Mexican Water Market: Patience is a Virtue
As Mexico strives to make clean water available to its citizens and opens a larger part of the market to private companies, it may offer many opportunities in the water industry in the coming years.
By Caryn Sykes, Industry Analyst
Environmental Group, Frost & Sullivan
November 9, 2001 — Mexico, like most Latin American countries, suffers from an inadequate level of water and wastewater treatment. According to the Pan American Center for Sanitary Engineering and Environmental Sciences (CEPIS), as of 2000, over 15 percent of the Mexican population did not have a connection to potable water, while over 27 percent did not have sanitation service. As Mexico strives to make clean water available to its citizens and opens a larger part of the market to private companies, it may offer many opportunities in the water industry in the coming years.
Potable versus wastewater
The Mexican market presents opportunities in both water and wastewater treatment. However, there are more short and medium term opportunities for wastewater treatment. Although the total revenue potential from the treatment of potable water is probably higher, pinning down the direction of that market is difficult, as the potential for privatization in that area is unclear, and there are fewer projects expected in the near future. Much of what does exist in the potable water treatment market is dominated by Suez-Lyonnaise des Eaux. On the other hand, Build-Operate-Transfer (BOT) opportunities for wastewater treatment are growing, and are becoming increasingly well publicized.
Municipal versus industrial
In the past, many industrial end-users were allowed to discharge their wastewater directly into the municipal system. More recently, the government has been putting pressure on industrial end-users to comply with more stringent treatment standards, and there has been talk about regulations to make industry responsible for its own wastewater treatment. In 2001, 100 industrial plants were mandated to have adequate wastewater treatment. Of those 100, approximately 70 have complied. Additionally, in 2005, many more industries will be subject to mandatory wastewater treatment.
Although industrial applications may be a faster growing segment currently, the municipal sector has a larger long term potential. By 2005, all communities of over 20,000 are expected to have wastewater treatment plants.
This is estimated to be about 350 communities, of which only 50 to 60 currently have plants in place. However, in the past, the government has given more immediate prioritization to the development of potable water treatment. In some parts of Mexico, consumers still only have potable water service for a limited number of hours per day.
If the Mexican government continues to prioritize the provision of potable water to its citizens, wastewater treatment initiatives may be dwarfed by the size of potable water projects.
Restraints in the market
One of the biggest restraints in the water equipment industry in Mexico is the lack of enforcement of existing regulations. Although the government has tightened industrial wastewater treatment regulation in recent years, enforcement has not yet caught up with regulations.
Without a sense of urgency, many industrial plants are not in a hurry to invest in expensive wastewater treatment systems.
Additionally, many players in the market are uncertain about the current economic situation and what effect it may have on the market. President Vicente Fox recently announced cuts in public spending, and many market participants anticipate steeper cuts in public spending before a significant improvement of the situation.
Doubt about the domestic economic situation, combined with a dependency on an uncertain U.S. economy, causes many to question whether there will be growth in the Mexican water industry in late 2001 and 2002.
However, once the economy begins to stabilize, the Mexican government is expected to once again look at water infrastructure for investment. Additionally, financial support from organizations such as the North American Development Bank, and the Border Environmental Cooperation Commission may make money available for infrastructure projects. However, as privatization of water services increases, and more foreign investment is allowed, market participants may run into other challenges. The Mexican government has historically subsidized the cost of supplying citizens with water.
Yet similar to electricity and telecommunications services, the water sector will need to make itself more profitable over the long term to attract necessary private investment in its infrastructure, and in doing so, pass additional costs to rate-payers. Already wary from rate increases in other basic services, community groups and citizens are quick to voice their opposition to such measures.
As Mexico strives to modernize and more openly considers the privatization of its water utilities, opportunities will likely arise for those in the international water industry, both for water and wastewater treatment. However, entering the market for water and wastewater treatment in Mexico is not as simple as jumping into the market, and making a fast turnaround on investment. Companies looking to be successful in the market need to be prepared to enter for the long term, and be prepared to make large investments in order to secure success in the market.
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