CIC - Construction Intelligence Center

AMLO’s election and its impact on infrastructure in Mexico

4 Jul 2018

On July 1, Andrés Manuel López Obrador (known as AMLO), a leftist populist, won Mexico’s presidential election. His landslide victory suggests that his electoral coalition, Juntos haremos historia (“Together we will make history”), will be able to form a congressional majority and give him and his administration a strong mandate to govern and enact their reform agenda.

 

While his victory was not a surprise, as he led in the polls by double-digit margins since March, his election marks the start of fresh uncertainty that could create potential roadblocks in tackling important infrastructure bottlenecks in the country. In particular, his election raises additional concerns over the potential for the future renegotiations of the North American Free Trade Agreement (NAFTA), which Mexico signed with the US and Canada in 1993. His nationalistic rhetoric could make it harder to reach an agreement on NAFTA. Like Trump, López Obrador (who is also known as AMLO) thinks Mexicans got a bad deal in NAFTA, making it a low-cost hub for US corporations. Although he now claims to support NAFTA, this together with Trump’s plans to build a border wall and other immigration policy controversies are likely to place additional strain on US-Mexico relations, and impede much-needed investment in Mexico’s infrastructure sector.

 

During his election campaign president-elect, López Obrador, pledged to root out corruption, tackle the country’s high poverty and violence rates, and stand up to the US president. He also promised to freeze fuel prices, reverse the 2013 energy reforms and cancel the New Mexico International Airport (NAIM) Project amid alleged corruption and wasteful resources.

 

Even though now his tone appears to have softened (possibly to calm investors ) and he is no longer seeking an immediate cancelation of the US$13 billion airport, the general message sent by his campaign vows is a cause of concern for both the economy and the overall construction industry. Recently he has proposed the possibilities of auctioning the airport to the private sector or moving it to an alternative site. According to Javier Jiménez Esprirú, the next head of the Secretary of Communications and Transport (SCT), the future of the NAIM Project may be determined in August although construction of the airport is already 40% complete. 

 

The construction of NAIM along with opening exploration and production of oil and gas to the private sector are high priorities for the outgoing President Enrique Pena Nieto’s economic agenda. If AMLO decides to reverse these energy programs, and carry out his plans to freeze fuel prices, the vulnerability of the oil sector will increase. Similarly, if he decides to cancel the NAIM project or move it to an alternative site; this will mean large losses on construction works that have already commenced. 

 

But not all is bad news. In the immediate aftermath of AMLO’s election the value of the peso strengthened and Mexican stocks rallied. In addition, AMLO’s recent call to work closely with Pena Nieto for an orderly transition has further strengthened the peso