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Mexico Infrastructure Outlook

What will be the economic impact of Mexico's planned megaport at Punta Colonet? Three experts share their insights.

Inter-American Dialogue 

Mexico recently opened bidding on a new port project in Baja California that is expected to rival the US West Coast ports of Los Angeles and Long Beach. What will be the economic impact of the new port? Will it be completed on schedule? How would US and Mexican authorities deal with security issues and other concerns?

Loretta Sanchez (D-CA), Chairwoman of the US House Subcommittee on Border, Maritime and Global Counterterrorism: We've known a long time now that [Mexico is] very interested in building a port south of the Los Angeles-Long Beach area. I believe they're looking at maybe 1 million standard containers per year. That's very small compared to what we do in Los Angeles-Long Beach [where] we process about 50 million TEUs a year ... They have to build up, they have to dredge, they have to work on that port, and to build the rail that will go from the border through Yuma, Arizona ... It's going to cost some money to do it, and when all is said and done, I think it's going to be one fifteenth of what we do today [in Los Angeles-Long Beach]. In some sense, if we continue to grow at the rate that we have been through Los Angeles-Long Beach, it may not be a bad ideas to have this port down there, just because we get so much container traffic through the Los Angeles-Long Beach ports. Almost 50 percent of everything that comes into our country goes through that port. If we have a slowdown in the containers that go through the area, or if the growth projection doesn't happen, then we might be negatively impacted by what's going on south of us, but I have a pretty good idea that we're going to be able to sustain what we need. Also remember that Mexico needs economic investment, it needs to create jobs...we're heavily impacted by people who don't have jobs just south of us, who end up crossing our border to look for work here in the United States...I think the security issues will be only with respect to containers that are coming by rail across the Arizona border, and we'll treat it the same way we're treating other issues with respect to container security; that is, we're pushing it out and we're making sure we know what's in the container before it gets anywhere near the US. So I could see a container security initiative for rail, where we would have our own people in that Mexican port taking a look at what's being put into the containers before they ever get to American soil.

Maria Velez de Berliner, President of the Latin Intelligence Corporation: The multipliers of a five-year, $4-5 billion investment will turn Punta Colonet into an industrial center of 200,000-plus people; it might put Baja at the center of the Hemisphere's advanced logistics chain. However, two challenges exist for the project to be functional: 1) security; and 2) technical skills. Security: Mexico estimates violence, and the insecurity it creates, costs the country 1 percent in GDP/year. The port is located in a drug cartel-ridden state. Calderon's militarization of the war on Mexico's drug cartels has not abated their activities. The militarization of some port operations is likely and will heighten the perception of insecurity. Companies in Mexico are adding 10-15 percent to operating costs to protect against violence and insecurity. These costs will continue to increase. Technical Skills: the port requires highly trained technicians and experts in communications and logistics systems. The low-education labor pool of Baja can't supply the expertise needed for the management of supply chain events, warehouses, and supplier relationships. Most of these systems and skills will have to be imported. Trade compliance systems, field observation equipment, location and status devices (RFID, GPS, Satellites) will also be imported. Therefore, Baja will likely be unable to fulfill the promises of legal employment made to its poor residents. Their disillusionment may lead to more violence and gang activity, the last resort of the unemployed. If Mexico can't resolve these two challenges through local means, the law of unintended consequences may turn this project into a monument to the grandiosity that tends to affect Latin American governments under pressure, such as Calderon's.

Nicolás Mariscal, Chairman of Grupo Marhnos: The Punto Colonet project is justified by the projections for trade demand, since of the three principal trade routes for North America—Asia to the East Coast via the Panama Canal, Asia to the East Coast via the Suez Canal, and Asia to the West Coast—the latter is the most competitive in terms of shipping time and costs. The market will be large enough for both Colonet and the West Coast ports, including Long Beach. The project represents an investment of 50 billion pesos (US$ 4.77 billion), which will be financed through concessions with private funding. The amount of investment equals what will be required for the modernization of the Panama Canal. The project includes the construction of a new port and a rail connection, which will join it to the US railway network. The bidding process allows participation of foreign companies of up to 49 percent. This port would double Mexico's current container capacity. It is estimated that 24,000 jobs would be created during its construction and 59,000 jobs to attend to its daily operation. With respect to security, the three main risks are: drug trafficking to the United States, arms trafficking from the US to Mexico, and terrorism, but it [would be] positive for authorities of both countries to be able to work together, involving exchange of information and economic support from the US, above all, to implement the necessary technology.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter.


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