Mexico Infrastructure & Sustainbality Summit 2018 Highlights - Mexico Business Events (mbe)
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Mexico Infrastructure & Sustainbality Summit 2018 Highlights

Mexico’s Social Housing Opportunities Across Administrations

Jorge Wolpert, Director General of the National Housing Commission (CONAVI)
Jorge Wolpert

As the current administration comes to a close, President Enrique Peña Nieto and his team have left a strong legacy in housing development, Jorge Wolpert, Director General of the National Housing Commission (CONAVI) told the exclusive audience at the Marquis Reforma hotel in Mexico City on Wednesday.

Wolpert went on to highlight the creation of SEDATU in 2013 as one of the milestones that allowed more orderly and efficient growth for cities. “Through the creation of SEDATU, President Peña Nieto designed a territorial policy for housing development,” he said. “The zoning regulation was designed with robust bases, with the support of INEGI in providing data on population and trends.”

Today, 100 percent of new housing in the country is being built inside particular boundaries that are close to vital services such as transport, connectivity and employment, Wolpert said. But he warned that, after achieving this milestone, it should not be left to the wayside. “This policy should be dynamic and constantly updated.”

Wolpert pointed out that this kind of policy is ideal for those medium-sized cities that in the last 30 years, have expanded by over eight times in terms of their population. “We made mistakes in the past in allowing cities to expand in a disorderly way past their own boundaries,” he explained. “Now that we have identified this mistake and learned from it, the conditions can be provided to allow greater densification and optimize the use of urban space.”

While highlighting the achievements of the previous administration, Wolpert stressed that there are two main areas of opportunity for the next government to address. First, 800,000 to 1 million houses are built every year, but 400,000 of those built informally, meaning without a mortgage or a loan. Wolpert said the biggest challenge for Mexico’s next president is to affiliate those informal workers to government agencies, such as Infonavit. He said that the informal economy not only includes domestic staff, construction workers or those that own street stalls. “There are 2 million Mexicans with a fixed income that work for the government, as doctors, nurses and in other professions, but they do not have banking facilities,” he explained. “This is a huge opportunity for the social housing mortgage sector.”

According to Wolpert, the second big challenge is to attract commercial banking to the social housing sector. He attributes the lack of commercial banking over the last six years largely to the huge capacity of Infonavit and to the lingering fear that was generated by the 2008 mortgage crisis.

Although Infonavit is the largest mortgage credit agency in Latin America and one of the largest in the world, Wolpert said it is indispensable to continue having other agencies working collaboratively in social housing. This includes commercial banking agencies. “It is time to welcome commercial banking back into the residential housing market,” he concluded.

Bridging the Transport Infrastructure Gap Through Structured Instruments, Collaboration

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Even though the entrance of the new administration opens the door for new opportunities, trans-sexennial initiatives need to be prioritized to consolidate important infrastructure projects, Ignacio García de Presno, Lead Partner, Global Infrastructure and Projects Group at KPMG in Mexico told the audience during the panel discussion at the Marquis Reforma hotel in Mexico City on Wednesday. “In the past, there has not been a solid planning mechanism for infrastructure projects,” he said. “The industry agenda is linked directly to the political agenda and this decreases project credibility.”

According to Enrique Alonso, Director General of Sacyr Ingeniería e Infraestructuras México, the company has detected a reluctance to invest in infrastructure development. “During this administration, MX$7.7 million were designated to infrastructure development, with priority given to energy, transport, water and roads,” he explained “Sixty-three percent of the total budget was from the government and the rest came from the private sector. This year, investment has grown due to the change of administration, but the industry’s objectives were not achieved.”

García de Presno pointed out that Mexico is a big country, and as it continues to grow, so too does its infrastructure requirements. He said that the change in administration should not serve as a deterrent for projects to be carried out. “KPMG works closely with the three government levels and even though the federation is closing an important period, we have identified important activity in the country’s municipalities and states,” he said. As a project structurer, he calls for project clarity so the operator has certainty of when the payment will take place.

