Infrastructure Growth in Latin America

By: Robert Wagstaff & Alexander P. Trueba

Infrastructure investment in Latin America is on the rise as the region focuses on laying a solid foundation for future economic growth. Countries and private entities are making long-term infrastructure development a priority. In particular, Colombia, Brazil and Mexico have all proposed national infrastructure plans to boost further investment. By 2021, Colombia plans to invest nearly US $55 billion in infrastructure projects, while Brazil anticipates over US $900 billion in total infrastructure investment by 2020. In Mexico, infrastructure development is expected to total US $590 billion by 2018. Overall, Latin America’s infrastructure sector is approximately US $98 billion in 2014; however, that figure is projected to increase to US $114 billion by 2018.

Colombia

Despite Colombia’s pro-business policies, stable political environment and steady economic growth (real GDP growth of 4.3% in 2013 and 4.5% projected growth in 2014), the country has struggled in the area of infrastructure development. Per the World Economic Forum’s (WEF) “Global Competiveness Report 2013-2014,” Colombia ranks 117th out of 148 countries in the quality of its overall infrastructure. Colombia’s quality of roads, railroads, and ports all rank in the bottom 25% of countries listed in the report. This inadequate supply of infrastructure is the top deterrent for doing business in the Andean nation.

Since taking office in 2010, President Juan Manuel Santos (re-elected in June 2014 for a second term) has taken measures to improve transportation development and increase the pace of infrastructure investments. In November 2011, a ten-year US $55 billion master infrastructure plan was proposed by Santos’ administration. The proposition aims to build a toll highway network, improve existing railways, expand ports, and upgrade airports around the country. In August 2013, the Council on Economic and Social Policy approved a subset of Santos’ comprehensive infrastructure initiative, the Fourth-Generation Concession Plan(4G). TheUS$23.2 billion plan seeks to renovate 8,000 kilometers (km) of roads and construct 3,500km of four-lane highway before the end of the decade. Port, railway, water and energy projects are also in planning and development phases. 4G will be mainly implemented through public-private partnerships (PPPs) and is expected to create 450,000 temporary jobs and increase growth in Colombia by 1.0% annually. Once all highway projects are complete, travel time and transportation costs are expected to drop 25-30% and 15-20%, respectively .

Bids have already been submitted for many of 4G’s 40 highway concessions. Agencia Nacional de Infraestructura (ANI), the nation’s recently formed infrastructure agency, awarded the US $927 million Conexión Pacífico 1 highway concession to a consortium made up of local firm Estudios y Proyectos del Sol (Episol) and Spain’s Iridium. The 49km four-lane highway will include the construction of two tunnels and 42 bridges. A US $470 million contract for Pacífico 2 highway concession was awarded to the PSF Concesión La Pintada. Pacífico 2 highway will run 41km and includes the construction of one tunnel and 33 bridges. Meanwhile, two groups — La Estructura Plural Shikum & Binui-Grodco consortium and the Mario Huertas-Constructora Meco consortium — have submitted bids for Colombia’s US $672 million Pacífico 3 highway concession. The concession involves improving 119km of road and building an extra 28km of road, 26 bridges and 6 tunnels.

As part of the 4G Concession Plan, Colombia seeks to double railway capacity by 2019, as well as increase port investment by 20% in 2014 by assigning 10 separate concessions valued at US $482 million. The government also plans to grant the operation,management, upgrade, and maintenance of Barranquilla, Neiva, Armenia and Popayán airports by end of 2014. In a statement made by Luis Fernando Andrade Moreno, President of ANI, Colombia’s transportation infrastructure investment has hovered around 1.0% of GDP in past years. The current administration’s aim is to increase that figure to 3.0% of GDP, more in line with developed nations.

Brazil

Securing bids to promote the 2014 FIFA World Cup and the 2016 Summer Olympics afforded Brazil the opportunity to tender contracts to promote infrastructure development. However, the sporting events have not come without criticism. Only half of the planned infrastructure improvements for the World Cup, which cost an estimated US $11.5 billion, were delivered, with the remaining projects either unfinished or abandoned.

Brazil placed 114th out of 148 countries in the quality of its overall infrastructure, according to the WEF’s “Global Competitiveness Report 2013-2014.” Roughly US $40 billion in infrastructure tenders were called in 2013. In 2014, Brazil’s federal government aims to unveil approximately US $49.7 billion in tenders for supplementary highway, railway, port, electrical and telecommunications projects. Brazil plans to invest over US $900 billion in infrastructure by the end of the decade, with the lion’s share going towards investments in energy.

