roads, bridges and major projects.
- US$66 billion for passenger and freight trains.
- US$65 billion for broadband infrastructure.
- US$55 billion for water infrastructure, with the intention of eliminating lead pipes.
- US$39.2 billion in public transit.
- US$47.2 billion for resiliency, including flood and wildfire mitigation, ecosystem restoration, weatherization and cybersecurity.
- US$21 billion for addressing legacy pollution including cleaning up brownfield and superfund sites, reclaiming abandoned mine lands and plugging orphan oil and gas wells.
On the other hand, the new financing as part of the bill has several proposals to finance the spending, including the following items:
- US$210 billion for the repurposing unused COVID-19 relief funds.
- US$87 billion for sales of future spectrum auctions and proceeds of February 2021 c-band auction.
- US$56 billion destined for economic growth.
- US$53 billion as part of the Return of unemployment insurance funds from some states.
- US$51 billion for delaying Medicare Part D rebate rule.
- US$28 billion for the application of information reporting requirements to cryptocurrency.
- US$14.5 billion for the reinstating of superfund fees.
The bill´s approval had an immediate incremental effect on US stocks with the blue-chip Dow and the benchmark S&P 500 rising to record highs on Tuesday. But what exactly does this mean for the Mexican Economy?
Mexican exports could double if the López Obrador administration takes advantage of all the opportunities that will derive from this plan. In addition, business associations should push for a business strategy to attract investment, according to Ernesto O’Farrill, president of Grupo Bursamétrica. Joel Virgen, analysis director of out of the Box Economic added that the benefits for the Mexican economy will become more evident in the medium-term, mainly in the automotive and electronics sectors.
The bill would directly benefit Mexican companies that operate as US suppliers to the construction sector or that are part of productive chains aimed at improving US´ public goods network. These companies could include Cemex or Grupo Cementos Chihuahua, said Amín Vera, economy analysis director of BW Capital. Gabriela Siller, director of analysis at Banco Base, indicated the plan will have multiple effects, which will greatly benefit Mexican exports.
“In terms of GDP, industrial activity would benefit the most; and in terms of aggregate demand components, exports would get a strong boost, generating surpluses in the trade balance, which tends to translate into higher levels of income for Mexico, benefiting its recovery” said Alain Jaimes, economic analyst at Signum Research.
Mexico will benefit from the infrastructure plan with a boost to investments and employment, since 80 percent of the connectivity, electronic and plastic systems required for the different projects considered will be manufactured in Mexico, said Manuel Hernandez Gonzalez, president of the National Council of the Maquiladora and Manufacturing Export Industry. The Nuevo León Chamber of Industry also added that “the investments included in Biden's infrastructure plan, such as highways, bridges, railroads, airports, electrical grids, among others, are directly related to international value chains, particularly with materials that we have a strong production in the north of the country. We hope that this plan can bring greater dynamism to Mexico's economy.”