The Interoceanic Corridor of Mexico's Isthmus of Tehuantepec and the North-South Development
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REPORT 06.12.21 The Interoceanic Corridor of Mexico’s Isthmus of Tehuantepec and the North-South Development Gap Adrian Duhalt, Ph.D., Postdoctoral Fellow in Mexico Energy Studies fact, three out of the four most important INTRODUCTION infrastructure and development projects of It is broadly acknowledged that Mexico’s his administration are located in the south. economic development in recent decades In López Obrador’s view, the Interoceanic has been uneven: strong in the northern Corridor (IC) in the Isthmus of Tehuantepec, and central regions and weak in the south. along with the Maya Train and Dos Bocas Although previous administrations have refinery in Tabasco projects, are essential sought to address this socioeconomic to alleviate the pressing socioeconomic divergence through various initiatives problems of the southeastern states3 and, and mechanisms,1 deep-rooted regional ultimately, will allow them to catch up with disparities have made it much harder than the more competitive and industrialized expected to narrow the gap and, as a states in central and northern Mexico. result, require further consideration from The task of setting policymakers. THE INTEROCEANIC CORRIDOR up 10 industrial parks, In its National Development Plan, the whose output can government of Mexico (GOM) presented The Isthmus of Tehuantepec has been and described the public policies and the subject of renewed interest for many take advantage of the projects that it intended to carry out years. First, the administration of President upgraded logistical between 2019 and 2024. Many of these Vicente Fox (2000-2006) developed a infrastructure and can projects, as explained, seek to encourage plan known as the Plan Puebla Panama, be marketed elsewhere regional economic development and which sought to draw special attention 2 tackle subnational inequalities. One of to the development of Mexico’s southern in Mexico or abroad, its most important plans for subnational region, along with Central America.4 Not sounds like a policy development is the Program for the much came of it, however. Second, the worth implementing. Development of the Isthmus of Tehuantepec government of President Enrique Peña (PDIT), which centers on a narrow strip Nieto (2012-2018) sought to implement bridging the southern states of Veracruz a program branded as Special Economic and Oaxaca (Figure 1). This program aims to Zones (SEZ), which included, among other expand the region’s economy on the back of regions, Coatzacoalcos in Veracruz and a logistical platform known as Interoceanic Salinas Cruz in Oaxaca and some of their Corridor (IC). neighboring municipalities. However, little if Since taking office in December 2018, any progress was achieved since Peña Nieto President Andrés Manuel López Obrador, postponed the project until the penultimate a native of the state of Tabasco in the year of his term (2017), and his decrees country’s south, has made this region to lawfully declare both regions as Special a priority in his development agenda. In Economic Zones came too late to act upon. BAKER INSTITUTE REPORT // 06.12.21 FIGURE 1 — LOCATION OF THE ISTHMUS OF TEHUANTEPEC, MEXICO SOURCE Google Earth More recently, López Obrador deemed his McLane-Ocampo Treaty—which was never predecessor’s plan unfit and abrogated the truly implemented, as it was replaced by the decrees, unveiling instead as part of his Panama Canal project.6 More recently, the government's National Development Plan Isthmus has been considered strategic, since 2019-2024 the projects mentioned above, it connects economic activities in southern and which are now part of the Program states with consumers in the rest of the for the Development of the Isthmus of country, and vice versa, and boasts Mexico’s Tehuantepec. All such plans have at their shortest distance between the Gulf of Mexico core, efforts to strengthen the region’s and the Pacific Ocean. Other features that logistical (port and railway infrastructure) boost the region’s potential is its production and industrial profile. capabilities, which include one refinery Contrary to the SEZ framework in Minatitlán and another in Salina Cruz, proposed by Peña Nieto, whose area an important assembly of petrochemical of influence spanned a handful of firms in Coatzacoalcos and neighboring municipalities flanking Coatzacoalcos and municipalities, wind farms in the Juchitán Salina Cruz, the PDIT appears to be a more area, to name a few examples (Figure 1). comprehensive development strategy in the Thus, from the government’s sense that it seeks to impact a much larger perspective, it makes sense to anchor the territory— 79 municipalities, 33 in the state region's economic and industrial prospects of Veracruz and 46 in the state of Oaxaca— to upgrades in logistical capabilities—namely, and, consequently, encompass a wider the Port of Coatzacoalcos and the Port of range of economic activities (Figure 1).5 Salina Cruz, the Isthmus of Tehuantepec The Isthmus of Tehuantepec has a long railway (which links both ports), and road and