Infrastructure is paramount to the growth of a country’s economy. Slow ports, roadways lacking pavement, deficient rail networks, uncompetitive airports and airlines hinder businesses possibilities to capitalize on regional or global trade opportunities. Developing infrastructure not only enhances a country’s productivity, but it also has the potential of expanding and deepening domestic and foreign participation.
Recognizing the need of investing in infrastructure and in order to raise the level of well-being of its society “Mexico’s National Infrastructure Program 2014-2018 in accordance with the National Development Plan 2013-2018, seeks to orient the comprehensive functionality of the existing and new infrastructure of the country through the fulfilment of specific objectives in the sectors of communications and transportation, energy, water, health, urban and rural development and tourism.”*
To enhance Mexico’s competitiveness and thus ensure that opportunities and development reach each region and sector within the country, the National Infrastructure Program foresees an overall investment of 596 billion dollars for 743 projects.
What are some of the challenges that the implementation of the program faces? What happened to one of them most ambitious projects in the program? How can these issues be tackled?
According to BNamericas Risk Analytics, Mexico is the Latin American country with the second highest number of delayed infrastructure projects, after Brazil. While the program was expected for completing before the end of Peña Nieto’s six-year term only 28% of the program’s 223 projects had been completed as of July 2016.** The federal government has made cuts to federal public spending for more than 250 billion pesos due to weakness of oil prices and the volatility of international markets. Nevertheless, when the plan was executed budget cuts were not foreseen.
In addition, the lack of a competitive bidding process and consequent contract cancellation reinforces doubts about the legitimacy and transparency for major infrastructure projects. The Mexico City-Queretaro high speed rail line is one of the projects that has been suspended indefinitely. In early November 2014, the Mexican government awarded the contract to the only bidder, the China Railway Construction Corporation, Constructor y Edificadora Gia+A and Promotora y Desarrolladora Mexicana but only a few days after, the authorization was revoked. The Mexican government stated that the shelving of the project was the result of falling oil prices and the need to cut public spending.
In reality the government cancelled the contract (the first time) by addressing accusations of favouritism. These included the revelation that the President Peña Nieto’s wife, Angelica Rivera, purchased a lavish mansion on favourable terms from Grupo Higa a contractor who was awarded part of the rail contract. Also, Grupo Higa had been awarded government contracts during the President’s tenure as the governor of the State of Mexico between 2005 and 2011. To make matters worse China Railway Construction was compensated by the Mexican government with an award of $1.31 million after threatening a lawsuit.***
An unsteady economic and political environment discourages domestic and foreign investors. However, corruption remains one of the thorniest issues, by draining funds from projects and discouraging new participants. Until today there has not been a successful resolution to the Mexico City-Queretaro project which will be vital to continue to attract major new entrants to bid on forthcoming projects.
The financing, construction, operation and maintenance of projects must enhance transparency and accountability. The lack of the latter only results in pricey delays, reputational damage or annulment of projects after funds have already been allocated. The National Infrastructure Program, would positively impact the economy, but for the successful completion of projects intended for execution through 2018 will depend on liquidity in its financing. Also, it must be ensured that what is invested transforms into quality services that adapt to the budget in a timely and quality manner. The best way to overcome this deficit of infrastructure is by creating transparency and openness in government spending.
What is Mexico doing to counteract corruption?
The anticorruption bill known as “Ley 3de3” addresses conflict of interest by making public contractors and all citizens receiving benefits from the government to disclose their assets, interest and tax returns. On the other hand, government officials are allowed to disclose their assets in private documents in order to protect their privacy. Even if not all transparency requirements were accomplished, Mexico is now in a better position to tackle corruption. Will this law truly help to bridge the gap in infrastructure projects in Mexico?
* Diario Oficial de la Federación (2014). Programa Nacional de Infraestructura 2014-2018
**BNamericas (2016). Mexico’s national infrastructure program behind schedule.
Mexico’s national infrastructure program behind schedule, BNamericas. September 1st, 2016. http://www.bnamericas.com/en/news/infrastructure/mexicos-national-infrastructure-program-behind-schedule1
***Aristegui Noticias (2014). La Casa Blanca de Enrique Peña Nieto. Aristegui Noticias. November 9th, 2014.