Big Money, Big Plans
Take, for example, Brazil’s new Logistics Investment Program which envisions USD$66 billion being spent on railways and roads, USD$30 billion going to ports and almost USD$18 billion into airports. Or consider Colombia’s USD$112 billion in planned infrastructure investments between 2012 and 2020. And Mexico has a list of about 1,100 projects totaling about USD$400 billion that need to be completed over the next five years.
Action on the policy side has been equally encouraging with many governments who –in the past– had been vehemently opposed to private participation in the infrastructure sector now busy drafting and promulgating new laws aimed at encouraging public-private partnerships (PPPs) and private investment. Colombia’s and Mexico’s 2013 passage of new PPP laws are clear evidence of change, as is Brazil’s recent efforts to improve its existing PPP law.Making it Work
While all this may seem like good news for the region, the unfortunate reality is that massive investment plans and supportive legislation are simply not enough to catalyze the kind of transformative change that the region so desperately needs. There are three areas where Latin American governments must focus before these ambitious and much-needed infrastructure investment plans can truly start to be tackled.
Firstly, governments must start to shift their focus away from purely popular measures to instead prioritize and implement sustainable medium to long-term economic plans. The reality is that some (but certainly not all) Latin American countries are losing competitiveness and depressing productivity by putting popular opinion ahead of the –often hard– decisions that must be made for the good of their economies. Venezuela and Argentina have suffered significant economic decline since setting out on a populist agenda; Chile and Mexico have enjoyed the opposite.
Secondly, Latin American countries will need to dramatically improve the professionalism and capability of their infrastructure programs. International investors are looking for clear, transparent and well-managed programs in which to invest. The problem is few Latin American countries currently have the capability or capacity to manage the size and scope of the programs currently on the table. This means programs are often badly planned, poorly structured or laden with unmitigated risks and, as a result, do more to dissuade local and international investors than persuade them. There is an urgent need to improve the professionalism of these programs, in the short-term through support from experienced external advisors and –in the medium and longer-term– through a continuous program of internal capability hiring, training and development.
The third area that requires immediate attention from Latin American leaders is the financing markets. Few (with the notable exception of Chile) have developed any real private infrastructure financing markets to speak of, and most are struggling to develop the appropriate vehicles to support private investment. As a result, most activity in Latin America has been financed through either national development banks (such as BNDES in Brazil) or multilateral support. Given the massive investment targets and aggressive timelines articulated by leaders across our region, it seems fairly clear that private project financing, bond markets, and effective investment vehicles will need to be developed quickly to achieve these lofty objectives.Time for Action
Thankfully, there are strong examples of Latin American countries that have already recognized these realities and have been aggressively taking action over the past few years. Chile, almost two decades ago, completely overhauled their infrastructure program and market. PPP legislation is now very well defined, tested and understood; investment programs are professionally prepared and well-received from international players; and commercial banks have been active in financing programs. Colombia has also enjoyed much success in creating infrastructure markets and investment vehicles and –over the past few years– has rarely come up short for investment.
Others, however –Brazil chief amongst those– are now standing on a precipice. The choice is clear: take positive action today and reap the benefits for generations, or maintain the status quo and allow the country and the economy to falter and ultimately fail.
The simple fact is that infrastructure investors and developers operate in a global economy where national programs are compared against each other and competition is fierce. In this global war for investment, other regions are either moving faster or with more commitment. If things remain as they are currently, it would not be a surprise if Africa or South East Asia were to eclipse Latin America as an investment destination within the next decade.
The bottom line here is that governments across the region must take immediate action, both individually and as a group, if they hope to raise countries up to a world-class level. And there is no time to waste; the actions taken today will reverberate for decades to come. Let’s hope they are the right actions and not just the easiest ones.
Note: The ideas and opinions expressed in this written are of the author and do not necessarily represent the ideas and opinions of KPMG.