News Article

Logistics, Infrastructure Essential to Economic Recovery

By Andrea Villar | Wed, 05/26/2021 - 18:16

You can watch the video of this panel here.

The promotion, development and investment in infrastructure and logistics projects represent an opportunity for economic recovery in Mexico. The country could also greatly benefit from trends such as nearshoring, e-commerce and the pipeline of projects in the north and southeast, agreed panelists during the Mexico Business Forum 2021 Virtual Edition, held on Wednesday, May 26. "We are at a time when the need for transformation and decentralization is being recognized," said Hector Gonzalez, CEO of SafeLink and moderator of the panel. 

The current administration's flagship infrastructure projects, such as the Mayan Train and the Dos Bocas refinery, have taken the spotlight in recent years. However, projects that were on hold for decades have also been dusted off such as the interoceanic corridor (also known as the Tehuantepec isthmus rail corridor) connecting Oaxaca and Veracruz, González added. This project could be inaugurated by the end of 2023. "In addition to seeking logistical solutions in the region and more efficient energy supply, the corridor also projects a spill-over of benefits for real estate development and the quality of life in one of the poorest regions of the country," he added. The region's attractiveness has increased considerably and, by the end of 2020 alone, the Yucatan government announced a private investment of over MX$4.5 billion (US$226 million) in real estate and tourism.

Despite these achievements, certainty is still a pending issue in the country, added Carlos Godinez, VP of Sales and Marketing of Transplace. “As investors, we are looking for certainty.  The rule of law and a legal framework are essential for more investment to come in and accelerate economic recovery and job creation. It is necessary that what is established is respected by all parties,” he said. According to Godinez, the logistics sector has seen a significant recovery mainly in Nuevo Leon and Jalisco, which is a good sign for sectors such as automotive, electricity and consumer goods.  

As a result of the pandemic, "companies became conservative and stopped ordering goods from their suppliers in Asia or Europe," said Customer Experience Director of Maersk, Jorge Monzalvo. The adjustment in demand and consumption and the uncertainty generated during 2Q2020 due to the imposition of lockdowns made companies more fiscally conservative, explained Monzalvo. On the other hand, people in isolation stopped spending on services such as restaurants and started spending on consumption, which generated a reactivation in demand and highlighted the need for transport. 

This led industries to look for strategies to boost their supply chains. "One component they relied on to do this was real estate infrastructure to store their products in warehouses close to ports or to their factories," Monzalvo said. "This triggered a particular dynamic that will help determine how real estate investments should be diverted going forward." Monzalvo also mentioned that the e-commerce boom generated by the pandemic triggered companies to ask themselves whether to invest in combined warehouse strategies (wholesale and retail) or separate sets of warehousing in order to serve their customers with a more efficient approach. 

In this regard, Salvador Rivas, Principal and Director of international design firm HKS, said that one of the projects they have been working on the most in Mexico is the hospitality and sports sector. “Those were sectors that initially had a certain slowdown but we have seen an upturn lately. There is a lot of interest from investors in future planning,” Rivas said. “It is important to take these initiatives and not wait for things to happen. An important part of the sector's recovery is innovation as we adapt to the changes that have taken place.” One of these changes, remarked Héctor González, has been the trend sparked by remote working as people now consider investing in out-of-town property for living and not just holidaying.

Southeast Mexico, Catalyst for Economic Recovery?

Infrastructure development in the southeast of the country has been a pending task throughout Mexico's history, said Godinez. “If there is one region of the country that lacks infrastructure, it is the southeast. It is needed more than ever to allow better communication and be more competitive,” he added. Likewise, Maersk's Monzalvo said that as Mexicans “it is our duty to ensure that there is even growth in the country.” Monzalvo explains that those efforts must go beyond developing infrastructure plans, as they should involve long-term planning that considers education and complimentary services to attract and retain investment. 

For HKS's Rivas, one of the main keys to boosting this region is diversification. “Currently the Riviera Maya is completely focused on tourism development. An opposite example is Merida, Yucatan, which has attracted many businessmen from the center of the country to live or develop different projects. This means that it is not so dependent on a single activity and when another crisis like the one we are experiencing arrives, the impact will be minor,” he pointed out.

During this crisis, the private sector in Mexico has shown its strength, said President and Director of Grupo Casgo Héctor Castellanos. “Today 90 percent of the investment in Mexico’s construction industry comes from the private sector,” he said. “This is reflected in the so-called micro-economies of the southeast where we have not stopped building so vertical construction continues at an accelerated pace.” According to Castellanos, the cancellation of Mexico’s New International Airport (NAIM), has given opportunities to other airport groups in Cancun and Guadalajara to become attractive targets for private investment. “It would be really important for public investment to continue to bet on growth because a lot of the rail, road and port infrastructure has to be driven by them. The reality is that in the last three years, public sector participation has been absent”.

Andrea Villar Andrea Villar Journalist and Industry Analyst