Alonso said that one of the reasons projects stall could be due to the high levels of bureaucracy involved with government tenders. He cites a hospital project developed by Sacyr using the Unsolicited Proposal (USP) mechanism. “The process needs to be speeded up,” he said. “The next administration will have to make an effort to contribute its part to the deal. We aim for a synergy between the government and the private sector.”

Luis de la Peña, Financial Director of ROADIS, agreed the processes are difficult to navigate, since the company has observed certain restrictions when allocating capital. “Some executing conditions have been more complicated in some sectors that others but we foresee major opportunities at the start of next year,” he said.

Another financing option for infrastructure is Fibras, and García de Presno seeks a more widespread use of the mechanism in infrastructure rather than just real estate. “It is a very powerful vehicle where infrastructure generates infrastructure, but it is not applicable for every project,” he explained. De la Peña said, with some tweaks, Fibras could be a very attractive option for ROADIS. “We see Fibras as a vehicle for diversifying our portfolio,” he explained. “But there are some fiscal topics that could be improved to boost its development.”

Leopoldo Zambonino, Director General of MEXTYPSA said that, as the country eagerly awaits the next Infrastructure Development Plan, continuity is what is most needed. “There is a need for a trans-sexennial instrument, independent of any political party,” he said.

Can Real Estate Transform Mexico’s Cities?

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The private sector needs legal certainty regarding projects to continue developing real estate infrastructure in secondary cities, panelists said at the Mexico Infrastructure & Sustainability Summit 2018, as they reflected on the opportunities that smaller cities offer for infrastructure development.

“The trustworthiness and profitability of cities depend not only on the public and private sectors, but on the applicability of concepts as rule of law,” said Javier Valencia, Executive Vice President and Co-Founder of the Mexican Institute of Sustainable Smart Cities (IMCISS), during a panel discussion at the Hotel Marquis Reforma in Mexico City on Wednesday.

Valencia was joined by Juan Manuel Ramírez, Executive Director of Operations of LOMA Desarrollos; Mauricio Ceballos, Director of Fernando Romero Enterprise; Carlos del Río, Partner at Creel, García-Cuéllar, Aiza y Enríquez; and Jack Levy, President of Grupo VEQ.

Del Río mentioned that there are secondary cities like Tijuana, Leon, Merida or Pachuca that in the past five years have provided more legal certainty to investors and real estate developers, which has generated a development boom in these places. “By strengthening the rule of law in these cities and providing more certainty, authorities have generated more efficiency in project execution. Developers know exactly the type of permits they need, the characteristics of the land they buy and what they can or cannot do with those land plots,” del Río said.

For Levy, the efficiency generated by legal certainty in the so-called secondary cities gives them an advantage over primary cities. “We are used to measuring secondary or primary cities in terms of population size and economic output. If we measured them in terms of efficiency and how much legal certainty they provide, secondary cities would be the country’s primary cities.”

Ramírez added that by having a group of citizens working to generate legal certainty creates a virtuous cycle where cities become promoters of their development and compete for investment. “By competing for investment, secondary cities become productive and efficient entities for real estate developers, generating an interesting business opportunity,” he said.

Although secondary cities offer important opportunities, Ceballos warned against sacrificing innovation in development. “Given the flexibility that exists, unfortunately, secondary cities can sometimes become a copy of other cities in the world like Miami.” The solution, he said, is to understand and respect a city’s calling. “Success lies in understanding the nature of these cities and how we can innovate while developing them. Real estate can either promote cities and generate more added value or destroy them.”

Levy added that for secondary cities to continue being models of success, both the government and the private sector need to make sure that growth and development happen in an orderly manner and not let corruption take hold of processes. “Corruption is not a government or private sector problem, it is a human problem. We need to make sure that these practices that have harmed the country are not replicated in these cities.” Ramírez said that the solution could start with the private sector. “If we develop a civic sense and stop this vicious cycle, we can develop a more positive dynamic.” To which Ceballos added: “Secondary cities offer a development opportunity but at the same time great responsibility.”

Despite the uncertainty the infrastructure sector is facing, in the long run the sector will see positive results, Ceballos said. Added Ramírez: “Construction is a pillar of the Mexican economy. Although there will be a bump in the sector during the first months of the next presidential administration, we are sure that it will not be long before the sector bounces back. The first step is to provide certainty to the private sector, then we can start developing.”

