Spanish Companies Building New Opportunities in Mexican Infrastructure
Spanish companies have built a solid presence in foreign direct investment to Mexico, setting a particularly strong footprint in the country’s infrastructure industry, Antonio Basagoiti, President of the Spanish Chamber of Commerce in Mexico, said in his opening presentation at the Mexico Infrastructure & Sustainability Summit 2019 at the Hotel Marquis in Mexico City on Wednesday.
Spain accounts for 12 percent of all FDI to Mexico, making it the second-biggest investor in the country. This includes large international companies, small to medium-sized businesses, including family businesses, and public bodies. Of all foreign investment in Mexican infrastructure, 24 percent is of Spanish origin. “This shows our commitment to this country is for the long term,” Basagoiti said.
Basagoiti recognizes that there have been recent challenges to foreign investors. Large infrastructure projects have been a subject of political battles. But he pointed out that the new government is also setting an ambitious agenda of new projects, which include the Santa Lucia airport, the remodeling of the current international airport of Mexico City, the Maya Train project, the goal to connect the coasts of the Isthmus of Tehuantepec, the new ports of Veracruz and Lazaro Cardenas, and the modernization of various federal highways. “Significantly, this government has also stated its intention to complete highways that remained unfinished under previous administrations, like the road between Oaxaca and Escondido. Together, these projects would mark the biggest infrastructure investment in 24 years,” he said.
Adapting to the new direction is a challenge but one that Spanish companies will take on, he added. “Spanish companies working in Mexico will adapt to current strategies for the development of Mexico.” He also highlighted that the “Spanish private sector continues to look at Mexico as a prime investment destination. The technology behind the Tren Maya is Spanish.”
Spanish companies have built a formidable reputation in infrastructure bec ause the sector experienced rapid growth and consolidation in Spain over the last few decades. Companies which built a lot of capacity and experience are now finding opportunity abroad, Basagoiti said. Among the renowned international projects managed by Spanish companies are the newest tunnels in Istanbul, bridge projects in the UK, the Lima and Ryadh metros and various international airports. Basagoiti also pointed out that Spanish companies can contribute in the engineering stage, the construction work, and the financing of projects. Examples of Mexican projects that have had Spanish participation are the Maya Train and the Western Highway Toll network. Basagoiti was also keen to point out that Spanish companies, and the chamber itself, are always looking to work with local businesses and employ Mexican nationals. “The willingness to share experience and commit to working with a local workforce is not always the case for international companies, but for our members it is a primary objective,” he said.
Another area which is high on the chamber’s agenda is to foment ethical business practices which promote social development and a conscious environmental footprint. “These days, companies are more and more concerned with doing things in a clean manner, using their projects to improve the living conditions of the communities who live in the areas,” he said. This is a goal his chamber always tables in its meetings with private and public bodies. With a presence in Monterrey, the Bajio region, Cancun and Mexico City, the chamber holds frequent discussions with government entities at different levels. Basagoiti recognizes that the Mexican government has the sovereignty to make its own decisions, but he hopes the industry can move toward the adoption of international standards that provide clarity and continuity. “Carrying out infrastructure projects is not enough today. They must be done ethically, transparently and efficiently.”
In his closing words, Basagoiti emphasized Mexico’s bright future. Apart from the projects announced by the government, there are many more areas which will provide opportunities. Mexico has a very favorable geographical location and remains open for international business. He also reiterated the obligation of the sector to contribute to social development and help conserve the country’s rich cultural heritage. “Mexico will inevitably grow if the right measures are taken,” he said. “Spanish companies are key partners to detonate the country’s potential.”
Private Investment to Bridge Mexico’s Infrastructure Gap
Mexico needs to incorporate a long-term view when drawing up plans for the infrastructure necessary to push its economy forward and to attract the private investment that could help see projects to fruition, panelists at the Mexico Infrastructure & Sustainability Summit 2019 told the audience at the Hotel Marquis in Mexico City on Wednesday. “The risk should be spread across different parties, and not be a burden for just the government,” said Gerónimo Gutiérrez, Managing Partner at BEEL Infrastructure.