important history. It was the object of infrastructure (including in rural areas). a treaty between the U.S. and Mexico—the 2 THE INTEROCEANIC CORRIDOR OF MEXICO’S ISTHMUS OF TEHUANTEPEC AND THE NORTH-SOUTH DEVELOPMENT GAP In the medium- and long-term, the establish the 10 industrial parks the López overarching goal of the PDIT is to bolster Obrador government plans to create along regional economic growth through the the Isthmus. The reasoning is that, for establishment of 10 industrial parks (also regional economic development in the referred to as “Development Poles for medium- and long-term, it is necessary to Wellbeing”). The means to that objective is expand manufacturing activities—and for the Interoceanic Corridor, which, as noted, that to materialize, the government must is a multimodal logistical platform whose put in place the appropriate conditions underlying principle is to make the most and incentives. This is particularly difficult of the geographical advantages of the given the López Obrador administration’s Isthmus of Tehuantepec and, later, enhance complicated relationship with private and synchronize the region’s productive investors, many of whom are hesitant capabilities, current and projected.7 To to pour money into new projects in light achieve this goal, the GOM recognizes the of a perceived unfriendly regulatory need for investments to shore up existing environment. Even so, a preferential tax logistical infrastructure. scheme under consideration would reduce Fundamental to the Interoceanic the value added tax (IVA) from 16% to Corridor’s objectives is the railroad that 8% and the income tax (ISR) from 30% connects both ports and a handful of to 20%. This, as well as the price of fuels, important cities between them, such which will be offered at a discount, could as Minatitlán in Veracruz and Matías lure investors to the industrial parks.13 Romero in Oaxaca.8 In its Coatzacoalcos- Still, the potential of the region and Medias Aguas section (both in Veracruz), that of the PDTI is limited by the hurdles a private company operates the railroad and unresolved issues that need to be under a concession and it is apparently addressed to reach the GOM’s objectives. in satisfactory working condition. But Tax incentives are not enough if areas where In a region as diverse, in the second half of the rail line, which industrial parks are meant to be located lack unequal, and complex stretches for 206 kilometers from Medias essential services such as water, electricity, as the Isthmus of Aguas to Salina Cruz and is composed of transportation connectivity, and natural Tehuantepec, the five sections, improvements are required gas. Policymakers are conscious of this and to adjust curves and slopes, principally. It intend to provide the zones with last-mile concerns and interests is reported that rehabilitation works are services. That, however, requires enormous of local communities underway in each of the sections and are investment up front and, especially, time. must be considered if estimated to conclude later in 2021.9 Natural gas deserves further attention the goals set by The seaport of Coatzacoalcos has also in this discussion, as the drop in production, the government of received investments to boost its operating principally in the southeast of the country, capacity. In the Pajaritos Lagoon, which is and infrastructure bottlenecks, which hinder López Obrador are to connected to the region’s petrochemical access to natural gas imports from the U.S., be achieved facilities and is part of the city's port represent important hurdles to clear. Is it infrastructure, the government in March possible to develop a manufacturing base 2021 completed the expansion of a pier in the Isthmus without natural gas? That to enable the mooring of two vessels of is open to debate, but if industrial parks up to 180 meters in length, as well as the are to be competitive in national and even widening of an access road to the port international markets, the supply of natural area from two to four lanes.10 These works gas is an issue yet to be sorted out. The will be complemented by construction government acknowledges that there is and maintenance dredging of port access a direct association between productivity channels11 and the projected construction of and a state’s economic development a container terminal in Coatzacoalcos.12 (measured in GDP per capita) and the While progress appears to be made consumption of natural gas. Hence, as part concerning the logistical component of the Interoceanic Corridor, the López of the Interoceanic Corridor, the most Obrador administration plans to upgrade the challenging task will be to effectively Jaltipán–Salina Cruz natural gas transport 3 BAKER INSTITUTE REPORT // 06.12.21 system14 to serve regional demand, In a region as diverse, unequal, and including that of the Salina Cruz refinery. complex as the Isthmus of Tehuantepec, the Operations are estimated to start in 2022,15 concerns and interests of local communities but most projects are falling behind, partly must be considered if the goals set by the due to the financial constraints caused by government of López Obrador are to be the pandemic.