Mexico Infrastructure & Sustainability Summit 2018, organized by Mexico Business Events, is also the launch event for the third edition of Mexico Infrastructure & Sustainability Review, a publication by Mexico Business Publishing.

Disseminating IoT And How Mexico Can Create Sustainable Cities

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Smart Cities and IoT are the buzzwords taking over the infrastructure industry and with reason. “IoT is transforming the way in which we are living,” said Edgar Anaya, Partner at Anaya Abogados, during Mexico Infrastructure & Sustainability Summit 2018 at Hotel Marquis Reforma in Mexico City on Wednesday. Added John Donoghue, CEO of National Fiber Networks: “People have heard these buzzwords but often do not fully understand how they will impact the way of doing business.”

According to Donoghue, IoT will create new businesses but its impact also echoes in most aspects of a society. “What a tremendous opportunity it is for Mexico to control its own destiny,” he said. “Digital convergence infrastructure is key as it sets the way to what is coming regarding IoT, Smart Cities and AI. But we need to build the highway of infrastructure that will enable these buzzwords to become a reality.”

Further elaborating on the possibilities opened by IoT, Alberto Marín, Technical Director at Schindler México, explained how it allows any company to provide an enhanced experience to its clients by shifting from a reactive to a preventive approach. “In vertical transportation systems many sensors are used to gather information connected through IoT to the cloud,” he said. “Sharing information with our clients gives them predictive, proactive and preventive situations. IoT gives us an enhanced experience.”

In the end, this enhanced experience leads to a level of integration between all players that creates a Smart City. “The city belongs to us and in turn, we belong to cities,” said Jorge Martínez, Director General of Zacua and COPEMSA. “When we update information, we become part of the ecosystem. It is scary because we are constantly monitored. I feel invaded, but I also feel excited about what is coming,” he added.

The thrill and cautiousness triggered by the possibilities of IoT must in turn lead its users to attempt to understand how data flows, said Baltazar Rodríguez, Senior Architect, Blockchain Engagement Leader at IBM Blockchain. “Who is actually owning the data? By possessing the data we generate, we gain consumption power.”

While IoT remains the realm of fiction for some, it is an unavoidable reality. “The IoT is not something that is going to happen. It is something we already use on a daily basis,” said Rodríguez. Anaya, who also moderated the panel, added that “information shared through IoT is already saving lives.” He outlined the simple example of a wristwatch sending an alert to a hospital when its user is having a heart attack.

According to Rodríguez, while there is still much to be developed, the infrastructure available within Mexico can already deliver a great deal of value. “The scarcest resource is not capital or infrastructure, but resourcefulness and creativity,” he said. “To continue down this path, we need to have a point of view of securing devices.”

Luis Rubio, Partner at Holland & Knight, believes Mexico is going in the right direction. “There has been a Telecommunications Reform and there are great ideas in the pipeline,” he said. “But if we want to be closer to Smart Cities, we need more infrastructure. As technology develops very quickly, infrastructure also needs to be deployed quickly, even if we have a couple-years’ lag.”

Addressing this lag, Donoghue highlighted the need for shared digital infrastructure. “Infrastructure has to be neutral to let competition happen. It must be shared, and again, it must be neutral,” he said. “We do not have the required IoT infrastructure for Smart Cities in Mexico and the country is a greenfield. Mexico has the talent to develop it. This is Mexico’s golden age to play in this field.”

Shared infrastructure will not only foster market competition with all its economic benefits but also promote smarter and more equal cities. “We must prioritize shared responsibility because it is useless to digitalize unconsciously,” said Marín.

Rodríguez agreed. “The only form of sustainable wealth is shared wealth. All players need to reap some benefit,” he said, quoting Economics Nobel Prize winner Joseph Stiglitz. “If you build a Smart City only aligned with what is good for government, it will not serve citizens. We need to develop new network-based models where everybody can benefit.” He added the municipalities that pursue this path will be the first IoT winners.

