Track in business – South America’s transport network

15 September 2014



Road and railway construction is booming in South America to keep the continent’s rising population on the move. Timetric reports on the latest trends in the industries building the region’s ever-expanding transport network.


Infrastructure is a vital component of the economies of South American nations and the industries that supply it are booming.

Chile

Construction recorded a compound annual growth rate (CAGR) of 7.79% during the review period (2009-2013), and valued CLP19.1 trillion ($40.0 billion) in 2013. During the review period, and following the 2010 earthquake, growth was supported by a rapid inflow of foreign direct investment (FDI), low unemployment, reconstruction and modernisation work.

Growth is expected to remain strong over the forecast period (2014-2018), as the government increases its efforts to improve infrastructure, meet the rising demand for residential units and increase investment in mining and retail. The construction industry's output is expected to record a CAGR of 8.90% over the forecast period, reaching a value of CLP29.3 trillion ($61.3 billion) by 2018. Infrastructure is the largest market for construction, accounting for nearly 40% of total industry value in 2013. The market recorded a review-period CAGR of 8.99%, valuing CLP7.5 trillion ($15.6 billion) in 2013. Increased investment from the government, as well as the private sector through PPPs, has helped to boost infrastructure construction activity.

According to the CChC (Cámara Chilena de la Construcción), the country needs an investment of CLP28.6 trillion ($58.0 billion) in 2014-2018 to remain competitiveand provide adequate infrastructure services. It is anticipated to be the fastest-growing market over the forecast period, with a CAGR of 10.55%, and will be worth CLP12.3 trillion ($25.7 billion) in 2018.

Roads were the largest category in the infrastructure construction market in 2013, accounting for 38.1% and CLP2.8 trillion ($5.9 billion). The sector recorded a CAGR of 10.30% during the review period and is expected to record a CAGR of 10.53%, valuing CLP4.7 trillion ($9.8 billion) in 2018.

Several pipelined projects - such as the construction of a 26.0km road between Tobalaba and Américo Vespucio in Santiago and the expansion of the existing 187.0km four-lane highways from La Serena, Elqui, to Vallenar, Huasco - will support the category's growth over the forecast period.

Railways are expected to expand at a CAGR of 10.33% over the forecast period, compared with a CAGR of 8.81% during the review period. In 2013, Eurovia subsidiary ETF, a part of Vinci group, won the contract to build and maintain the country's two lines for 20 years. The project is worth CLP101.3 billion ($206.0 million) and will cover lines three and six. The infrastructure market will also be supported by investment in airport infrastructure. In 2012, the Ministry of Public Works announced to retender Santiago's International Airport on the build, operate and transfer basis, with the contract to be awarded in 2014.

The project, worth CLP340.5 billion ($700.0 million), will involve the construction of a new international terminal and the expansion of the existing domestic hub. Capacity will be increased from nine million passengers to 29 million by 2030.

Colombia

The construction industry was worth COP96.5 trillion ($57.9 billion) in 2012, registering a CAGR of 6.85% during the review period. This growth was fuelled by significant foreign investment in areas such as mining and energy, offices and retail, and security, as well as business-friendly policies set out by the country.

The industry is expected to grow at a CAGR of 7.39% over the forecast period, backed by investments in infrastructure, such as roads, and social infrastructure, such as education and healthcare, to enhance economic development.

Infrastructure is the largest market for Colombian construction, with a value of COP51 trillion ($30.6 billion) and a 52.8% share of the industry in 2012. It is also the fastest-growing market, with a review-period CAGR of 9.82% and an expected forecast-period CAGR of 7.67%.

This growth was primarily attributable to significant infrastructure investments made by the government, coupled with increased private investment through public-private partnerships (PPPs).

Future growth will be driven by expansion in mining, an increasing population and continued urbanisation as the government plans to invest COP102.3 trillion ($56.0 billion) in transport infrastructure development until 2021.

Roads are crucial in Colombia and account for over 80% of domestic transportation infrastructure. Roads were the largest and fastest-growing construction area, with a value of COP24 trillion ($14.4 billion) in 2012 and registering a CAGR of 10.86% during the review period.

The country plans to construct 8,000km of new road by 2020 and reduce travel time by developing an extensive network, including several tunnels and bridges, and expansion of numerous key routes.

The road infrastructure category is, therefore, expected to record a CAGR of 8.16% over the forecast period.

Colombia's infrastructure development has been affected by the embezzlement of funds by different government agencies. Various infrastructure projects have stalled and the money allocated for projects is lying in unprofitable trusts, or is being used to pay administration expenses.

Colombia lags behind its Latin American counterparts in terms of infrastructure development, which has also resulted in the country showing slower economic growth than Brazil and Chile.

To improve the infrastructure and enhance the country's competitiveness, Colombia's transport ministry proposed a ten-year COP102.3 trillion ($56.0 billion) National Development Plan (NDP) comprising investments in roads, rail, airports, seaports, energy and urban infrastructure. Of the total amount, COP32.9 trillion ($18 billion) will be spent during 2011-2014, while the remainder will be spent by 2021.

