Mexico brings out the big bazooka

By Eduardo Garcia and Pan Kwan Yuk

It’s the big bazooka that many have been waiting for. With Mexico’s economy posting a lacklustre start to the year, economists have been counting on a pick-up in government spending to help pick up the slack.

And open its wallet the government did. On Monday, President Enrique Peña Nieto unveiled a long-awaited 1.3tn peso ($102bn) investment plan to upgrade the country’s transportation and telecommunications infrastructures.

Including investments from the private sector, total infrastructure spending could hit 4tn pesos ($314.2bn) between now and 2018, said Peña Nieto. That would represent nearly a third of Mexico’s annual gross domestic product.

The country’s benchmark IPC index initially surged on the news before closing down flat at 40,322.32 for the day. The peso strengthened 1.2 per cent against the US dollar.

News that the Peña Nieto administration will be spending heavily to build and upgrade new highways, ports, airports, rail lines and telecommunications infrastructure should be a boon to the country’s construction and building industries.

Among those expected to benefit include:

  • Empresas ICA, México’s largest construction and infrastructure company. The stock closed up 3.24 per cent at 25.50 pesos.
  • OHL México, an affiliate of Spanish construction company Obrascón Huarte Laín, which is Mexico’s largest transport infrastructure company. OHL closed up 0.8 per cent at 35.33 pesos, taking its gain for the past 12 months to 95.5 per cent.
  • Impulsora del Desarrollo y el Empleo para América Latina (IDEAL), a company owned by Carlos Slim that also manages infrastructure projects. Its shares rose 1 per cent to 29.68 pesos.
  • Promotora y Operadora de Infraestructura (Pinfra), a company that specializes in developing and managing infrastructure projects. The stock gained 1.8 per cent to 133.29 pesos.
  • Grupo Mexicano de Desarrollo, or GMD, a construction and infrastructure management company. The shares rose 3.5 per cent to 8.07 pesos.
  • Cemex, Mexico’s largest cement maker. It closed down 1.4 per cent at 14.29 pesos.

Some of the projects the government is contemplating pouring resources into are: three new passenger train lines, 15 highways, seven ports and seven airports. Overall, the Mexican government hopes to modernise and build 5,410 kilometers of highways. It will also upgrade 13,000 kilometers of rural roads and team up with the local authorities in Mexico City to build second-tier roads that will make it easier to access and exit the capital towards the cities of Pachuca and Cuernavaca.

State-owned companies, such as Petroleos Mexicanos (Pemex), the country’s oil monopoly; Comision Federal de Electricidad, or CFE, Mexico’s electricity monopoly; and Comision Nacional del Agua, the agency in charge of administering Mexico’s hydraulic resource, are also expected to spend significantly on infrastructure projects.

Peña Nieto didn’t specify how much of the program will be funded through tax revenues or debt. But 4tn pesos is a lot of dinero up for grabs. If spent wisely and efficiently, it could well be the shot in the arm that the Mexican economy needs.

Related reading:
Guest post: Mexico needs to invest in infrastructure if it is to prosper, beyondbrics
Special Report: Mexico infrastructure 2013, FT
After QE3, Mexico may be best placed to benefit from US growth, beyondbrics
Mexico economy: things get uglier still, beyondbrics