Stakeholder Engagement for More Livable Cities

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Making cities more livable is not only a challenge present in the country, but it is a global pressing issue. The current Mexican model generates uneven opportunities for citizens and this situation need to be addressed by the government, the industry and the citizens themselves, according to a panel of experts at Mexico Infrastructure & Sustainability Summit at the Marquis Reforma hotel in Mexico City this Wednesday.

“The current urban environment generates exclusion and inequality,” stated Mariana Orozco, Director General of CityEs!. “As a society, we need to have a vision to where we want to be in terms of citizenship and visualize more sustainable, resilient and safe cities.”

Orozco was joined by Adriana Lobo, Executive Director of WRI Mexico, Eduardo Orozco, Founder and Director of MDL, Maximiliano Zurita, Director General of CAF Mexico and Mauricio Cobo, Former Minister of Mobility of the Municipality of Queretaro.

Eduardo Orozco laid out the issue as one of changing demographics. “Half of Mexico’s population is about to enter to a stage where they demand real estate ownership,” he said. “The industry is going through a big generational shift. We went through a generation where real estate cost represented 10 times the annual income of a person, to one where it ballooned to 17 times.” He stated his concern for millennials, who he said are unable to purchase housing due to the lack of offer and huge demand in dense cities. “The market is becoming unequal and people from the cities are slowly being pushed toward the outskirts,” he added.

Cobo, an urbanist with experience in managing urban strategies in Queretaro, agreed. “Social inequality cannot be supported in cities anymore,” he said. “Citizens’ quality of life is at stake and population density plays an important role in this game.” He highlighted that addressing this issue is unviable from a political perspective and often citizens live within a comfort zone that is not easy to leave when implementing strategies.

Mariana Orozco disagreed, citing his company’s successful flagship project in the state of Jalisco. “We participated in a project where a street in downtown Guadalajara became a pedestrian lane,” he said. “This detonated real estate projects in the region and had a positive reception from the public.” She stated the importance of involving NGOs and citizens to make these projects more attractive for the lower-income populations.

She also pointed out that often, it is not the lower-income populations that object to public transport projects, but rather the middle-high income segment. “Eighty percent of the population will be grateful for public transport investment,” she said. “Only the minority who are middle-high class and can afford to live on the outskirts and drive every day will be opposed to this.”

Zurita highlighted the importance of considering a multi-modal approach for public transport projects. “Public transportation generates mobility. It has to take place from a multimodal perspective, as no sole transport mean solves the problem,” he said. According to him, 85 percent of the total transportation takes place by car, transporting 1.3 people on average. Of the remaining population, 80 percent needs public transportation. “Transport infrastructure needs to consider public transport integration from a tariff and physical point of view that is also attractive for the medium and high class. If someone has the option of travelling in discomfort in public transport or the comfort of a car, it is obvious which option will be chosen,” he added.

Regardless of the modes of transport, Lobo reflected on the need of involving all the stakeholders in the conversation and create tangible strategies to address this issue. “There is an initiative on the table, but the mechanisms are missing,” she explained. Eduardo Orozco agreed. “The industry has a big incentive, which is the market itself, but we need citizen and government voices in the conversation,” he added.

Tapping into Mexico’s Water Sector For Investment Flows

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The Mexican state needs to modernize its legislative framework to allow for joint participation between the public and private sectors in water infrastructure, panelists said at the Mexico Infrastructure & Sustainability Summit 2018, as they reflected on the challenges that Mexico faces to ensure access to water for all its inhabitants.

“We need new regulation that permits joint public and private investments and we need a regulatory commission for water, in the same way we have established regulatory commissions for electricity and oil,” said Sergio Ramírez, Director General of Acciona Infraestructuras, during a summit discussion at the Hotel Marquis Reforma in Mexico City on Wednesday.

Ramírez was joined by Federico Casares, Business Development and Institutional Affairs Director Mexico of Veolia; Othón Pérez, Business Development Director at FOA Consulting; Yolanda Padilla, Regional Manager Mexico and Central America of Fluence; and Roberto Olivares, President of RELOC and the panel’s moderator.

