The Mexican infrastructure woes that Claudia Sheinbaum will inherit

Mexico's president-elect, Claudia Sheinbaum, will inherit a complicated infrastructure outlook when she's sworn in on October 1, and will need to coordinate public and private investments to get the country back on track.

The challenges include starting operations and boosting the flagship infrastructure projects that President Andrés Manuel López Obrador leaves behind, such as the Felipe Ángeles international airport (AIFA), and those that were not completely finished, like the Maya train, and the interoceanic corridor. 

“Infrastructure projects are for consumers and tend to have a high capex – that’s why it's ideal they are in the hands of the private sector, unless we're talking about social infrastructure,” Juan Carlos Machorro, partner at Santamarina + Steta law firm, tells BNamericas. “The private sector should assume the risks.”

Though she has yet to unveil her infrastructure plan, Sheinbaum has promised to start one major infrastructure or water project per state in 2025, prioritized based on needs and funding. 

Private participation

During López Obrador’s six-year term, public-private partnerships were significantly scaled back in the infrastructure and energy sectors, as the president accused private firms of corruption and abusive market behavior. Instead, he chose the defense ministry (Sedena) to take charge of several major works. 

Sheinbaum is expected to follow in her predecessor's steps in many ways, but players in the construction sector believe the incoming administration will need to bring in the private sector if it is to fulfill her campaign promise of starting one infrastructure per state.

“We want to believe in our president-elect. She has a very ambitious infrastructure plan and talks about collaboration. We asked her directly how much the private sector would participate and she responded affirmatively, 100%,” the president of the Mexican construction chamber (CMIC), Luis Méndez Jaled, said in July. “The second factor is the team she has appointed, which is mostly experienced and has previously worked with us.”

The chamber claims that federal highways are currently in a critical state of disrepair, with only 33% of them in good condition. 

“One in every three highways is in good condition; that results in lower productivity levels,” said Méndez Jaled. “The maintenance issue has become a crisis in our country. In 2024 there has been virtually no budget for that.”

This is one of the problems that caused Mexico to spend nearly 4% of its GDP in 2023 on freight transportation delays, the chamber said. 

According to recent reports, Mexico’s public and private investment in the construction and maintenance of federal highways dropped 48% during the first five years of the López Obrador administration compared to the same period of predecessor Enrique Peña Nieto.

Private investment in highways reached 31.3 billion pesos (US$1.6bn) during this period – according to the sixth state of the nation report published on September 1 by the government. The figure is 68% lower than the private investment in highways during the first five years of Peña Nieto’s administration.

Sheinbaum and her team have recognized the importance of road infrastructure investment, outlining several projects in her document “100 steps to transformation” and promising to repair 3,000km of rural highways.

Completion and promotion of flagship rail projects

The interoceanic rail corridor and the Maya train, two of the major infrastructure projects championed by the López Obrador administration, will also pose technical and financial challenges to his successor that could determine their success.

For its part, the interoceanic corridor has run into multiple technical and financial problems, including cost overruns that threaten its objective to become an alternative to the Panama Canal.

According to CMIC, there are other elements that should be added to the equation for the success of this project, like trained workforce, and infrastructure and energy availability. 

“The interoceanic corridor is very ambitious. If the development hubs can be implemented – and that requires trained workforce and infrastructure… if that can be accomplished it will be a very successful project,” Méndez told BNamericas previously. “It will be complex but having a path that can bring results sooner or later is the challenge that Claudia Sheinbaum has.”

Last week, López Obrador submitted a bill to congress to redirect funds from fees paid by foreign tourists when entering the country. These funds have been going to the Tren Maya trust, but under the bill they will be going to firms managed by the defense ministry to finance “diverse activities and needs.”

The termination of the trust and redirection of funds could leave the Maya train – not yet finished – “unprotected” and see it suffer operational problems, according to Víctor Hugo Martínez Rendón, an independent consultant who worked on the project.  

Claudia Sheinbaum has stated her intention to finish and boost both the Maya train and the interoceanic corridor, but specific plans regarding the projects have not been published. Instead, she has promised to launch construction tenders related to other projects like the Nuevo Laredo rail line and to build more than twice as many railroads as the current administration.

“The aim is to build 3,500km of passenger railways,” Sheinbaum was quoted as saying by El Financiero. The current government has built around 1,500km since taking office in 2018.

Challenging social budget and fiscal deficit

A potential rise in social spending in Mexico under Sheinbaum's government threatens to leave other areas of the economy short of funding, including infrastructure and public works. 

Funds allocated for social spending in the 2024 budget topped 3.75 trillion pesos (US$203bn), accounting for 41% of the federal budget, according to a report from news outlet Animal Político.

These investments reached an all-time high under López Obrador and Sheinbaum has vowed to increase them further, reinforcing social benefits and even expanding the coverage. Moreover, the fiscal deficit that she will face is one of the highest recorded in Mexico’s recent history.

“By the end of 2024, the public deficit will be at 5.9% of GDP, which is high and will force the new government to make adjustments toward 3% of GDP,” Méndez Jaled told BNamericas.

This comes in “a scenario where spending for pensions, the debt repayments and social programs are increasing. There's a possibility that the spending in infrastructure will be limited,” he added.

Spooked investors

Apart from the technical and financial challenges that the infrastructure sector will present, the new president will have to face political turmoil left by her predecessor regarding the termination of autonomous bodies and the approval of controversial judicial reforms. Both matters, experts believe, deter the arrival of investments, and even menace the nearshoring trend. 

“You cannot scare off private investments when you are part of the largest commercial front in the world, when you have an opportunity like nearshoring and when you have so many infrastructure needs,” Machorro told BNamericas. “And you cannot do that when [the country’s] finances are so compromised after this last year and we don’t understand the need to start [the new administration] on the wrong foot.”

The reforms, promoted by the exiting administration, will introduce judges elected via popular vote, an element that has sparked controversy, has worried the US and Canada, and has depreciated local currency against the dollar.

“I have concerns regarding the funds that will be needed for infrastructure and other sectors of the economy, including social programs, healthcare, security, education,” Machorro said. “Investments are being held back by the measures of the outgoing administration, such as the judicial reform and the elimination of autonomous bodies. Without investments, there will be no economic growth and no funds.”