The bottleneck destroyer

The story of infrastructure investment is often one of demand for essential services being opened up to the private sector by a government leader eager to stimulate economic growth and prosperity.

Many times, this is done piecemeal. In the US, one finds 50 states waking up to private investment in infrastructure in 50 varying ways. And some, like Texas, take a step back after they seem just about ready to embrace the market’s help in building their critical infrastructure.

But, just south of the border, a different model is being championed by a man intent on not letting infrastructure bottlenecks choke his country’s growth. He has unveiled an ambitious plan for upgrading his country’s infrastructure plan; he has freed up his country’s pensions to enable them to invest in infrastructure; and he has attracted the attention of international investors to help them do the same.

That man is Felipe Calderón, President of Mexico. And he is our Infrastructure Investor Minister of the Year for 2010.

The choice is unconventional. Rather than keeping strictly to our ‘minister’ definition, we are here making the award to a government leader (you will find our deliberately loose definition at the foot of the article). In most years, the winner of the award will indeed accord to a tighter definition – as with last year’s winner, Kamal Nath, India’s minister for road transport and highways. This time, we were sufficiently inspired by Calderón’s efforts to seek flexibility.       

The choice may seem obvious enough to our readers within Macquarie. The Australian investment bank set up shop in Mexico City in January 2009 to launch a Mexican infrastructure fund. And, with the help of domestic pensions and the national government, the firm held a first close on approximately $400 million just 11 months later.

In July 2010, the Mexican government green-lighted AMB, Artha Capital, Mexico Retail Properties and Prudential Financial’s Mexican unit to raise $1.28 billion each from local pensions for funds targeting industrial developments and infrastructure.

Those not familiar with the country of 110 million people may find it surprising just how big an influence Calderón has had in fostering this supply of capital.

It began, as it often does, with talk.

“I want Mexico to make an enormous effort in infrastructure and competitiveness, to become a multi-directional link and a world connection that will give Mexicans the opportunity to work and obtain income that will contribute to everyone’s development,” Calderón said during an inauguration ceremony for a highway in February 2007.

In July of the same year, Calderón backed up the rhetoric with the unveiling of an ambitious National Infrastructure Plan for 2007 to 2012. The goal is to move Mexico from number 64 in the World Economic Forum’s 2006-2007 infrastructure competitiveness index to the top 20 percent by 2030. And the plan is to do so by scaling up investment in Mexico’s infrastructure – including building and modernising 17,000 kilometres of highways and country roads – with the help of private capital.

In February 2008, Calderón put money behind the plan. The Mexican government used the proceeds from its toll road auctions and other sources to create a national infrastructure fund, the Fondo Nacional de Infraestructura, or FONADIN. The fund’s goal is to support private sector participation in the planning, design and construction of Mexican infrastructure projects.

So far, FONADIN has backed the Macquarie fund with 1.8 billion pesos (€111 million; $142 million) in seed capital. And the aforementioned AMB, Artha Capital, Mexico Retail Properties and Prudential Financial funds stand to get another 3.26 billion pesos from the fund.

All five funds will benefit from another Calderón innovation: pension investment in infrastructure. It may not seem particularly new to North American or European fund managers who have benefitted for years from pension allocations in their home markets. But Mexico’s public pension funds, or afores, have for years faced strict limits on what they could and could not invest in. Fixed income investments were encouraged by the government, while alternatives were all but prohibited.

Not anymore. Calderón, a big proponent of pension reform, supported allowing them to invest in the country’s infrastructure via alternative investments. In July 2009, he got his wish: Consar, Mexico’s capital markets regulator, issued new rules that allowed the afores to invest in alternative investment funds through a new type of listed security. Now, Mexico’s capital markets find themselves with a pipeline of capital raisings for afore-backed funds.

Early days, good progress

It is too early to say yet where all this will end up. The afores are still quite conservative by nature and the government rejected the Macquarie fund’s bid for its initial asset, a toll road concession in northeast Mexico.

Still, it’s safe to say that Calderón has accomplished something truly remarkable. In less than four years, he has planted the seeds for a national infrastructure market where, save for an occasional one-off deal here or there, didn’t exist before.

By no means did he do this alone. But leadership comes from the top, and Calderón has repeatedly used his pulpit to advance the health of the country’s infrastructure and economy – even while abroad.

“We have increased investment in infrastructure from 3 points of GDP to 5 points of GDP a year, building the ports, airports and energy plants we need to modernise. This is the highest investment level in infrastructure in decades. These changes are making us a more modern country and a stronger partner of the United States,” he told the US Congress during a speech in May.

His neighbours to the north would do well to listen.

*In choosing to name this award, the Infrastructure Investor Minister of the Year, we have deliberately kept the definition broad. Although a growing number of governments have eponymous infrastructure ministers we want to be able to recognise any senior government figure who we think is making the most impact on their country's infrastructure development.