Focus: Infrastructure

Where & Why

Where & Why

Jul. 16, 2013

POTENTIAL INVESTMENTS

Legal and regulatory changes concerning investments in the insurance and social security sectors have been implemented in recent years, and these changes have led to sufficient savings that can be channeled to infrastructure projects. The amount of capital that is available increases when bank loans are included in the calculation. According to figures from the Banco de México in 2009, as part of a study by the Program for the Promotion of Public Private Associations in Mexico (PIAPPEM), the volume of credit channeled into infrastructure by commercial banks stands at 10% of capacity, which amounts to Ps337.7 billion per year. In accordance with the Chamber of Deputies' evaluation of the 2010 Public Accounts, commercial and investment banks dedicate 7% of their security investments to buying Pidiregas (Proyectos de Inversión Diferida en el Registro del Gasto) and other instruments issued by the National Infrastructure Fund (FONADIN), with total securities investments in the sector estimated at around Ps51.4 billion in 2013. When we look at the expansion of credit and the buying of securities, we find that the banking sector is an important player in infrastructure finance with an overall contribution amounting to Ps389.2 billion, or 2.5% of GDP. When it comes to the insurance sector, the total worth of assets in the sector will increase from 4.1% of GDP in 2008 to 7% in 2025, bringing its total value to Ps761.2 billion (4.8% of GDP in 2013) and this means that up to Ps150.3 billion (0.95% of GDP) could be allocated to infrastructure securities, given that as of 2009 they can acquire funding to finance these in accordance with the limits set out by the National Securities and Finance Commission (CNSF). The new law sets the following proportions: 10% structured notes; and 60% securities issued or backed by decentralized entities, state participation enterprises, state governments and municipalities, and trusts in which the trustees are any one of the entities that are not backed by the federal government and which are registered in the National Securities Register (RNV) of the National Banking and Securities Commission (CNBV). This presupposes that insurers can allocate 2.5% of their investments to financial instruments that can fund infrastructure projects. When it comes to pension funds, the Administration of Retirement Funds (Afores) can acquire securities to finance infrastructure, and their options to do so have expanded in 2011 after changes made to investment regulations, according to which these entities are authorized to employ investment mandates and mutual funds to diversify their portfolios, which in turn will benefit long-term investments in infrastructure; the percentage value will depend on the type of Siefore (Society of Specialized Investment in Retirement Funds). If we consider the 20% in general, the total amount in 2013 could reach Ps334.6 billion, or 2.11% of GDP. What emerges from all this is a combined financing potential of Ps874.2 billion, which represents approximately 5.5% of GDP. This capacity is bolstered by and dependent on continued macroeconomic stability, which ensures that these projects attain sufficient profitability levels.

Special Contribution by Francisco Ibáñez Cortina, Lead Partner of Capital Projects & Infrastructure at PwC México

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