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Benchmarks

As Latin America swoons, the electricity sector holds on tight.

Fortnightly Magazine - November 15 2002

the plan, fearing a rise in private participation would lead to the complete privatization of the sector. Mexico's Supreme Court agreed, ruling that the law was unconstitutional, and that the president had overstepped his authority.

President Fox would like to allow more private investment in the power industry, as he is aware that the government can in no way pay the bill on its own. However, he faces strong resistance to any efforts to further liberalize the sector from the opposition Institutional Revolutionary Party (PRI) and the leftist Democratic Revolutionary Party (PRD). Any reforms based on increasing private investment in the sector would require the passing of a constitutional amendment by two-thirds of Congress.

Nevertheless, demand for electricity is increasing an average of six to seven percent per year, and Energy Minister Ernesto Martens has said that projects currently under development will only guarantee enough supply for Mexico through 2006. Mexico's total installed capacity is 38,500 MW, with thermo power accounting for about 74 percent of generation, hydropower for 18 percent, nuclear for five percent, and renewable sources making up the remaining three percent of generation.

The Future

Economic forecasters remain wary about Latin America's outlook. UBS Warburg expects gross domestic product (GDP) for the region to increase only 2.9 percent in 2003, due to weaker currencies, slower growth, and ongoing constraints in external financing and lower capital flows into the region.

However, the news is not all bad. The United Nations Conference on Trade and Development, in its World Investment Report 2002, explains that last year, of the 24 economies in Latin America, 16 saw foreign direct investment (FDI) inflows that exceeded their shares of global GDP. In particular, FDI to Mexico in 2001 was up $10 billion, a 68 percent increase over 2000. Proportionally, Ecuador recorded the largest increase, receiving $1.3 billion, or an 83 percent increase over FDI in 2000. Peru also had a sharp increase relative to the previous year, rising 59 percent, and Chile was up 48 percent.


 

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