The panel, titled Private Investment to Bridge Mexico’s Infrastructure Gap and moderated by Othon Pérez Martínez, Business Development Director of FOA Consulting, looked at the actions needed from all sides to attract private money and build solid projects. “What is key is to have a mechanism to draw up these plans, with the goal being a long-term commitment to the growth of this country,” said Estéban Lecumberri, Director of Infrastructure at KPMG in Mexico. Jack Levy, Founder and Chairman of Grupo VEQ, added that it takes more than one party to ensure successful projects. “Teamwork and defining a common goal as a community is the key to creating good infrastructure projects, which will automatically attract private investment,” he said.
All participants agreed that a long-term vision was needed to attract greater investment in Mexico, where government administrations are limited to six-year terms. The current landscape causes uncertainty, which leads investors to hold back their capital, in turn leading to project delays and ultimately, higher costs. “Trust and certainly would help the country move and progress. Investors see that the ground is not very stable,” said Levy. Added Esteban: “Corruption and insecurity are as damaging as uncertainty.”
Gutierrez highlighted the elements that could promote private investment. “First, is certainty as we’ve already said. Second, investors need to know what percentage of participation the government is willing to give them. The third factor is to have effective mechanisms for bureaucratic processes, and lastly, clear legal frameworks and litigation processes, mostly for concessions.”
Another factor that plays into the landscape is the public and its perception of infrastructure projects, the government and the role of private businesses. “The public needs to have a clear understanding of what infrastructure in needed, so they can vote according to their interests,” said Lecumberri. He added that education was needed to ensure people were making informed opinions. “Our work as companies needs to be to communicate our projects, from how we choose them as an investor to how we develop them. That way, community can have informed opinions and an understanding of the project.”
Levy added that “presidents and governors should not focus so much on public opinion, because (projects) will generate debt, but that does not mean that it is a bad thing, because the effect will be to address and prevent a future problem.”
The panelist agreed that more financing options were needed to attract more private investment, along with incentives. The government’s austerity measures are also an impediment to strengthening the country infrastructure backbone. “Institutional strength worries me,” said FOA Consulting’s Pérez. “With austerity, we have been facing loss of capacity and talent. We might have the project but no people to work on them and develop them.”
Challenges, Opportunities in the Transport Infrastructure Conundrum
Transport infrastructure is key to Mexico’s development. On the one hand, investing in transport will kick-start the country’s productivity. Moreover, good transport can potentially alleviate regional inequality, which has grown in Mexico in the last decades, panelists said at the Mexico Infrastructure & Sustainability Summit on Wednesday at Mexico City’s Hotel Marquis. The conundrum is that the public sector lacks sufficient resources to undertake this investment on its own, especially “due to Mexico’s growth outlook, which is around 1.3 percent for 2020,” added Roberto Ballinez, Senior Executive Director of Public Finance and Infrastructure at HR ratings de México.
Led by moderator Luis Rubio, Executive Partner at Holland & Knight, the panel in which Ballinez took part along with other prominent industry leaders explored the challenges and opportunities this state of affairs presents.
Ballinez is cautiously optimistic on López Obrador’s disposition for dealing with this conundrum. “Even when the government is taking too long to define the course it will take on transport infrastructure, it is good that the door for private investment remains open. Tendering processes on projects, especially in Mexico’s south, is crucial,” he said. Ballinez went on to explain that modernizing railroads is one area of opportunity, as 30 percent of merchandise is transported by train in the north of the country, but only 10 percent in the south.
With respect to the necessary cooperation between public and private players, Francisco Javier Castañeda, Country Manager of Grupo Calidra, remarked: “As public resources are insufficient, they must be used smartly, with the aim of detonating private investment. However, the government must provide a framework of legal certainty and rule of law for private players to invest. Mexico as a whole must assume this important challenge.” To Castañeda’s point, Roberto Martínez, Head of the OECD Mexico Center, added that certain international best practices can be implemented so as to provide certainty. “In Australia, for example, there is a system of independent planning councils, which work beyond political cycles, certifying the viability of projects and guaranteeing that they will be completed regardless of the party in power.” Martínez insisted on the concept of good governance in transport infrastructure projects. “Transparency, democratic decision-making, efficiency and inclusion are crucial, and all key players must be taken into account in order to achieve these ideals,” he added.
