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Monday, July 30, 2007
Perspectives

Mexican Infrastructure: More Competitiveness?

Mexican President Felipe Calderon (center) inagurates the Pachuca-Tulancingo highway last month. (Photo: Mexican President's Office)

CHRONICLE SPECIAL
Latin America Advisor

Mexican President Felipe Calderon earlier this month unveiled a five-year, $37 billion program to improve the country's transport infrastructure. Does the plan go far enough? What impact will the plan have on Mexico's economy and on its competitiveness?

Nicolás Mariscal, Chairman of Grupo Marhnos in Mexico: Mexico has lagged in infrastructure investment. According to the World Economic Forum, Mexico ranks 64th in infrastructure competitiveness out of 125 countries. Current President Felipe Calderon has proposed, since his electoral campaign, that his six-year term will be 'the sexenio of infrastructure.' During this first semester, we've begun to see positive signs that this could become reality (as in the series of tenders that have been auctioned). Aligned with the 'Proyecto de Gran Vision Mexico 2030,' the National Infrastructure Plan was recently presented by the president. Without a doubt, it is one of the most ambitious plans that has been presented, but it also has a good strategy behind it. The program is clearly focused on elevating the competitiveness of the country—on the one hand helping to improve transportation time and reduce costs, and on the other hand allowing greater integration with global markets. Moreover, it is a mechanism that helps promote investment and generate employment. What's more, upon integrating and communicating with most marginalized communities, [Mexico] advances in the fight against inequality, resulting in better risk indices for the country, which then spur investment. It is an extraordinary bet with a long-term vision.

John Price, President and Director of the Transportation & Logistics Industry Practice at Miami-based InfoAmericas: After two presidential cycles that spent parsimoniously on transportation infrastructure, Mexico's logistical backbone is in tatters. Mexico's strategy to build a hemispheric manufacturing base has fallen short of its goal in part because moving goods in and out of the country remains too costly and slow an endeavor. This explains why most export manufacturing clings to the northern border with the US. Better road networks, rail linkages, and air cargo hubs would help move Mexico's industrial belt southward to more natural population centers where education, water, and energy support services are in better supply. The infrastructure spending is well aimed on the country's two leading dollar-generating sectors: manufacturing and tourism. By backing its strong sectors, the government will likely succeed in attracting the needed private sector portion of promised investments. All that said, Mexican export manufacturing will not reach its potential solely through better infrastructure. The Mexican customs union remains grossly inefficient, inconsistently enforced, and subject to corruption. Until it is reformed, mid-size foreign manufacturers without the political clout to cut through red tape will continue to choose China over Mexico. But the largest problem plaguing Mexico's long term competitiveness is its broken education system, which creates a deficit of technicians and engineers. Most concerning is the fact that the $37 billion transport bill was created in part as a reward to reluctant legislators who backed Calderon's more historic tax reforms. That reeks of patronage. The last time Mexico modernized its highways, in the Salinas administration, it managed to build the world's most expensive highway per kilometer, Carretera del Sol, linking Mexico to Acapulco, which 15 years later still provides many an anecdote of graft and waste. At face value, the transport infrastructure bill is welcome. But taken in the larger context, the jury is still out on how effective it will prove to be at raising Mexico's competitive standing.

Juan Carlos Moreno-Brid, Senior Economic Affairs Officer and Research Coordinator at the UN Economic Commission for Latin America and the Caribbean: The program is a much-needed step in Mexico's quest for high, sustained economic growth. Recall that infrastructure investment acutely fell since the mid 1990s as a result of fiscal adjustment. By 2000, Mexico was last among large Latin American economies in terms of infrastructure. In fact, it had one of the lowest ratios of investment in infrastructure (as a percentage of GDP), and this applied to both public and private sectors. Today, infrastructure deficiencies are a key constraint on Mexico's economic development.  Thus, the question is not whether the program goes far enough, but how much of it will actually be implemented. First of all, the President conditioned it to the approval of a fiscal reform that has met with opposition from the business community, worker unions, and political parties. In addition, the program assumes that 66 percent of the investment will be done by the private sector. Will it respond to this call? With high quality investments? The acute flaws in Carretera del Sol reveal that guaranteeing good quality in transport infrastructure is still a key regulatory challenge. Hopefully the obstacles will be overcome, given that investment in infrastructure has the potential to raise overall productivity—an indispensable element in any growth-oriented strategy for Mexico.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter.  

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From: Steve Colantuoni

Tucson, Arizona
If carried out this will make Mexico much more competitive in terms of manufacturing. The next move should be to break up inject competition into the electricity generation and delivery sector, as well as to create a more streamlined and certain tax regime.

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