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On Mexico's difficulties for long term planning

October 29, 2018

 

 

 

The new government of Mexico has decided to cancel the construction of the new international airport, the iconic infrastructure project of the Peña Nieto administration. As expected, financial markets were not happy about the announcement as it adds more uncertainty to an already confusing and complex economic and political environment.  Pundits were deeply divided over the issue airing their arguments, insults and ideology at every opportunity they had in social and traditional media networks.

 

Some pools showed that the general public was in favor of finishing the project, which is not to say that they did not want to do things differently. Yet, the public referendum organized by the incoming administration said the opposite. Here is important to remark that the referendum lacked transparency both in its design and its implementation. For those of us who lived through the 1999 UNAM’s strike, it brought unsatisfactory memories of decisions being made at CGH assemblies back then. To sum the logic up:  only the votes and voice of those in the assembly matter, if the rest of the population does not participate, then their opinions are not relevant for the decision. On the political front, this is what caught my attention the most, but that is something that must be discussed later, as more information becomes available. 

 

Really, what I believe should be discussed regarding this episode relates to how it reflects on Mexico’s extraordinary challenges for making sound long-term decisions. Specially, the last 10 years have been terrible for Mexico in terms of developing critical infrastructure projects, many of the iconic projects have been overbudgeted, delayed and/or poorly constructed. It amazes me that we turned out to be better builders under the PRI authoritarian regime than under the multi-party democratic system.

 

The problem lies with the assumptions. The Mexican government tends to be overconfident regarding the assumptions of its policies. Let’s take the Texcoco project as an example. The architectural project is conceived beautifully, no question about that, the iconography of the project and its symbolism was relevant to our culture and our aspirations as a nation. However, the project was doomed from the start. Two assumptions were especially poor. The first was that building the project in federal land will solve the issues with the Texcoco political groups that oppose the construction of the airport in their lands. Although these groups do not likely represent the opinion of the majority of the Texcoco community, they have political power and ties that kept the new airport as part of the political agenda. Their opposition to the project was ultimately assimilated by the candidate that was running by opposing against everything that had been implemented in the past. The second and perhaps most vulnerable assumption was that related to the technological solutions needed to build the project in the soil of a former lake. Do not misunderstand me here, a sustainable airport can be built in that soil and environmental equilibrium can be achieved with the surrounding ecosystem. That of course can be done, the problem is that this was going to be expensive and it was going to take time to do it right. And this is the problem, when the project was announced, both the costs and the time estimates for completing the project were incredibly optimistic. Vulnerabilities in this front, increased vulnerabilities on the political front, ultimately killing the project.

 

Good, robust and intelligent decisions take time and that is what Mexican administrations do not seem to understand. This is not a linear process, you do not first make the studies, design a beautiful airport and then build it. It takes time to first develop a concept with sufficient information that you can at least reduce the uncertainty regarding its costs and its construction time. Then, it takes more time to socialize a plan, which means that you need to be opened for a wide discussion on the project, you want to know what is what you missed, what is what you could still do to improve it, and after this, you are back to the drawing board, and you do this until you become confident that you plan will sustain surprises and that your plan has support from the wider public.

 

This is never done in Mexico and while we can blame the Peña Nieto administration for incompetence and corruption with respect to developing the new international airport, we can be  harsher with the incoming administration in several of their “key” projects for rushing into catastrophes. 

 

Three projects are emblematic of the poor way in which this administration is thinking about developing infrastructure as none of them can sustain the slightest of scrutiny on their core assumptions. The new refinery for instance, setting aside the economic rationale of the project, relies on the assumption that PEMEX is capable to mobilizing such a large investment. According to the plan, PEMEX will be able to build this new refinery and retrofit the other six in just three years. This is not realistic, and even more ludicrous is to believe that these project can be done primarily with Mexican engineering. The reality is that this project, if completed in three years, will be overbudgeted and developed primarily using foreign contractors. More likely, the project will take more than three years as PEMEX does not have an efficient operation. Before launching into such ambitious projects, PEMEX needs to be largely reformed. The project will likely suffered from delays caused by infights inside PEMEX.

 

The Maya train and the airport proposed by the new government also face huge challenges. The train will likely be challenged by local communities as they have the advantage now. The tracks of the train have been announced already without securing the right of way! How many law firms are already organizing these communities to challenge the project? One can only imagine! Finally, the “alternative airport” is doomed from the start. For once, it is uncertain whether they will be able to align incentives for operators across the three airports. There is definitely one technical way of achieving this, but I think there is not much room for action as this will likely drive cost up for consumers or airlines, transferring the cost to one of them will have serious consequences. Second, these projects will not be done in three years; this is a political time table that obviously is not considering the political backlash of the projects, nor potential technical delays. This estimate has probably nothing to do with the actual time required for finishing the projects in a proper way.

 

Mexico refuses to face some of the realities of its context. In thinking about the long-term, before buying into grant visions of our future, we first must acknowledge the restrictions and deficiencies we face, analyze these and respond strategically so we can quickly move to more ambitious targets. In other words, we have to stop making big bets on infrastructure and development policies and, for once, focus on doing things, whatever small the scale, right.

 

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