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Wednesday, January 14, 2009
Special Reports

Latin Infrastructure: Changed Focus

The credit crunch will change the focus of Latin America's infrastructure projects, experts say.
IN: Experts see more urban transit projects in Latin America. Here the new Santo Domingo metro.  (Photo: Dominican President's Office)
OUT? The Puerto Colonet port project is struggling. Here Mexican president Felipe Calderon looking over plans for the project last fall. (Mexican President's office)

BY CHRONICLE STAFF

Infrastructure investments in Latin America will shift from ports and roads to job-creating projects ranging from urban transportation to water, experts say. But, the region still needs to improve its transportation infrastructure, the top Fedex official in Latin America argues.

"There are a lot of projects on hold [and it's] impossible to get private sector finance," says Norman Anderson,
president and CEO of CG/LA Infrastructure. “If projects are not already financed, it’s going to be rough going forward.”

Case in point: Puerto Colonet, a mega-port planned for the
Pacific coast of Baja California, may have to be postponed or scrapped altogether unless it secures $4.9 billion in financing, Mexico's Transportation Secretary Luis Tellez announced yesterday.

Bids were originally planned last year, then delayed until January 26 this year. However, that deadline will now again be delayed, Tellez acknowledged.

PORTS OUT

Anderson sees port investments as less likely due to both the difficulty of securing financing and the reduced need for new ports or expansion of existing ones as Latin America’s trade is slowing down, if not falling.

U.S. trade with Latin America in November declined by 10.4 percent to $45.7 billion, the first such decline last year, according to a Latin Business Chronicle analysis of data from the U.S. Census Bureau. And although Latin America’s total trade reached a record $2.0 trillion last year, it’s expected to decline this year – as much as 25 percent, according to Beatrice Rangel, president of U.S.-based AMLA Consulting.

“Ports were a big issue,” Anderson says. “If your volume went down 30 percent, you can wait for [any expansion for] three years….A lot of infrastructure projects the last couple of years focused on commodities [thanks to] their high prices [but now there's] no longer a need for those projects. They simply went away.”

URBAN TRANSIT & WATER PROJECTS

International prices for copper, wheat and soybeans – key exports from South America – are slated to fall this year by 45.5 percent, 21.1 percent and 16.9 percent, respectively, according to Standard Chartered.

Instead, Anderson sees growing attention to projects that are more job-intensive as governments throughout Latin America try to offset the growing global crisis.  Such projects include urban transport systems, water and wastewater and should start to kick in the second quarter of 2009, Anderson says.

Any shift of focus away from improving the transport infrastructure, however, will be detrimental, warns Juan Cento, president of FedEx Express Latin America.

"Latin America is not advancing as rapidly and will continue to fall behind if businesses and governments do not prioritize spending on infrastructure and address regulatory barriers," says Juan Cento, president of FedEx Express Latin America. "In Latin America, poor transportation infrastructure and regulatory barriers undermine the region’s competitive strengths."

IMPAIRS COMPETITIVENESS

He points to the observation by the Organization for Economic Co-operation and Development (OECD)
that although Latin America benefits from the proximity to the United States, that edge is quickly eroded by an insufficient network of roads, ports, railways and airports.  "Insufficient infrastructure drives up transaction and transportation costs, and this impairs competitiveness,” Cento says. "To grow and compete aggressively with other markets, it is imperative that Latin America improve its infrastructure to lower transaction and transportation costs."

A recent report from the Inter-American Development Bank estimates that a 10 percent reduction in freight costs in nine Latin American nations would allow exports to the United States to soar 39 percent on average, while transportation costs on Latin America’s imports would fall about 20 percent if the region improved its port efficiency to U.S. levels.

However, Cento acknowledges that there are
 efforts in the region to boost development, pointing to Brazil's plans to increase infrastructure spending by about 34 percent to counter the effects of the global economic meltdown and Mexico's plan to spend $3.4 billion on infrastructure spending to spur growth and employment.

LAGS ASIA

But that still lags Asian countries and the industrialized world. Latin American countries spend less than two percent of GDP on infrastructure, needlessly driving up logistics costs to between 15 and 34 percent of a product’s value versus 10 percent in industrialized countries, Cento says, pointing to World Bank data. "Latin America’s spending would need to increase to 4 to 6 percent per year in order for its infrastructure to catch up or keep up with countries that once trailed them, such as Korea and China," he says.

That could change, thanks to a significant boost from the public sector going forward, Anderson predicts. “Once the public sector gets involved, the game changes,” he says. “This is an enormous crisis [but] the only thing bigger than the crisis is the opportunity.”

The multilateral institutions such as the Inter-American Development Bank, the Andean Finance Corporation (CAF) and The World Bank also have to play their part. “This is the moment for which they were created,” Anderson says.

LARGE ECONOMIES

Anderson sees major infrastructure spending limited to the larger economies like Brazil, Mexico, and Peru, with smaller ones – including Central America – suffering from a scarcity in external financing. 

Brazil has huge reserves that they’re able to deploy on major infrastructure projects,” Anderson says. “Traditionally they have [had] some key positive variables, including ability to structure and plan projects. They have world class engineering and construction firms [and are] in a tremendously strong position to move forward.”

One weakness, though, is a lack of well-prepared projects base on a long-term vision beyond creating jobs, he adds.

Because of the challenges of the credit crunch, CG/LA Infrastructure is seeing strong interest in its upcoming conference on infrastructure in Latin America. The conference, the 7th Latin Leadership Forum, is scheduled to take place in Houston in April and aims to bring together investors with infrastructure developers. “The interest is extraordinary,” Anderson says. “Everybody wants to come.”

 © Copyright Latin Business Chronicle

 

 

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