Ambassadorial Visit to the new LSE building
- Hermione Greenhalgh
Canning House and the LSE LACC invited Latin American Ambassadors to a tour of the new LSE Centre Building.
Taken together, the economies of Latin America and the Caribbean represent the world’s third largest economy after China and the US. However, the Latin American region currently spends one of the smallest shares of GDP on infrastructure in the world.
The latest Canning Paper, which will be distributed at the Canning Conference 2019 on Tuesday 21st May, explores some of the trends in the sector, as well as areas for much-needed upgrades. Here are just three of the predictions for infrastructure in Latin America in 2019:
1. Greater transparency, narrower infrastructure investment gap
Recent Latin American experience has shown that major companies can become involved in contract-rigging and corruption, the most notorious example being Odebrecht, the Brazilian construction group. Investors need to have sufficient confidence in an economy, including the protection of their rights and the use of transparent, legally enforceable rules and regulations. Governments in turn need to ensure against profiteering and monopoly capture to ensure that the tendering process and the terms of concessions are sufficiently transparent and competitive.
In the wake of the Odebrecht scandal, progress has been made to reform public procurement and strengthen regulation. Greater transparency will likely increase private sector interest and involvement and help to close the infrastructure gap by channelling funds into long-term investment projects which over time will generate a positive rate of return in both a social and a commercial sense.
2. The revival of rail transport
In the nineteenth century Latin America and the Caribbean experienced a wave of investment in railways, led largely but not exclusively by British companies, and designed to link up key areas of commodity production with export terminals. The twentieth century was less good for rail as a transport mode. The rise of automobiles and commercial vehicles such as trucks led to a major wave of investment in road networks. Some rail networks fell into disuse or were abandoned.
It is possible that the twenty-first century will see a revival of rail transport, led largely but not exclusively by Chinese companies. Two types of rail system are in demand. Longhaul freight rail systems are still needed to move large bulk commodities, although many are being re-oriented from facing the Atlantic and Europe to facing the Pacific and China. There is also growing demand for metros – light passenger-carrying urban or suburban rail systems designed to alleviate road congestion in the region’s main cities.
3. More demand for port services
For the foreseeable future Latin America will need to export significant bulk cargoes from a network of Atlantic and Pacific coast ports. Demand for port services is set to increase strongly, reflecting the region’s GDP growth, global trade trends, industrial diversification and modernisation, and the growth of logistics corridors. As trade becomes more diversified, the share of container versus bulk cargo capacity is set to rise. The region also has to adapt to trends in the shipping industry, particularly the use of ultra-large container ships.
According to a report by CAF, the region will require US$55bn of port and maritime sector investment over the next two decades to improve its competitiveness. The report estimates that total container handling capacity needs to triple to 150m TEUs (twentyfoot equivalent units) by 2040. The number of ports able to handle more than 2m TEUs a year each will need to increase from six at present to around 20. New capacity will need to create hubs linking ocean-going routes with cabotage and river traffic.
Why is Latin America valuable for UK investors? And vice versa?
With a population of 650m, taken together the economies of Latin America and the Caribbean represent the world’s third largest economy after China and the US. According to the IMF, Mexico and Brazil will be the tenth- and seventh-largest global economies by 2020.
As one of the top 10 global economies, the UK has a diversified agricultural,
industrial and services-based ecosystem of private companies well positioned to capture emerging opportunities in Latin American infrastructure.
UK companies have the innovation, experience and expertise to support critical infrastructure projects in some of the region’s most important cities. There are some signs that UK-based small and medium-sized enterprises (SMEs) are becoming more aware of opportunities in Latin America. Among UK SMEs that export, the number doing so to Latin America has increased from 11% in 2011 to 19% in 2016.
Among UK SMEs that export, the number doing so to Latin America has increased from 11% in 2011 to 19% in 2016.
An area of UK expertise that could be particularly relevant to Latin America is its recent work on Crossrail and HS2 – major rail infrastructure projects. Crossrail has been the largest single construction project in Europe, while HS2 will connect eight of Britain’s 10 largest cities. Government officials are particularly eager to promote infrastructure investment from the UK’s ‘Northern Powerhouse’ region, which has a GDP the size of Belgium. The UK has also published its National Infrastructure Delivery Programme; this expertise in consultancy, planning and project management is also transferrable.
The Canning Conference 2019, on Tuesday 21st May, will provide UK investors and infrastructure companies with more information about the opportunities and risks involved in infrastructure projects in Latin America.
There will also be opportunities for detailed one-to-one discussions with DIT/FCO country desk officers; advisors including lawyers, risk management companies and consultancies and other members of the supply chain; and Latin American investment organisations and embassy representatives. For more information, click here.
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