Padilla echoed Ramírez and said that the private sphere is willing to participate with investment in the sector but it is waiting for the government to generate the necessary conditions that would foster the sector’s participation. “We understand that the government cannot undertake the challenge of water infrastructure on its own, which is why we have to work together using tools such as PPPs.”

As an example of how the public and private sector can work together successfully, Casares mentioned Veolia’s water concession in Aguascalientes, where over 20 years the company has covered almost 99 percent of the city’s water needs. “When we started operating, water supply was deficient. However, local authorities knew that participation from the private sector was crucial for the long term.”

Pérez said that participation from the private sector faces three main hurdles: financial, legal and political. “For the private sector to participate, they need legal certainty regarding the projects, local governments need to know how to operate PPPs and we need to solve the problem of political communication with citizens regarding the participation of private players in the management and commercialization of water services.”

For Ramírez, part of the challenge lies in generating a new culture regarding water in the country. “We need to get accustomed to paying for water services the way we pay for electric or phone services.” Casares added that a change in culture must obey to a change in the governance model that is used to face the challenges in water infrastructure. “There needs to be a solid legal framework that includes and respects the different positions of society and that at the same time includes mechanisms that allow for control and transparency in the use of resources.”

Particularly in the use and reuse of water, Olivares said that Mexico has an important opportunity. “In countries like Japan, water is used up to 11 times, while in Mexico we only use it once.”

Ramirez said that if the industry and society do not change the way water is managed, the country could face a water crisis very soon. “We need a structural reform for water. We are at a very high risk of suffering from a major water crisis.” Pérez added that the key is to generate a cultural change. “We need a more rational use of water and integral planning.”

Mexico Infrastructure & Sustainability Summit 2018, organized by Mexico Business Events, is also the launch event for the third edition of Mexico Infrastructure & Sustainability Review, a publication by Mexico Business Publishing.

 

A New Era for Infrastructure Development: CMIC Speaks Out

Marcos Orduña , National Vice President of the Mexican Chamber of the Construction Industry (CMIC)
Marcos Orduña

The infrastructure industry faces significant challenges in the face of a sectoral dichotomy. “Mexico is within the Top 15 world economies but it is also ranked 62nd in competitiveness,” said Marcos Orduña, National Vice President of the Mexican Chamber of the Construction Industry (CMIC), during Mexico Infrastructure & Sustainability Summit 2018 at Hotel Marquis Reforma in Mexico City on Wednesday.

Orduña is convinced that this contradiction is related to funding. “De-investment in infrastructure has been constant during the last couple of years. The current administration will end in the red,” he said.

Fortunately, the lack of public investment has been countered by private money, which according to CMIC’s statistics grew to 76.6 percent in 2017 compared to the government’s 23.4 percent. “The challenge is to boost public investment. We are asking the government for 5 percent of GDP, which is aligned with CEPAL standards of 5 to 8 percent,” Orduña said. “This equals an annual expenditure of MX$625 billion to meet infrastructure needs.”

Besides outlining industry problems and needs, Orduña emphasized his view of the ideal infrastructure agenda. “First, we need a projects bank regardless of who is ruling the country,” he said. “Mexico needs to be intercommunicated from the Gulf to the US border.”

CMIC believes the ideal agenda for infrastructure work should be based on five main axes: the creation of an autonomous institute for long-term infrastructure planning, combating corruption, a focus on fostering the development of Mexican companies, validating and certifying construction companies and an infrastructure financing scheme.

Orduña is confident that the private sector will continue placing its bet on the country’s infrastructure. “The money to finance infrastructure can come from the projects themselves but these need to have a well-planned executive blueprint first.” CMIC has already opened the discussion with incoming Minister of Communications and Transport Javier Jiménez Espriú. “He seems to be open to our proposals,” Orduña said.

Despite current hurdles, Orduña remains optimistic about the industry’s future. “We are well-placed at a business level and the country has good prospects,” he said. “CMIC is striving to find common ground between public and private interests.”

Mexico Infrastructure & Sustainability Summit 2018, organized by Mexico Business Events, is also the launch event for the third edition of Mexico Infrastructure & Sustainability Review, a publication by Mexico Business Publishing.

 

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