Manuel Juárez, Business Development Director of Sacyr Construcción Mexico, also underlined the importance of transport infrastructure for Mexico’s development. Even when he acknowledged that the country’s competitiveness is not terrible when compared to other Latin American countries, he insisted on the possibility to improve. To this end, Juárez said that it would be smart to invest in the maintenance and modernization of Mexico’s existing transport network. While undertaking new projects is certainly important—in his view, a train uniting Mexico City and Queretaro would be highly beneficial—he noted that the country’s roads and hubs are in need of service. “This updating should be done with a view to making infrastructure compatible with the new needs and technologies of today’s rapidly changing economy,” he said. Juárez coincided with the notion that the public sector has to detonate investments, leaving development to the expertise of properly-incentivized private players. He also remarked that private players, while ready to partner up with the public sector for the benefit of Mexico’s economy, are in a wait and see mode with respect to the decisions the government will take in order to boost investment in the country.
Solutions for Mexico’s Water Management Challenges
Managing Mexico’s water resources and infrastructure will take a concerted effort between public entities and the private sector, Federico Casares, Business Development and Institutional Affairs Director at Veolia, said at Mexico Infrastructure & Sustainability Summit 2019, held at the Hotel Marquis in Mexico City on Wednesday. “Public-private partnerships are fundamental to water infrastructure development in Mexico,” he said.
Casares was speaking as part of a panel discussing Solutions for Mexico’s Growing Water Management Challenges. Moderator Diego Torroella, Director General of Tenova TAKRAF, outlined those challenges: “Water management is important, given the accelerated population growth that we are facing and also, the climate change conditions that are impacting how water is used and managed.”
The panelists agreed that Mexico lacks the resources to satisfy the country’s infrastructure needs, which is where public-private partnerships (PPPs) could come in, with a caveat. “Private investment does not necessarily mean the service becomes private too,” said Jesús Torres Roldán, Director General of TECSA and IACMEX, highlighting the necessity for improved infrastructure. “Mexico is ranked 73rd globally in terms of hydrostructure, below Indonesia.”
Roldán also said that successful management is possible but that the issue needs to be addressed holistically. “Success is achieved through the adequate and effective use of water that is also sustainable and that generates little waste. That is, for us, the most important factor to keep in mind.” Casares went a step further. “Well-defined rules help reach a broader coverage and a quality service, but most importantly, legal and financial clarity will set the ground to achieve successful water management.”
Given its gaps in water infrastructure, a key concern for Mexico is supply. Bernardo Carmona, General Coordinator of SACMEX Mexico City, suggested that addressing necessary sustainability issues now would provide benefits later. “Addressing sustainability will make the infrastructure and the water networks more efficient. In the long run, this will contribute to people’s well-being as they won’t suffer further complications regarding water supply,” he said.
Carmona highlighted the work that Mexico City is doing to address its enormous water networks. “Right of water access, drainage treatment and reuse, sustainability and environmental management, structural transparency of the water area and transversal axes are key subjects that determine and conform water management in Mexico City.” Efficiency in managing supply is another requirement, said Torres Roldán. “Considering that 11 percent of water is not collected in Mexico, we should try to optimize the usage of our resources.”
Innovation should also play a role in resolving the plethora of water-related issues the country faces. “Smart Cities and the technology involved will be a great next step for water management,” Casares said. “By monitoring water systems in real time through mobile apps we can greatly improve our services to communities.” Torres Roldán added that “technology must be used as an example of progress to keep growing an increasing management practice.”
Omnichannel: The Real Estate Aspect
Instead of being a threat, e-commerce can help reinvent the function of traditional stores, but first there are some complex hurdles to overcome, agreed the panelists discussing Omnichannel: The Real Estate Aspect at the Mexico Infrastructure & Sustainability Summit 2019 on Wednesday at the Hotel Marquis in Mexico City.
The expert panel included Enrique Villanueva, Development Director at Pulso Inmobiliario; Gaston Wainstein, Senior Vice President of Real Estate Development for Walmart Mexico and Central America; and Carlos Garcia, Senior Vice President Industrial and Logistics at Coldwell Banker Commercial.
Implementing e-commerce channels involves very complex processes, which many customers never get to see. First, a warehouse is needed in a variety of strategic locations. “In urban areas, it is not always easy to obtain the space for logistical warehouses,” Villanueva said. This has led to several creative solutions, including the remodeling of unused parking lot space in malls as small logistical operations for stores so they can also offer their products through online orders, Garcia added. In the case of Walmart, “we have been using our own stores as small distribution centers, which when connected, form a logistics chain. The advantage for Walmart is that eight out of 10 Walmart customers live within 10 minutes of a Walmart store,” offered Wainstein.
