Under construction

Corruption and bureaucracy hold back infrastructure in Peru.

Pretty much every government in Latin America is pointing to an infrastructure plan as a key enabler of rapid post-pandemic economic recovery. The problem is that there is nothing rapid about the infrastructure sector in the region that is wrapped as it is in bureaucracy and corruption.

It has become such a problem in Peru that government-to-government (“G2G”) public-private infrastructure funding projects are an increasing trend. Peru and Colombia have developed the most ambitious G2G programmes which, in addition to financial support, allow Latin American countries to outsource project implementation and transparency practices to both companies and public officials from third countries.

Peru, under the administration of former President Martín Vizcarra in 2019, launched one of the most ambitious G2G projects when it outsourced a number of logistics and infrastructure works for the 2019 Pan-American Games to UK officials and companies. The country has replicated a similar structure with French public and private actors in the construction of hospitals in Cuzco and Lima and contemplates the replication of the model for two new lines of the Lima metro.

The Secretary General of a trade agency in Peru commented, “G2G’s are faster but I’m ashamed to think that there are no honest officials in Peru. We need to review our processes and skills and learn from the success of other countries with characteristics or problems similar to ours.”

“G2G’s are faster but I’m ashamed to think that there are no honest officials in Peru. We need to review our processes and skills.”

Secretary General, trade agency, Peru

G2G goes beyond project financing and attempts to add value to projects through the transfer of knowledge between administrations. In the case of Latin American countries, governments benefit from transfer of technology, improved standardisation of strategic project goals to meet pre-defined budgets and a significant increase in the local public officials’ capacities.

The main problem with G2G projects in Latin America is the lack of confidence that private stakeholders have in the government’s future capacity to manage new complex infrastructures. Once the construction process is completed, the operations, management and maintenance of these infrastructures are managed by the government which, often, lacks the experience and knowledge to do so. While roads are considered simple to manage, airports and metros are much more complex and expensive to operate in the long term.

An infrastructure investor with assets in Peru explained, “It is hard to do transport work here. There is huge potential for interference: you have to move water, drainage, power lines etc. Another problem is that the regulations for appropriation of property are complicated, the ability to relocate is limited. There are many operational bottlenecks. The ministry is not strong enough and there are no simple regulations.”

The efficiency of G2G projects is yet to be determined, however, they have proven to be a very useful tool in Latin America as it has significantly reduced the risk of corruption surrounding public projects in the region. In the context of post-Lava Jato investigations and Odebrecht scandals, G2G agreements are seen as an innovative solution to the financing and implementation of large infrastructure projects in the region.

“The infrastructure plan is a good initiative, unfortunately something like 70% of the awarded projects are blocked for some reason.

Former Transport minister, Peru

There are also political hold ups as a former Transport minister described, “The infrastructure plan is a good initiative, unfortunately something like 70% of the awarded projects are blocked for some reason. For example, the expansion of Jorge Chavez airport is currently delayed because one family decided to sue. There needs to be better regulation with a strategic vision of where to go. “

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