The private sector has been actively involved with infrastructure services in Colombia since 1993, and around 32% of the country's roads have been developed using the PPP model.

In 2012, the Colombian Government passed a new PPP law, with a focus on improving the institutional and legal framework of PPPs. The law is expected to speed up infrastructure development.

Peru

Construction was valued at PEN148.2 billion ($54.8 billion) in 2013, registering a compound annual growth rate (CAGR) of 13.90% during the review period (2009-2013), driven by free trade agreement with the US and significant foreign investment in mining and energy, offices and retail. The industry is expected to grow at a CAGR of 8.80% over the forecast period (2014-2018), backed by substantial investments in road and social infrastructure.

Infrastructure construction was the largest market in the industry in 2013, valuing PEN63.8 billion ($23.6 billion), equal to a 43.1% share. The market recorded a review-period CAGR of 15.42% and is expected to expand further over the forecast period at a CAGR of 9.79%, driven by the country's strategic location in the Andean region comprised of Venezuela, Colombia, Ecuador, Bolivia and Chile, expanding population, robust economic growth and cross-border trade flows.

The country's infrastructure development is progressing at a healthy pace, with new road, rail, airport, energy and water projects in progress. Roads were the largest category in the market in 2013, accounting for a 32.8% share. It was also the fastest-growing category, posting a CAGR of 16.87% to value PEN20.9 billion ($7.7 billion) in 2013. According to the CIA World Factbook, Peru had a total road network of 140,672km in 2012, of which 14,748km is paved and 125,924km is unpaved.

The government plans to invest PEN29.9 billion ($10.8 billion) to make 85% paved by 2016. The road category is expected to register a forecast-period CAGR of 10.31% to reach a value of PEN34.2 billion ($12.5 billion) in 2018. With 3,460km of main roads in mountainous regions, development and improvement of roads and highways will be challenging. The Andean departments of Piura, La Libertad, Cajamarca, Huánuco, Huancavelica, Junín, Ayacucho, Pasco, Apurímac, Cusco and Puno have some of the roads identified for improvements.

Owing to political stability, accelerated economic growth and the thriving mining industry, energy infrastructure in the country is adequate to meet the increasing demand for electricity; the government has implemented an intensive programme for the construction of transmission lines.

In 2013, the government announced the upgrade of water and sewage infrastructure facilities. The undertaking, at a cost of PEN8.4 billion ($3.3 billion), is likely to be completed by 2016. Overall, 148 water-related projects will be carried out in Lima, monitored by the state-owned water utility company, Sedapal.

Venezuela

The construction industry increased in value, at a nominal CAGR of 21.68% during the review period, to VEF214.2 billion
($49.8 billion) in 2012. However, in real terms, the CAGR increased only by 2.34% as a result of high inflation in the economy. Industry growth was driven by a large-scale housing programme undertaken by the government, infrastructure projects in railways and energy, and continuation of social spending initiatives.

The industry is anticipated to post a CAGR of 15.84% over the forecast period to value VEF446.8 billion ($103.9 billion) by 2017. However, excessive government intervention and nationalisation of key sectors are issues that need to be addressed to enhance investor sentiment. Moreover, owing to high inflation in the country, the industry's output growth rate is expected to remain in the range of 15-17% over the forecast period. However, the real outlook, without inflation, is bleak due to sluggish external demand for oil, the country's main export commodity. Moreover, the US, the main import partner for oil from the country, has been diversifying its import base and importing lesser volume from Venezuela due to decline in production.

Infrastructure construction was the largest market in the construction industry, accounting for 27.7% of the industry value in 2012. The market recorded a CAGR of 23.02% during the review period to value VEF59.4 billion ($13.8 billion) in 2012.

Venezuela has one of the least developed infrastructures in the world, and requires investment to enhance its competitiveness and attract foreign capital into various business sectors. The market is anticipated to register the fastest forecast-period CAGR of 17.61%, but the inflation-adjusted real growth rate is expected to be low.

Roads were the largest category in the infrastructure construction market in 2012, accounting for 41.5% of the market and valuing VEF24.7 billion ($5.7 billion). The category registered a CAGR of 23.08% during the review period, and is anticipated to post a forecast-period CAGR of 17.33%. Venezuela's road network spanned 86,000km as of 2012, with nearly 30,000km being paved. However, several main roads in the country have been damaged as a result of neglect by the government. The country needs substantial investment to repair and upgrade its network of roads.

Rail was the fastest-growing category in the infrastructure construction market during the review period, recording a CAGR of 24.18% and the category is expected to remain the fastest-growing over the forecast period, to post a CAGR of 20.69% to value VEF6.4 billion ($1.5 billion) by 2017. The government plans to build 13,600km of track by 2030 to connect the country's main cities under the National Railway Development Plan, which is expected to attract investments worth $150.0 billion.

Venezuela's infrastructure is poorly developed and the country requires significant investments to enhance its competitiveness. According to the World Economic Forum's 'Global Competitiveness Report 2012-2013', Venezuela is ranked 135th out of 144 countries in terms of quality of infrastructure. Its rail infrastructure ranked 113th, while seaport infrastructure ranked 139th. The country therefore, has significant potential for development of infrastructure.



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