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News Article

USMCA Could Boost Infrastructure Development

By Rodrigo Brugada | Mon, 07/19/2021 - 16:10

Mexico is seeing a slow economic recovery from the effects of the pandemic but investment in infrastructure can bring significant benefits to the country, especially considering the options that the USMCA entails and the geopolitical context.

Investment in Mexico during the first months of economic reactivation after the recession caused by the pandemic is insufficient. Investment as a percentage of GDP stood at 19.4 percent as of the first quarter of 2021, while experts estimate that the country needs to reach 24 percent to detonate the country's growth, reports Expansion. Apart from GDP, the monthly Gross Fixed Investment Indicator, published by INEGI, stopped growing in its monthly comparison, cutting the recovery streak experienced during the first three months of the year.

Nonetheless, there are growth expectations regarding investment in infrastructure. As reported by BNAmericas, although the USMCA does not include a proper infrastructure chapter, it has undoubtedly facilitated investments in this sector in Mexico. Before that, there is still a certain lag in actions that must be solved. While political will has increased as a result of the agreement, major companies have yet to take full advantage of it and there is still room for public-private collaboration.

An essential factor to consider from the public side is that almost all megaprojects concentrate in the southeast. The political will appears to aim to boost development in the region. For example, three of the main infrastructure projects of the current administration converge in that region: the Dos Bocas oil refinery in Tabasco, the Mayan Train crossing five states and the Interoceanic Tehuantepec Isthmus Corridor in Veracruz and Oaxaca. This trend in development might be beneficial to the region, but it may fail to fully reap the agreement's potential benefits.

Another critical aspect of the agreement includes the possibility of a more active US participation in terms of investment in Mexico. As an example, the US has plans to invest US$250 million in the region for curbing migration. There is also a possible increase in investment due to the restructuring of supply chains, a trend towards nearshoring, and a political strategy to limit China's influence on investment in the country. One critical area that has seen a significant increase in investment is logistics and distribution in the Bajio region. This region is particularly relevant to the USMCA due to its strength as a manufacturing and production center and its automotive capabilities.

Mexico should also note that US President Joe Biden's administration announced heavy investments in infrastructure in the US, reaching up to US$1.2 trillion. The investment contemplates infrastructure for clean transportation, clean water, universal broadband and clean power, as well as the remediation of legacy pollution and resilience to the changing climate. As a result, the integration of roads, highways, ports and railroads between the three countries could provide opportunities for international collaboration. 

This series of infrastructure investments could also generate jobs and accelerate economic recovery. It is also important to think about the urgent development of clean energy sources and connectivity with the necessary conditions for the development of Industry 4.0 in North America and Mexico's role within its own industries.

The data used in this article was sourced from:  
Expansion, INEGI, BNAmericas, Reuters, Baker Institute, White House, MBN
Rodrigo Brugada Rodrigo Brugada Journalist & Industry Analyst