Investment in electrical infrastructure development, particularly in Brazil’s South and Midwest regions, has increased. One of the main tenders anticipated for electrical energy is for the 6,133 megawatt (MW) São Luiz do Tapajós hydroelectric power plant (HPP) on the Xingu River, valued at US $9.2 billion. Eletrobras, a Brazilian power utilities company, is expected to submit a bid for the power plant atthegovernment’snextauction,setforlate2014orearly2015. Additionally, Agência Nacional de Energia Elétrica(ANEEL), Brazil’s national power regulator, has planned an extra 15,573km of transmission and hydroelectric projects for the next three years.

Brazil’ s telecommunications industry is relatively well developed, especially in the country’ s Central-South region. The country’ s telecom sector is comprised of landlines, mobile services, television & radio broadcasting, and computer/internet access. Agência Nacional de Telecomunicações (Anatel), the national telecommunications regulator, is expected to tender the 700 Megahertz (MHz) bandwidth for 4G mobile internet in August 2014. Currently, Brazil has licensed the use of 2500MHz band for 4G. The plans to auction off additional mobile spectrum services are in an effort to achieve 3G and 4G coverage by 2017 and 2019, respectively.

Brazil is also taking measures to improve the quality of its port infrastructure, which ranks 131st out of 148 countries. According to U.S. Secretary of Transportation Anthony Foxx, Brazil recently sought the assistance of U.S. and other foreign companies in a US $1.5 billion dredging initiative to better the country’s seaports. Ports to be dredged include Rio de Janeiro, Mucuripe, Suape, Recife, Niteroi, and Santos — the busiest container port in Latin America. Brazil is expected to spend approximately US $384 million on dredging this year and an additional US $1.1 billion in other port maintenance improvements throughout the next ten years.

Mexico

Mexico, Latin America’s second largest economy and the world’s 14th largest, ranks 66th out of 148 countries in infrastructure quality according to the WEF’s “Global Competitiveness Report for 2013-2014.” During the first half of 2014, President Enrique Peña Nieto’s government announced a US $590 billion five-year national infrastructure plan made up of 743 projects in the transportation, energy, communications, water, health, housing and tourism sectors. Secretary of Finance Luis Videgaray Caso said the initiative would be focused on Mexico’s South and Southeastern regions. The plan will be a combination of public and private investment, with approximately 40 cents of every dollar coming from the private sector. More than half of the funds will target the energy industry, roughly US $300 billion. Recently, Iberdola S.A., a Spanish private multinational electric utility company, announced it would invest US $5.0 billion in the country from 2014 to 2018 given reforms in its energy sector.

Per the plan, the transportation & communication sectors are expected to receive over US $100 billion to upgrade land, air and sea capabilities. The most anticipated project, announced in December 2013, is the expansion of Mexico City’s airport. The estimated US $4.0 billion project, expected to be built on federal land adjacent to the Aeropuerto Internacional de la Ciudad de México (AICM), is still in its planning stages. The Secretaría de Comunicaciones y Transportes (SCT) has already invited international architecture firms to propose designs. Additionally, construction of a second container terminal in the Pacific coast port of Lázaro Cárdenas, Mexico’s largest seaport (annual traffic capacity of about 25 million tonnes of cargo), is also highly anticipated. APM Terminals, an international container terminal operating company headquartered in The Hague, Netherlands, and Ingenieros Civiles Asociados (ICA), a Mexican construction company, have been contracted to build the US $900 million terminal.

Other key projects include two large highway concessions, Atizapán-Atlacomulco (US $452 million) and Tuxpan-Tampico (US $400 million), as well as the construction of a US $2.9 billion Mexico City-Toluca passenger train. The train expects to save Mexico US $51 million annually on road and public transport maintenance given the projected drop in vehicle use. The rail line is expected to begin operations in late 2017 and will transport about 270,000 passengers daily.

