Despite budget reductions, infrastructure spending to rise in Mexico

13 Oct 2016

According to Timetric’s latest forecasts, infrastructure construction spending in Mexico will reach MXN1.2 trillion (US$62.1 billion) in 2020, up from MXN961 billion (US$51.9 billion) in 2015. This rapid growth in spending is based on the assumption that a number of the large-scale infrastructure projects move ahead as planned, including the Mexico City New International Airport, the expansion of Veracruz port, the Mexico City–Toluca high-speed train. However, there are downside risks to this outlook associated with reductions in planned budget spending.

The administration of President Enrique Peña Nieto has expressed its commitment to deliver better infrastructure so as to support the economy’s growth and improve opportunities for citizens. In April 2014, the government launched the National Infrastructure Programme (NIP) 2014–18, comprising a range of projects in the sectors of transportation, telecommunication, urban development, energy, water, health, and tourism. A total investment value of MXN7.8 trillion (US$591 billion) is expected, with funding anticipated to come from both the private and public sectors. Nonetheless, the impact of lower oil prices has raised concerns that major infrastructure projects under the NIP could be put on hold or cancelled.

Budget reductions for 2016 have already affected some key projects, such as the postponements of the Transpeninsular Train Project and the high-speed Mexico City–Querétaro rail link. Last June, the government announced a further series of budget cuts in response to the UK vote to leave the EU. The government announced it would cut an extra MXN31.7 billion (US$1.7 billion) from spending, with almost 92% of reductions coming from current spending. The additional cuts follow the earlier government announcements in the year to reduce spending by MXN132 billion (US$7.6 billion) in 2016 and MXN175 billion in 2017.

Despite this, the current administration plans to increase infrastructure spending through public-private partnerships (PPP) programs. With structural reforms implemented by the government in 2013, the infrastructure sector has the potential to grow at an annual rate of 4–5%. In particular, recent reforms in key areas such as energy and telecommunications are expected to drive investment in the market. Already the sectors of transportation, electricity and power, and urban development are showing a return to a positive investment dynamic.

Timetric’s Infrastructure Intelligence Center is currently tracking 173 large-scale infrastructure construction projects in Mexico, at all stages of development from announcement to execution. “These projects have a total investment value of around US$4.8 billion,” according to Timetric’s infrastructure analyst, Dariana Tani. The electricity and power sector accounts for the largest share of the project pipeline, with a total project value of MXN42.1 billion.



Source: Company Press Release