By Santiago Pérez 

Residents in the border city of Mexicali voted against the completion of a $1.4 billion brewery owned by Constellations Brands Inc. on grounds that its intensive water consumption was detrimental for the community, a move that risks undermining foreign investment in Mexico as the country faces a deep economic contraction.

The administration of nationalist President Andrés Manuel López Obrador organized the public consultation on Saturday and Sunday. Farmers had complained that Constellation's water-intensive plant threatened to intensify irrigation shortages in the agriculture sector.

Around 76% of those who voted rejected the project developed by Constellation, the third-largest U.S. beer producer and brewer of Mexico's Corona and Modelo brands for U.S. consumers. Turnout was less than 5% of eligible voters.

As a result of the vote, the government won't grant a water supply permit to Constellation Brands, Deputy Interior Minister Diana Alvarez said on Monday. The federal government will soon begin talks with Constellation to look for compensation for incurred losses, Ms. Alvarez said, after disclosing the results of the referendum.

The cancellation of such a large-scale project sends a negative signal to foreign investors, business groups say. This is the first time Mexico's government has put a big foreign investment project to a public referendum, even as foreign direct investment shrank last year and the country's economy is expected to nosedive as the world is engulfed by the coronavirus pandemic.

Fixed investment in Mexico fell 4.9% last year from 2018, contributing to a mild contraction in economic activity. Economists polled Friday by local bank Citibanamex expect gross domestic product to contract 3% in 2020, compared with an estimate of 0.7% growth just two weeks before.


(END) Dow Jones Newswires

March 23, 2020 10:55 ET (14:55 GMT)

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