Villanueva is confident that the traditional mall will continue to exist if it can broaden its offer beyond shopping. These days, he said, malls are increasingly offering diverse experiences related to everything from eating to special cultural events. Adapting to the market also means collecting better intelligence on who is coming to the mall, where they live, and what their intentions are. The advantage is that malls are still very popular across Latin America. “One reason is the excitement of going shopping as a social activity. A second aspect is security. Malls are considered safe areas where days can be spent with friends and family,” Villanueva explained.
There are other significant barriers that prevent consumers from overwhelmingly switching to e-commerce. Going to the store instead of ordering it online does not just entail a social motivation, said Garcia, there is also a need to be certain about a product before purchasing it. Then there is the simple fact of payment. “Many people do not feel comfortable with providing their financial details online, not to mention that a large segment of the population in Mexico does not have access to a credit card or internet at all.”
Retailers also face logistical hurdles to reach rural demographics, according to Wainstein. Even though e-commerce could potentially increase the geographical reach of retailers, it would mean building significant logistical operations. In addition, internet consumers tend to have very high standards when it comes to how fast and in what state they want their product delivered. Given the large distances in less urbanized parts of the country, this can be very challenging, he said.
Despite the wobbles and obstacles that have stood in the way of e-commerce, the sector is accelerating fast. This means that traditional store locations need to be smart and integrate other elements into their offer. “It’s all about finding flexibility,” Gaston said. Given the advantages of both the physical store, as well as e-commerce, a combination of the two services seems to be the logical answer. Villanueva gave the example of Ikea, which allows customers to see the physical product in a store before they order it. Examples like these could offer the solution to fit the preferences of the Latin American consumer.
Asset Forfeiture Law: Challenges of Private Property in Mexico
Changes in Mexico’s Asset Forfeiture Law have taken a turn that may potentially clash with individual freedoms central to a democratic republic, Ignacio Morales, former Attorney General and Public Notary, said at the Mexico Infrastructure and Sustainability Summit 2019, held at Mexico City’s Hotel Marquis on Wednesday. “The direction legislators are taking with respect to this law leaves individuals exposed to the arbitrariness of the state.”
Morales, who teaches law at the Free School of Law and was Ambassador of Mexico to France, gave a brief overview of the history and original intentions of the juridical figure known in Mexico as the Asset Forfeiture Law. Born at the Palermo Convention with the intention of fighting organized crime, the law says that if a person is found guilty of a crime, her assets can be confiscated by the state with no compensation. However, only high-impact crimes, directly related to organized crime, such as money laundering, were susceptible to asset forfeiture.
Mexico passed a law of this kind for the first time in 2009, after modifying article 22 of the Constitution. This initial incarnation of the law followed closely its original spirit. Very few, clearly defined crimes were included. Nevertheless, in 2018, the law was again modified, this time including 190 felonies, such as fiscal evasion or using fake invoices. Morales remarked: “This ampliation is excessive and represents a latent danger to the integrity of Mexican persons, physical and juridical, and of persons doing business in Mexico.” For instance, not only the material perpetrator of a crime, but also incidental accomplices to it, willing or not, can be affected by the Asset Forfeiture Law. “If an apartment is used for a kidnapping by the tenant,” Morales said, “the landlord can lose the property at the hands of the state, because it can be judged that he was an accomplice.”
More worrying, the state can confiscate the property of the accused without having proven his or her culpability. If the state judges that it is in its best interest to sell the property in question, it can do so. This innovation originated in Colombia. But there, the attorney general must authorize the sale of an accused person’s property while the trial is ongoing. In Mexico, no such protection exists.
Morales recommended the law again be changed for the greater protection of individuals. However, while the situation remains as it is today, citizens can take measures to guard themselves against possible arbitrary state actions. Morales said the best course of action is to demonstrate good faith. To this end, individuals have to be highly meticulous and keep all their documents in order. In the case of landlords, Morales explained: “First there must be a document evidencing that the title of property is authentic. Second, proof that all initial taxes have been paid must be available. Third, proof that all yearly property taxes are in order must be available if the need arises.”
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