The remaining balance of funds from the national infrastructure plan will go towards water, health, housing and tourism investment. Last month, President Nieto said Mexico would invest US $13.8 billion in tourism infrastructure projects alone to renovate beaches and colonial districts in the country’s main tourist hubs. Currently, Mexico stands as the second most visited tourist destination in the Americas and ranks among the 25 most visited countries globally. In 2013, the country received 23.7 million tourists, up 18% from 2012. The national infrastructure plan, together with Nieto’s reforms in the telecommunications, financial and energy sectors passed last year, are expected to boost the nation’s economy by 1.8-2.0% by 2018 and generate 350,000 jobs each year.

Other Regional Infrastructure Developments

Other countries in Latin America and the Caribbean have also been active in developing projects to attract new infrastructure investment. In August 2009, Panama awarded a European-led consortium, Grupos Unidos por el Canal (GUPC), the contract to expand the Panama Canal. The US $5.2 billion project, which is scheduled for completion in 2015, will double the Canal’s capacity by building a third set of locks. The new lane of traffic will allow larger ships (those carrying up to 12,000 containers) the ability to steer through the waterway. Additionally, the country has been busy with the construction of Central America’s first subway system, Panama Metro. Line 1, inaugurated in April 2014, at a cost of US $2.0 billion measures 13.7km long and includes 12 stations. Line 2 is scheduled to be completed in 2017. Feasibility studies are in the works for Line 3, and Line 4 is in its planning stages. The rapid transit railway is the most anticipated project among outgoing President Ricardo Martinelli’s public-transportation modernization plan, which also calls for the construction of tunnels, roads and overpasses throughout the capital.

At the same time, Chile is also busy trying to boost infrastructure investments. Measures are being taken to resolve the country’s US $58 billion infrastructure deficit. Local construction chamber Cámara Chilena de la Construcción (CChC) anticipates that Chile will have to invest an estimated US $21.8 billion in urban transportation infrastructure, US $3.6 billion in hospitals, and US $3.7 billion in water projects over the next four years to narrow the gap. This month, President Michelle Bachelet’s government announced plans to invest US $1.0 billion in housing, public works, tourism and waterworks projects to improve infrastructure in Chile’s XV Arica and Parinacota Region. On a larger scale, a US $15 billion water pipeline, Aquatacama, could begin construction in 2018 upon government approval. The 1,600km freshwater pipeline, rated as the #1 infrastructure project in Latin America per CG/LA Infrastructure’s “Strategic Top 100 2014 Report”, would transfer water from rivers in Southern Chile to the Northern areas of the country.

In Peru, the government has taken steps to secure infrastructure investments for projects through PPPs. According to Peru’s private investment promotion agency ProInversión, US $12 billion worth of PPP projects are scheduled for 2014-2015. The country’s largest infrastructure project is Lima’s second subway line, valued at US $6.6 billion. The project, known as Linea 2, will consist of a 35km tunnel with 35 stations and will transport roughly 660,000 passengers daily. Consorcio Nuevo Metro de Lima was awarded the concession to build and operate Lima’s metro line, which is slated for completion in 2019. Several international companies have already expressed interest in Lines 3 and 4 of the Lima Metro system.

Meanwhile, in the Caribbean, Puerto Rico plans to update its infrastructure sector with the Caguas to San Juan commuter train project, Novotrén,which has passed the environmental impact assessment phase. The project is valued at approximately US $400 million and is expected to transport 14,000 passengers daily. In regards to Puerto Rico’s technology sector, the commonwealth announced plans to invest US $17 million in a multi-phase high-speed fiber optic network project known as “Gigabit Island.” The Puerto Rico Sewer and Aqueduct Authority (PRSAA) will facilitate the installation. Once installed, 85% of private businesses and 65% of residences on the island will have access to high-speed Internet by 2016. Interest is also growing around a US $16 million roadway improvements project in the country’s North-South corridor. The PR-18/PR-21 project, whose first phase will be completed in 2016, began construction in mid- June. The development is expected to ease traffic flow and improve transit time, while adding US $560 million to Puerto Rico’s economy, according to the Puerto Rico Highways and Transit Authority (PRHTA).

 

Sources: Bloomberg, BNamericas, Brazil.org, Business Excellence, The Business Year, CG/LA Infrastructure, Colombia Reports, Emerging Markets, Huffington Post, IMF, Intelligent Infrastructure, LAVCA, News is my Business, Newswire Today, Reuters, SeeNews, Switzerland Global Enterprise, Telecompaper, Telegeography, The Tico Times, Travel Weekly, WEF, World Finance, WSJ