Economics: New infrastructure announcement falls short again

MEXICO - Report 14 Dec 2020 by Mauricio González and Francisco González

Gross fixed capital formation, which had already been receding since the first days of President Andrés Manuel López Obrador’s government, has been one of the variables hardest hit during this year’s economic and health crises. So the recent announcement of a second raft of mostly private-public infrastructure projects was welcome news, although an item hardly likely to deliver on administration promises of revitalizing economic activity and job creation.

The package was a long time in the making, descending from a National Investment Accord (NIA) the private sector proposed to a reluctant government in November 2019 for promoting public-private sector partnerships to develop a wide range of infrastructure projects. Eleven months later the government and private sector representatives announced an initial group of such projects valued at 297.3 billion pesos, followed by the second bloc estimated at 228.6 billion. Still far short of the initial 859 billion NIA proposal, the second bloc retains the first package’s focus on roads, electricity and liquid natural gas infrastructure, and potable water projects, although they are much more limited in scope and face greater challenges.

For starters, there is no guarantee that the private sector will invest in these projects under current conditions marked by the considerable uncertainty surrounding public policies and the distrust fanned by the current government’s penchant for canceling or rewriting their rules for projects already underway, and its disinclination to uphold the rule of law. The federal government hasn’t even clarified what sort of rules will apply to the proposed public-private arrangements for such investments, and given the austere federal spending budget for 2021, it remains a mystery where the government intends to come up with its part of the money.

Moreover, the government’s claims of having clearly defined "social benefits, costs and implementation times," and official estimations that the projects will add 2.3 pp to GDP and generate up to 400,000 jobs should be considered disproportionately optimistic. We estimate they will add only two decimal points to GDP and roughly 100,000 jobs.

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