It must be a bit frustrating for outgoing President Felipe Calderón and his administration to realise that, despite all of their efforts, Mexico’s infrastructure boom – if it materialises – will only take place when they are out of office.
For President Calderón, who cannot oversee another term under the country’s constitution (Mexican Presidents are limited to a single, six-year term), this victory will be especially bitter-sweet. On the one hand, he may be remembered as the man who kick-started Mexico’s infrastructure revolution. But on the other, he will have to be content to watch this revolution from the sidelines, as others reap the benefits of the reforms he and his administration set in motion.
Make no mistake, Mexico is currently poised to break into the A-list of emerging infrastructure markets and has all the pieces of the infrastructure puzzle in place to do so successfully. Whether it will depends very much on the willingness of its newly elected administration to continue in the footsteps of Calderón and his team.
While you wait for the July 1 elections to take place, though, you could do worse than pick up Infrastructure Investor’s Mexico Intelligence Report and find out exactly why investors are getting so excited about the opportunities being offered by this emerging infrastructure market.
A lot of the excitement derives from the political vision exhibited by the outgoing administration and the reforms and mechanisms it has implemented to make its infrastructure ambitions a reality.
As Finance Minister José Antonio Meade Kuribreña explains in the report, the outgoing administration wants to “use infrastructure investment to transform Mexico into a world class logistics platform, taking advantage to the fullest of its proximity to the United States, one of the world’s most important markets”.
In order to materialise this vision, it drafted a $234 billion National Infrastructure Plan outlining some 300 projects and set about attracting private sector investment to fund it.
The administration also created a National Infrastructure Fund (Fonadin) to complement development bank Banobras on the equity side and, in the words of Fonadin head Federico Patiño, “take risks the market is not willing to take and support those infrastructure investments which provide very high social returns, but not necessarily market-attractive internal rates of return”.
While other countries day-dream of increasing institutional investment in infrastructure, the Calderón administration rolled up its sleeves, changed regulations and created a new instrument – capital development certificates, known locally as CKDs – which will allow the country’s pensions to channel up to $15 billion into the asset class. As a result, Mexico already boasts the distinction of being one of the few countries in the world to have pensions financing greenfield investments.
But CKDs and Fonadin also helped kick-start a local infrastructure fund market, and you can read our interview with Mark Ramsey, Macquarie Capital’s head of Mexican operations, to find out how Macquarie took advantage of these opportunities to create a first-of-its-kind emerging markets fund – the Macquarie Mexican Infrastructure Fund.
With the approval of Mexico’s first-ever public-private partnership (PPP) law last December, the stage is set for the private sector to take a leading role in the procurement of Mexican infrastructure.
It will now be up to Mexico’s new rulers to make good on a very promising opportunity.