Who will benefit most from the Tehuantepec isthmus corridor?

While the logistics potential of the Tehuantepec isthmus trade corridor that the Mexican government will create is not in doubt, questions remain regarding who will benefit most from the regional opportunities the corridor is expected to create.

Two experts consulted by BNamericas have different opinions on the role that the development plan for the isthmus - one of the main projects in the infrastructure portfolio of President Andrés Manuel López Obrador (AMLO) - could play once the corridor is opened.

According to Germán Galván, partner at McKinsey México and co-leader of the firm’s capital productivity & infrastructure practices, the main potential of the corridor lies in the possibility to turn it into a transport route for goods produced in the region.

“Although [the project] offers opportunities from a logistics and transport perspective, perhaps the most relevant aspect of it has to do with figuring out how to include economic development considerations that can increase the productive capacity of the south-southeastern region of the country,” Galván said.

While Galván acknowledges the strategic location of the isthmus, he points out that due to the expansion made to the Panama Canal in recent years as well as to other recent projects to upgrade certain ports in North America, it would not be easy for Tehuantepec to compete towards becoming a popular trade link between Asia and the east coast of the US – which is the goal of AMLO’s project.

“Developing specific sectors there would be very valuable, as would be to use the corridor as a route to boost the distribution of local products. Whatever can be achieved when it comes to the interaction with international markets could also be very interesting.”

Galván added that once the authorities unveil the project's master plan to the public it will be easier to analyze the potential opportunities in greater detail.

Infrastructure expert Edmundo Gamas, who is executive director of the Mexican infrastructure development institute (Imexdi), believes that China is the key element to boost the potential of the corridor.

“China is very interested in the project not only because it has the ability to provide financing and construction and equipping services for the port and railway projects, but also because a large number of its exports seek to reach the east coast of the US,” Gamas told BNamericas.

Gamas sees opportunities for a new trade link that could compete with the Panama Canal as the waterway is facing some problems that could motivate shipping operators to find an alternative route.

The ongoing trade war between China and the US could also benefit the future corridor since companies from the Asian giant are increasingly looking to relocate to countries that are not subject to US import tariffs, he added.

“If the Mexican government prepares a coherent plan to attract to the isthmus those companies seeking to relocate, the project could be a very important tool to boost industry in the area.”

However, Gamas said the positive impact from the corridor will be seen in the long term.

“[The project] will not transform the region from one day to the other and it also requires significant investments…This is not the solution the country needs to grow during this administration, but it could serve to lay the cornerstone to boost the development of the southern region throughout the following decades.”

Project status

The development program for the Tehuantepec isthmus region (PDIT) entails improving the rail and road infrastructure that connects the ports of Salina Cruz, in the Pacific state of Oaxaca, and Coatzacoalcos, a major port in the Gulf state of Veracruz, as well as upgrading both port facilities.

This infrastructure system is meant to serve as basis for the creation of a trade corridor that brings private investment to the area, creates jobs and businesses, while serving as a regional development tool to detonate significant social and economic impacts. 

The federal government declared the creation of the decentralized state-run entity Interoceanic corridor for the Tehuantepec Isthmus (CIIT), which will be in charge of integrating the activities formerly managed by the port authorities (APIs) of Coatzacoalcos and Salina Cruz, and freight rail company Ferrocarril del Istmo de Tehuantepec (FIT).

The master plan for the corridor was prepared by Enterprise Singapore, a statutory board under the authority of the trade and industry ministry of this Asian country, and has reportedly already been delivered to AMLO. The document has yet to be unveiled to the public.

Amid some local opposition and despite strong interest from abroad, AMLO has repeatedly say that the corridor will only be open to domestic investors as a matter of national sovereignty.

The proposal for the spending part of the 2020 budget that finance minister Arturo Herrera submitted to the lower house of congress on Sunday earmarks a combined allocation of almost 500mn pesos (US$25.6mn) for the port authorities of

Coatzacoalcos and Salina Cruz – which will eventually merge into FIT. The rehabilitation of the rail line between the two ports is expected to see 46mn pesos in investments next year.