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Strategic Infrastructure in Latin America

From left, Guido Cerini, Antonio J. Sosa, Leandro Alves, and Gabriel Goldsmith.

January 28, 2008

  • Gabriel Goldschmidt, Manager for Latin America, Infrastructure Department, IFC
  • Guido Cerini, Managing Director, JPMorgan Chase & Co.
  • Antonio J. Sosa, Corporate Vice President, Infrastructure, CAF
  • Susan L. Segal, President and CEO, AS/COA
  • Leandro Alves, Manager for Energy, Infrastructure Department, IDB (moderator)

On January 24, AS/COA hosted a panel focusing on infrastructure with experts from multilateral organizations and the private sector. Speakers offered their view on infrastructure investment opportunities and challenges in terms of project financing, public-private partnerships (PPPs), and regional integration and competitiveness.

Infrastructure development in Latin America

In recent years, the quest for development and economic growth in Latin America has shifted emphasis from public sector social programs to infrastructure development. Speakers agreed that a country’s natural resources are not enough to secure wealth. Fundamental components of a country’s competitiveness in the global arena include the efficient use of energy to produce and transport goods, well-maintained roads and ports to connect regions and channel products, quality telecommunications networks, and the sanitization facilities and services necessary to boost public health conditions. In Latin America, despite a certain degree of macroeconomic stability and economic growth achieved in recent years in the region’s largest economies, poorly-maintained infrastructures may prevent some countries from achieving higher levels of economic growth and integration. According to CAF’s Antonio Sosa, Latin American countries used to invest around 3.7 percent of their GDP in infrastructure in the 1980s, while this percentage fell to 2.3 percent in the 1990s—far from the recommended 5 to 6 percent to promote growth. Nowadays, most Latin American countries spend around 1 to 2 percent of their GDP. However, the region’s investment-grade countries usually spend more than the rest of the region—around 6 to 8 percent.

Investment Opportunities and Public-Private Partnerships Latin America

The combination of improved risk profiles with higher economic growth rates and macroeconomic stability has turned Latin America into an attractive region for investors, said speakers. According to JPMorgan and Chase’s Guido Cerini, new opportunities in real estate, oil and gas, ports, roads, and renewable sources of energy have attracted local and foreign investors to these long-term projects. While in the past most of these projects were funded by the public sector, new models combine the public, the private, and the non-profit sectors. The number of PPPs has surged, providing a way to distribute risk between both the public and the private sector. 

Most speakers emphasized, however, that these partnerships are not always successful due to partners’ different expectations and interests. Panelists also cited governments’ difficulty in attracting long-term investors as another hindrance to infrastructuredevelopment. Clear and consistent business practices and transactions are essential, added IFC’s Gabriel Goldschmidt. Leandro Alves of the IDB said that new financial tools such as sovereign guarantees, which require the public sector to take risks while protecting the private investor, would also help to attract investment. Investment grade countries are in a better position to attract long-term investors such as pension fund firms to infrastructure projects.

Regional Integration and Competitiveness

In terms of integration, Latin America still lags behind other regional economic areas. The main roads connecting Brazil and Venezuela, or Peru and Brazil, for example, are only just now under construction, said Sosa. To promote regional integration, Latin American countries must make progress on multiplefronts,including strategic planning, the capacity for project management, the modernization of national development banks, and a closer relationship between the public and the private sectors. Lack of political will can also impede large regional integration projects as politicians refrain from investing in long-term projects in which deliverables won’t be available until long after their political terms have concluded. On a positive note, Alves signaled that Latin American infrastructure development can make use of the most efficient technologies and methods, benefiting from the experience gained through projects already implemented by industrialized countries.