The need to restructure infrastructure

Transforming infrastructure in Latin America.

Latin America is in a transformative period of infrastructure development, shaped by significant trends reflecting the region’s diverse economic landscapes and the evolving priorities of governments and private sector stakeholders. 

A prominent trend is the increasing focus on sustainable development and resilience in infrastructure, driven by the urgent need to adapt to climate change. Governments and companies across Latin America prioritise integrating renewable energy and water systems that can withstand changing climate conditions. Innovations like green hydrogen are becoming part of the energy sector’s portfolio, not just as an alternative energy source but as a step toward reducing carbon emissions. 

Decentralisation is another critical trend particularly noticeable in energy and water systems. This approach offers cost-saving opportunities and poses challenges to existing regulatory frameworks. By decentralising, the region can enhance the efficiency of these systems and better meet the localised needs of communities, thereby increasing the sustainability of infrastructure projects. 

The growing emphasis on public-private partnerships (“PPPs”) is pivotal. Governments in Latin America are increasingly turning to the private sector to finance and develop infrastructure projects. These collaborations leverage private investment and expertise, crucial in a region where public resources are often limited. “In general, Peru, Colombia, Chile, and even Mexico, all with progressive governments, have experienced a significant state slowdown in infrastructure activity,” responded a board member of a LatAm infrastructure company operating in South America. PPPs will foster innovation in project delivery and management, making infrastructure development more dynamic and adaptable to technological advances.  

“In general, Peru, Colombia, Chile, and even Mexico, all with progressive governments, have experienced a significant state slowdown in infrastructure activity.”

Board member of an infrastructure company operating in South America

Latin America offers a myriad of opportunities across various infrastructure sectors. Numerous transportation projects are underway, from road and rail development to airport expansions and port improvements. The energy sector is ripe for investment in renewable energy projects and upgrades to existing infrastructure. Additionally, there is a pressing need for water and sanitation projects to bridge significant gaps in access to clean water and sanitation services. 

“In Peru, you have a backlog of projects…for dams, trains etc. that were left stalled, and even now, after four years, these projects are still at a standstill,” commented the infrastructure company board member. The Boluarte government is now striving to reinvigorate these initiatives. For instance, the substantial Proyecto Majes Siguas II, intended to irrigate 40,000 hectares and include several dams and hydroelectric plants, has been shunned, “nobody wants to touch it because it seems there were corruption issues when it was concessioned,” explained the board member. 

Similarly, the Anillo Vial Pereférico project, recently awarded after a decade-long delay, faces daunting challenges due to ambiguous expropriation laws. The board member stated, “This project will be a real headache because of the number of expropriations that will need to be done, and the expropriation law in Peru is unclear.”   

Moreover, Lima’s metro expansion is drastically behind schedule, with only “line one, which was built during Alan Garcia’s government, finished.” The board member expanded, “Line two, which should have been finished in 2016, is still in progress and will be finished in 2027/2028, and lines 3, 5 and 6 are still missing.” The infrastructure board member concluded, “These are gigantic projects that I believe will be put out to tender in the coming years because Lima needs a metro system.”    

In contrast, Colombia struggles with the diminished capacity of the state to manage and execute infrastructure projects efficiently. “It has become much more difficult to manage an infrastructure project; the permits are a headache, and the labour law is terrifying,” commented the director. However, this doesn’t deter “Petro’s government slowly promoting infrastructure in his country.”   

“It has become much more difficult to manage an infrastructure project; the permits are a headache, and the labour law is terrifying.”

Board member of an infrastructure company operating in South America

Luckily, Chile presents a more favourable scenario making it arguably the most accommodating environment for infrastructure projects in the region. One of the great things that former President Lagos did was to build all the roads and concessionaires; his focus was infrastructure, and he did it strategically.” The LatAm infrastructure company board member elaborated, “Chile is the friendliest infrastructure country, in Peru there are going to be more projects, and in Colombia, it has been a nightmare lately.”  

The infrastructure sector’s environment for mergers and acquisitions (“M&A”) varies by country. While some nations might see increased M&A activity driven by consolidation and portfolio optimisation, others may experience a slowdown due to regulatory uncertainties and economic challenges. Overall, the M&A activity in infrastructure is expected to be moderate, focusing on strategic deals that enhance market presence and capabilities. 

Despite these opportunities, the region faces several challenges that could impact the pace and success of infrastructure projects. Bureaucratic hurdles and decision-making paralysis are considerable obstacles, with governments often struggling to streamline procurement and contracting processes. This leads to delays and inefficiencies in project implementation. Moreover, corruption and political instability are significant risks that can deter investment and complicate project execution. The successful execution of these infrastructure projects will be pivotal in determining Latin America’s future growth and development trajectory. 

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