Aug. 14, 2015


Gustavo Adolfo Arballo Luján

Mexico

Gustavo Adolfo Arballo Luján

President, Cámara Mexicana de la Industria de la Construcción (CMIC)

TBY talks to Gustavo Adolfo Arballo Luján, President of Cámara Mexicana de la Industria de la Construcción (CMIC), on growth and development in the construction sector.

BIO

Gustavo Adolfo Arballo Luján is President of Cámara Mexicana de la Industria de la Construcción (CMIC). He is also the Chairman of the Committee on Infrastructure at CONCAMIN, as well as National Advisor at INFONAVIT, CFE, and NAFIN. He is the Owner and CEO of MAQUIOBRAS, a firm dedicated to building and infrastructure development in western Mexico based in Guadalajara, Jalisco.

In May, you decreased your growth expectations for the construction industry from 4% to 3%. What reasons lay behind this decision?

CMIC works with official figures. Generally, the expectations for the construction industry are one percentage point above GDP growth. The country was forecast to grow by close to 4% at the beginning of the year. But there were two main factors that hit the economy; the fall in oil prices and consequent fall in tax income. This led Mexico into decline in an environment of budget cuts. The Bank of Mexico and other official institutions reduced their initial forecast for the economy, and hence we did the same. We rely on official data from INEGI. Up until May, INEGI had estimated the construction industry surging by 3.5%, but we opt for conservatism and our current forecast is for an increase of between 2.5% and 3%. This would be a positive result because, in 2013, the construction industry had negative growth and has steadily grown since then until June 2014. To sum up, growth between 2.5% and 3% might be smaller than we had expected, but it would be a good outcome compared to previous years.

What is the importance of private-public partnerships to energize the construction industry?

The private and the public sector have both realized that the National Infrastructure Plan 2014-2018, a Ps7.7 billion investment, will not be feasible if we just depend on fiscal resources. Hence, we have to find private investments to make it happen, and in my opinion it should be through two mechanisms; concessions and private-public partnerships (PPPs). That has happened in other parts of the world and we consider PPPs to be a viable scheme for Mexico, too. The country has a huge need for infrastructure; hence, that is the way to incentivize investors and convince them of the opportunities in the Mexican construction industry. Furthermore, it is a way to avoid the uncertainty of being attached to a public budget as spending cuts regularly occur when the economy decelerates.

What opportunities do you point out for foreign investors in Mexico?

Specifically there are three areas. One of them is infrastructure, related to the oil and energy industries. The first phase took place in the middle of the year and, although it did not bring the expected results, investment will definitely increase. There is demand for energy generation and transport. However, there is not a large enough public budget to carry it out. Another big area of investment is the ports. We have some ports that are vital globally such as Manzanillo, Lazaro Cardenas, and Veracruz. At these three ports are projects of great importance to improve services provided for major shipping companies.

What initiatives are you taking to link SMEs to the production chain?

The backbone of the Mexican economy is its SMEs. We have to figure out how to stimulate these companies to spur their growth through PPPs. If they perform better, national development will accelerate. The construction industry is a muscle that, if active, can spark movement in many other economic sectors. The SMEs are going to drive the development of regional economies. Nevertheless, the main challenge that these firms face is a lack of financial resources and, in my opinion, the government has to work alongside the development banks to support SMEs. The Secretariat of Communications and Transportation (SCT) announced that 74% of the construction contracts signed in the first half of the year were won by local companies.

What are your expectations for the construction industry in the year ahead?

I think we are experiencing one of the best economic moments in Mexico's history. Changes to receive more FDI have been made. Mexico is improving its transparency and security, but there is still work to be done. I am sure that if we achieve what we set out to, we will be better off economically. To conclude, I think that it is going to be a good year for the construction industry and the country in general.

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