Private investment in LatAm infrastructure on the rise

16.02.2015 By: BN americas

Private investment in infrastructure projects has grown significantly over the past decade in Latin America's six largest economies, with the exception of Mexico and Argentina, according to a Standard & Poor's report.

In Mexico the retraction in private investment is explained by poor planning and execution of projects on the part of the government. Meanwhile in Argentina, the dip is explained by government intervention, according to the report.

Outside the two regional powerhouses, private sector participation is growing, particularly in Colombia where one of every three dollars spent on infrastructure comes from private direct investment, the report says. And in Chile and Peru the share remains roughly 50%.

S&P cautions that more spending does not necessarily result in proportional benefits, so it is critical that countries evaluate, plan and execute their infrastructure projects with more care, and improve the overall quality of investments.

The good news for the region is that the current portfolio of local infrastructure investment projects is the largest in decades. Mexico, Brazil, Colombia, Peru and Chile are leading the way with multibillion-dollar public and private infrastructure investment programs.

These plans include Brazilian state agency Infraero Serviços' 7.3bn-real (US$2.77bn) investment plan for 270 regional airports through public-private partnerships.

In Colombia, by 2020 total investment of US$1.2bn is planned for existing ports and those to be awarded under the concession scheme.

And between now and 2018, the Mexican government plans to award about 46 road projects, worth some US$12.3bn.

In addition, many governments are developing a new approach to public policy in infrastructure, and there are changes underway to public-private partnership models which will significantly help improve the quality of investments, S&P says.

The report also says that Latin America's six largest economies need to invest an extra 1% of GDP, or US$336bn, in infrastructure over the next five years.

Infrastructure investment in Latin America as a share of GDP is below the global average of 3.8%, hitting just 3%, or US$150bn per year, from 2008-12.

Spending was close to the regional average in Argentina, Brazil, Colombia and Mexico, though lower in Chile (2% of GDP) and higher in Peru (4%). However, Chile had already invested more aggressively than its neighbors before 2008, and uses better criteria to evaluate projects, which could explain the lower investment figure, the report says.

If these economies hit the suggested investments by 2017, the so-called multiplier effect – the effect of spending 1% of GDP on infrastructure and related sectors in the first year – would be 1.3 in Mexico and up to 2.5 in Brazil. In other words, for every Brazilian real invested in infrastructure in 2015, 2.5 reais would be added to the country's GDP in a three-year period.

Among G20 countries the multiplier effect would be greatest in Brazil and the UK, according to the report.

Investing that amount would lead to the creation of 900,000 jobs in Brazil and 250,000 in Mexico over the three-year period.