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Mexico welcomes infrastructure investors

by Sheila Hopkins

With its $1.3 trillion nominal GDP, Mexico is the second-largest economy in Latin America and the 15th largest in the world. But you would not know that from the state of its infrastructure. According to the World Economic Forum’s Global Competitiveness Index 2015–2016,Mexico’s infrastructure ranks 59th out of 140 countries.

These shortcomings have not gone unnoticed. Since taking office in 2012, Mexican president Enrique Peña Nieto has made the upgrading and development of the country’s infrastructure one of his top priorities. Enter Mexico’s newest infrastructure plan, the National Infrastructure Program 2014–2018 (NIP), which again aims to bring Mexico’s infrastructure into the 21st century and beyond. The 743 projects, requiring approximately $596 billion, are focused on seven broad infrastructure sectors — energy, transport, communications, health, water, urban development and tourism. Four of these sectors — energy, urban development, communications and transport — will receive more than 90 percent of the investment. Of the total budget, a little more than half is concentrated on energy infrastructure.

Major transport projects in the plan include a world-class airport for Mexico City — if all goes as planned it will be one of the largest in the world — as well as a high-speed train from Mexico City to Querétaro and a transpeninsular train from Merida to Playa del Carmen via Cancún.

The Mexican economy has been hit hard by falling crude prices and is unlikely to be able to fully underwrite the projects, so the country is looking to private investors to bridge the gap.

“Financing of the projects in the NIP was divided two-thirds public expenditure and one-third private,” says Jonathan Walbridge, CEO of Macquarie Mexican Infrastructure Fund. “I think what we are now seeing is that a number of commercially viable projects that were earmarked for public are moving into the private side on the basis of the government’s fiscal position.”

The opening of Mexico’s infrastructure market has created investor interest in joint ventures and M&As, as well as in commingled funds focused on the sector. According to Institutional Real Estate, Inc.’s FundTracker database, every fund closed in the past two years focused on Mexican infrastructure has been oversubscribed.

Mexico has a lot going for it — favorable demographics, a shared border with the largest economy in the world, a thriving manufacturing sector and an administration committed to improving the country’s infrastructure. At the moment, energy infrastructure is attracting the most attention, but other sectors will undoubtedly find favor as investors become more familiar with Mexico’s needs.

 

Sheila Hopkins is a freelance writer living in Clemson, S.C.

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