The most ambitious Mexican investment plan to date, the National Infrastructure Program 2014-2018, if well developed, will favorably impact the economy.
The amount to be exercised in five years is 330 billion dollars, more than double what was proposed by the previous administration
- The energy sector will contain the largest investment due to legislative changes
- Included, for the first time, the infrastructure of the tourism, health, urban development and housing
- Along with structural reforms, investment will be surpass by 2 points the growth rate of potential GDP
- The challenge will be to specify all projects
The largest investment in infrastructure yet to be observed
Last year the National Infrastructure Program (NIP) was released by the current administration, which considered an investment of 309 billion USD. However, except for the transport and communications sector, it had no detailed investment projects specific from the rest of the items. This month, the federal government introduced a new version of the NIP for the period 2014-2018, where projects of all sectors involved and the investment amount specified increases to 330 billion USD. This figure not only makes it the most ambitious by amount, but also as a proportion of GDP, over 40% of the 2013 GDP. This amount of investment will be largely targeted for structural reforms.
The energy sector will benefit the most with a total of 301 billion USD during the remainder of the current administration. So meeting this ambitious plan will depend largely on the effectiveness of the energy reform to attract private investment, which would have become slightly more than a 75 billion USD. A significant difference from previous administrations is the inclusion of infrastructure investment in sectors such as tourism, health and urban development and housing. These three sectors absorb 162 billion USD, of which 139 billion USD would be directed to urban infrastructure and housing in line with the National Housing Policy.
Additionally, the NIP 2014-2018 aims to reduce the gaps between the development of the various regions so that a greater amount is invested in the South - Southeast region. In this geographical area, investment in energy infrastructure will also have the largest share of the investment.
The opening of the energy sector trigger investment in infrastructure
The amount of investment in infrastructure for the energy sector will be 301 billion USD, representing an increase of 87% over the previous NDP administration. This increase is due in part to the fact that the private sector may participate with slightly more than a 75 billion USD, mainly in exploration and extraction of hydrocarbons resulting from the constitutional reform on energy passed last December. Secondly, the area of opportunity for private investment will be petroleum. In the electricity space, it is smaller only because it considers participation in power generation but not in the distribution.
Within the energy infrastructure projects increased importance of alternative sources. For example, wind farms in the south of the country could attract investments of over 2 billion USD.
Infrastructure investment could revive the housing sector
After energy, the largest investment amount will go to urban development and housing with just over 136 billion USD. If indeed these land resources, the industry could be looking at the housing recovery in the housing component has been long downward. However, the task is not simple, since the value of housing production from 2000 to 2013 barely reached 91 billion USD. So this means that in just 5 years 46% more will be invested than for the past 14 years; or tripling each year the equivalent of the average annual production of housing. This in an environment where there is increasing demand for housing renovations and equipment and less for new housing.
Investment in urban development and housing exceed by far what formal companies engaged in housing construction have done; if this were to materialize in the PNI the GDP would leave behind its negative trend, even more so considering investment in hospital infrastructure of about 5.3 billion USD. If we consider that building is the main component of construction, this return to the path of growth would also push up the GDP of the construction sector.
Investment in telecommunications sector at the forefront
The difference in the amount allocated to the transport and telecommunications infrastructure sector is just over 3% as planned initially in the previous administration; but remember that the administration failed to meet its own plan. In fact, some of the most significant projects failed to materialize, as were the Punta Colonet Hidalgo refinery and the Riviera Maya airport. Therefore, if the planned budget is compared against what this administration actually exercised in the transport and telecommunications sector, the percentage change exceeds 30%. However, the greatest increase will be in the telecommunications component, which is expected to affect the sector reforms that encourage investment of more than 38 billion dollars; with a majority coming from the private sector. This is relevant, since the secondary legislation and its proper application by the regulator will incentivize consolidation of the investment of private agents.
The absent project of greatest significance in transportation is the solution to the saturation of the Mexico City airport.
If realized, the national infrastructure will have a significant effect on the economy. The investment amounts will quickly reactivate some sectors of construction, energy and telecommunications; but its long-term impact could be higher if this infrastructure increases the potential GDP. However, the task looks daunting hence the amount to be invested over a period of only five years as its dependence on the effectiveness of the secondary laws of constitutional reforms.
On the public finance side, the perspective challenge of the PNI is greater. This is because a significant proportion of projects will be funded by the public sector itself. This means that if the investment is realized in these projects, the public sector must have sufficient financial resources, which in turn depend on the pace of economic growth recorded in the five years considered.