Photo credit: roads and railways series #2 by woodleywonderworks
Mexico is currently experiencing an economic boom. With its foreign population reaching a million within less than a decade, the country currently has a diversified workforce which includes entrepreneurs, skilled laborers and executives from first world countries. Complementing those new workers are huge amounts of natural gas and international trade agreements in place with over 40 countries. With so much going on in the country, Mexican president Enrique Peña Nieto has decided to invest in its infrastructure.
Mexico’s Infrastructure Plans
To calm down members of the middle class who complained about his tax proposal, Peña Nieto has announced that the government will be spending 27 billion pesos ($2 billion) on infrastructure, as a part of its US$316bn Plan for next 6 years. This step is also deemed necessary to ensure that economic growth accelerates before the end of the year. With a growth of 1.5% in the first half and a reduction of 0.7% in the second quarter, the Mexican government is aiming for more than the modest 1.8% growth this year may bring.
Peña Nieto highlighted that the funds will focus on hospital equipment, road paving, transport and other similar works. In addition, 13 billion pesos will be dedicated to helping the housing sector since it suffered a significant hit when the government favored inner-city developments with its latest spending plans.
China-Mexican Collaboration Ahead
When Peña Nieto met with Chinese president Xi Jinping in St. Petersburg in September this year, it was apparent that Mexico was planning to put things forge closer trade ties between the two countries. Therefore, it should come as no surprise that Mexico is offering Chinese companies a share of US$300 billion in its infrastructure projects.
If the deal goes through, it will be a win-win situation. Mexico will benefit from China’s premier quality and time-to-market delivery. As for China, its companies will be able to put up factories in Mexico, allowing it to serve its target market in the United States.
So far, Mexico’s government is trying to attract Chinese investment for a few projects. The first on the agenda is Pemex, the state-owned oil monopoly. Pemex needs 52 oil platforms in the Gulf of Mexico within six years, and each costs US$280 million. Other projects where Chinese investors are welcome are linked to three railway lines (US$2 – 2.5 billion) and Mexican ports.
Peña Nieto to invest hard in Lázaro Cárdenas logistics
Yesterday, President Peña announced 4 works of infrastructure for Lázaro Cárdenas Port, one of busiest in Mexico. The works are: Increase Xilotepec-Morelia Road; Construct a Road from Zitácuaro to State of Mexico; Build a big industrial park next to the Port; and build an airport. That Port was severely affected by “Manuel” and “Ingrid” and certainly the works are needed.
Infrastructure opportunities open to foreign firms
However, Peña Nieto isn’t only depending on China to help build Mexico’s infrastructure. The president announced that the country welcomes foreign investors for energy and mining, two fields that were off-limits for non-Mexican investors up until now. This is a wise step as it opens up Mexico to the rest of the world and strengthens its international relationships.
In 2011, the U.S. was the biggest investor in Mexico with US$7.52 in investments. As for China, its contribution was relatively meager at US$80.7 million. However, things are bound to change very soon with Mexico’s thriving economy and closer relations to its former competitor turned trading partner China.
In addition, the 2012 Public-Private Partnerships Law (PPPLaw) allows all levels of Government to partner private parties for any type of project, even allowing private parties to pitch projects that are not included into the Official Infrastructure Plans (Federal and State). This PPPLaw certainly adds flexibility to take full advantage to the US$316bn Plan with combined resources and experience.