Pacific Alliance countries primed for infrastructure investment

Pacific Alliance countries primed for infrastructure investment

Latin American markets present opportunities for multinational corporations in the construction industry. The countries that are most likely to invest in infrastructure are the Pacific Alliance countries since they are most open to international trade.

In early September, the United States Commerce Department’s Undersecretary for International Trade publicly stressed the importance of the growing commercial relationship between the US and Latin America.

The statement, delivered in Miami by Stefan Selig, contained plenty of big numbers. $42 billion was exported from Miami to Latin American ports in 2013; American goods sold to the 11 Latin American Free Trade Agreement markets in 2013 represented 20% of the US total export wallet; more than 45% of U.S. exports today go to the Americas; trade with South and Central America has increased by 70% since 2009. The list of positive trade figures is extensive.

Perhaps most importantly, government investment in infrastructure development is estimated to increase by $1.5 trillion across the region.

This figure, estimated by the Inter-American Development Bank, comes in the wake of a Latin American growth slowdown. Since 2013, most markets in the region have experienced diminished economic growth mostly because of falling foreign investment. Even the faster growing Andean branch of the Pacific Alliance, such as Peru, Chile, and Colombia, are predicted to have slower or flattened growth in 2015.

Since the Pacific Alliance countries are attempting to actively increase foreign investment and liberalize trade, it is expected that they will be particularly proactive in promoting large-scale infrastructure projects.

The lack of infrastructure—specifically wide paved roads made with high-grade asphalt—makes it extremely expensive to ship goods domestically in the Pacific Alliance countries. This situation has led both exporters and importers to lobby for modernizing the national transport grid, which is why governments have responded with pledges to increase funding for infrastructure investment.

One of the main problems facing liberalized Pacific Alliance markets is accessible commercial transportation from large urban areas to entry ports. Although shipped goods arrive in containers, they are usually transported across the country in outdated small trucks across dangerous roads.

The rail system in the Andean countries is also outdated, so most goods cannot be shipped commercially by train, unlike in the U.S. and Western Europe. And geography also hinders the cheap shipment of goods from ports to the urban centers in the middle of the country. In Colombia, most goods flow in from Buenaventura in the pacific coast or Cartagena and Barranquilla in the Caribbean coast.

The shipment of goods from these ports to Bogotá remain a multi-day journey despite a distance of just 1,000 kilometers. In 2011, the Colombian government announced ambitious infrastructure development projects, although progress has been slow.

Fortunately, there is a consensus that improving infrastructure in Colombia and other countries is a priority to maintain high economic growth. This stands as a major economic tenet for all the Pacific Alliance countries. Infrastructure development is an area in which multinational construction and civil engineering companies are needed to provide the know-how and readily available technology to link the urban areas to the port cities in the Latin American Andean countries.

Since the height of the statist period of the 1970s, infrastructure in the Andean countries has decayed for the most part. Right and left governments have been unable to modernize roads and the transport grid using domestic solutions.

But the recent $1.5 trillion estimate demonstrates that governments across the region are finally committed to developing their infrastructure. Still, multinationals are integral to the region’s infrastructure modernization because domestic companies and state-owned corporations do not have the human capital, financial, knowledge, and technological resources to complete the tall task at hand.

Categories: Economics, Latin America

About Author

Daniel Lemaitre

Daniel is a GRI Senior Analyst. He has worked in policy research centered on the political economy of the Andean region in the public, NGO, and private sectors. Daniel holds an MSc in Comparative Political Economy from the London School of Economics, concentrating on Latin American markets.