Mexico banks on $43bn infrastructure plan to build growth

Mexico banks on $43bn infrastructure plan to build growth

López Obrador sets ambitious 2020-24 target after economy goes into recession

Mexico’s government has unveiled an ambitious $43bn infrastructure programme for 2020-24 designed to deliver annual growth of more than 4 per cent, a day after new official data revealed the economy had tumbled into recession this year.

The 147 projects identified by an administration that last year scrapped Mexico’s biggest infrastructure development — a new $13bn airport in Mexico City — and has embarked on construction of a publicly-funded oil refinery included roads, railways, ports, airports and investments in water and tourism.

Economists point to flagging investment as a key reason why Latin America’s second-biggest economy is flatlining. In the third quarter of this year growth was zero, after falls of 0.1 per cent in the fourth quarter of 2018 and each of the first two quarters of 2019. The most optimistic market forecast is for just 0.3 per cent growth this year, after 2 per cent in 2018, with analysts now increasingly expecting no growth at all.

Flanked by business leaders at his morning news conference and with telecoms mogul Carlos Slim and other prominent industrialists in the audience, President Andrés Manuel López Obrador called the infrastructure programme “hugely important because we need the private sector to participate in . . . growth”.

The leftist nationalist leader believes in cementing state control of the economy to deliver inclusive growth to a country riven with inequalities, but stresses he is not anti-capitalist. In turn, business leaders including Carlos Salazar, head of the main business lobby, CCE, have promised to pitch in to achieve Mr López Obrador’s goal of annual average 4 per cent growth — a goal that currently looks out of reach.

The programme identifies 72 projects for next year, worth $22bn, mostly in tourism, transport and telecoms, and the president said they would largely be privately funded.

The government said further projects would be added at regular intervals, including the announcement in January of infrastructure projects in energy and health.

Total investment in Mexico is about 20.5 per cent of gross domestic product — well below the government’s 24 per cent goal — including 2.5 per cent from the government and 18 per cent from the private sector. The government said the aim of the programme was to boost investment in infrastructure to 5 per cent a year.

Luis Niño de Rivera, head of the Mexican Bankers Association, said banks had $4.3bn available a year to finance infrastructure development. Pension funds and private investment funds could supply another $3.3bn and international banks and funds were also on board, he said. “So there are sufficient resources in Mexico and internationally to cover this first packet [of projects] and those coming in future,” he said.

Alfonso Romo, a businessman who is Mr López Obrador’s chief of staff, said the announcement “isn’t a political event, it’s a real commitment to boost growth in Mexico to become competitive with greater wellbeing, less poverty and less corruption”.

Despite the current love-in between businesspeople and Mr López Obrador — a stark U-turn from the concern expressed by some executives before last year’s election — distrust of his populist policies has caused investment to dry up. A recent renegotiation of gas pipeline contracts raised fears the government may not respect contracts in future.

Edmundo Gamas, executive direct of the Mexican Institute of Infrastructure Development, said the proposed programme looked “like fantasy unless they are very small roads”. He said the key thing was not whether funding was available for the projects but what mechanisms were in place to recoup the investment.

“The proof will be in the pudding. We’ll see if the projects are well-structured, with solid repayment models. Based on Mexican history, I’d say they won’t get done,” Mr Gamas said. “The 147 projects only exist on paper. There are no profitability, technical or financial studies which, if done well, would take two to three years to prepare.”

One consultant who advises businesses said it “feels to me more of an effort by the private sector to lead the administration into sensible projects. In that regard, today’s announcement is welcome and it should provide some confidence to investors.”

But he added: “But the list of projects is a very mixed bag — not a lot of new projects, rather old projects that were incomplete or suspended.” es un sitio web oficial del Gobierno Argentino