Latin Finance - November/December 2010 - 26

regional infrastructure

The Big Shortfall
by Ben Miller

B

razil’s 2014 World Cup and 2016 Olympics grab headlines, as do multibillion dollar national infrastructure investment plans. However, most of the deals that have to happen are still only being talked about and the actual flow of committed capital is relatively small. LatAm has woeful roads and dreadful ports, even by emerging markets standards. Mexico’s creaking ports and airports leave it dependent on exports to the US, while Brazilian growth is thwarted by poor networks. Other countries face similar challenges in getting their goods out and fulfilling the economic potential touted by so many this decade. Funds are available. A lack of bankable projects and incentives for the private sector has kept investment away, leaving much of the heavy lifting to government sources such as Mexico’s Banobras and Brazil’s BNDES. Ambitious infrastructure plans have been revised, as the continent risks falling short of its goals and failing to exploit natural resources to the fullest. Brazil must spend over $500 billion in 2010-2012 on oil production, energy, urban development, housing, transport and sporting events, according to Bank of America Merrill Lynch (BAML). Mexico plans to shell out $140 billion, in many of the same areas. Both have fallen short of government targets in recent years, and it is doubtful that government funds can continue to come at the pace they have been. “The needs are much more than the BNDES can actually supply,” says Felipe Jens, head of infrastructure and project finance at Odebrecht, one of Brazil’s largest builders, noting a backlog of infrastructure projects accumulating in Brazil from the last few years. Piled on top of this are the Olympics, World Cup and

As LatAm stares down a growing list of infrastructure needs, builders and governments hope private lenders return. The only certainty is multilateral and state lending.

The overhaul of Rio’s iconic Maracanã stadium is among projects most behind schedule pre-salt oil exploration. “If the market’s not there, the projects just won’t be completed,” Jens says. “They’re not going to be auctioned.” 2011-2014, according to government documents. This is 50% more than in the first phase. However, Castro Cunha says spending in PAC I was less than 50% of the original forecast, and that while spending should accelerate going forward, he is less optimistic than the government – seeing at most 70% of the target. It would be difficult for BNDES to contribute 34% again in PAC 2, he adds. “The right move would be to give incentives to the private sector and increase the attractiveness of projects for the private sector,” Castro Cunha says. “Despite great government funds, there is actually a lot of interest from the private sector,” he explains, pointing to the

Brazil Falls Short

Of the $460 billion that Brazil’s government claims it spent from 20072010, only about 9% was from foreign investment, says Virgílio Castro Cunha, Brazil economist at BAML. About 33% comes from public companies’ investment that would have happened without the program, he says, while 21% comes from the private sector and 34% from BNDES lending. Brazil’s second Growth Acceleration Program (PAC 2) calls for 955 billion reais to be spent during

26 LatinFinance

November/December 2010
Latin Finance - November/December 2010

Table of Contents for the Digital Edition of Latin Finance - November/December 2010
