The International American Development Bank (“IADB”) reported that, from 2008 to 2018, Latin American countries invested on average 2.8% of their GDP in infrastructure, compared to 5.7% in East Asia, or 4.3% in Middle East and North Africa, creating the region’s well-documented “infrastructure gap”.
However, there has been a post-pandemic boom in interest around social infrastructure investments, especially in roadways that prioritise sustainable objectives such as decarbonisation, green jobs, and inclusive mobility. A report from the Harvard Kennedy School revealed that sustainable infrastructure-related investment requires a combination of “hardware”, financing, and planning; and “software initiatives, which include digitalisation, intelligent regulation, and combined private and public initiatives.
This is where things get difficult for most Latin American counties, explained an infrastructure specialist at PwC Mexico, “Investors are increasingly interested in sustainable projects but the main challenge remains the same: how can you consolidate public-private partnerships for the execution of new works? Local governments were previously the answer but they are now suffering as federal resource dries up, therefore, I think it is unlikely that new concessions or major road works will be seen in Mexico.”
A former executive at ProInversion in Peru had a different view, “The two recurring themes raised by international infrastructure investors are cost and sustainability. But on the ground, at the end of the day in this region, the problem will always be a matter of financing and execution. To the extent that they can reduce costs while being environmentally friendly companies could help governments socialise the benefits of sustainability, which is something that is rarely discussed, except by international investors.”
“The two recurring themes raised by international infrastructure investors are cost and sustainability.”
Former executive, ProInvesrion, Peru
New technologies are crucial for sustainable road construction and could potentially drive efficiencies and reduce cost. The use of recycling technologies, waste materials and by-products, and the reduction in quantities of disposed materials, energy consumption, and environmental pollution are capable of meeting construction needs and limiting the environmental impact of construction. The Américo Vespucio Oriente I motorway, built by the Spanish construction company Sacyr in Chile, used 70% recycled materials from excavations and more than 1,300 tonnes of recycled steel.
Local developers might not be talking about sustainability, but they have a leading role in setting high ESG standards for road concessions and international partners are increasingly demanding action. Leveraging the expertise of local development banks in project preparation and ESG considerations, private concession holders can implement international standards to attract a new class of investors.
“The construction of completely new roads has stagnated, most works now are about rehabilitation and maintenance.”
Infrastructure specialist, PwC Mexico
It appears to be an uphill struggle in Mexico, if the PwC infrastructure specialist is to be believed, “The construction of completely new roads has stagnated, most works now are about rehabilitation and maintenance, which does give room for incorporating recycled-sustainable materials at low cost, but where there is potential for sustainable highways to grow, it would be in urban highways. The problem is that there is no federal interest in sustainability, for them infrastructure should be cheap and fast.”
Corruption is another persistent problem in Mexico, “And finally, it cannot be ignored that the the Secretariat of Infrastructure, Communications and Transportation (“SCT”) remains one of the opaquest agencies in Mexico where corruption risk remains high. What is now a shouting secret is that it is necessary to be very close to key elements of the cabinet if one wants to win a meaningful government contract.”
So, it seems that Latin America’s infrastructure gap is not about to be closed any time soon, even with increasing interest in sustainability.