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Argentina Infrastructure Report Q3 2011
Business Monitor International, May 2011, Pages: 56
BMI View: Argentina's infrastructure sector presents very high untapped potential for potential investors and sponsors of infrastructure projects. In order to unlock this potential, the government should embark on a post-election change in policy in order to attract capital into the sector – the only viable way to significantly revive infrastructure activity. However, we anticipate that robust economic activity will make moderate sector growth possible throughout our core forecast period to 2015. In January 2011 the Argentinean government announced it would spend US$241mn on several small infrastructure projects – a move which, we believe, is aimed at winning provincial votes and quelling social instability amid rising inflation and cash shortages. Although concrete plans call for the spending to be disbursed between transportation, water and power projects, we fear red tape and bureaucracy may halt the allocation of the money.
Our largely sanguine long term outlook is driven by several factors, notably: ?? The Eastern Connection: On July 13 2010, China pledged US$10bn for Argentina's railway infrastructure projects, and expressed a willingness to build new nuclear power generation facilities in the country. Details on the precise timeline of investments are scarce, but working from what little has been announced we estimate that the first funds could be allocated to projects as early as this year. This is the single most important factor driving our forecasts from 2011 onwards.
- Multilateral support: Argentina is to receive US$600mn from the World Bank for road and water projects as part of a US$1.06bn financing agreement, Business News Americas reported in January 2011. US$400mn has been allocated for the Great North road project, which will pave many of the routes in the country's northern provinces and reduce transportation costs. A total of US$200mn will be used for a water and sanitation project to improve water access and potable water coverage for 1mn people living in poverty in the northern provinces.
- Inflation hedging: Investment in real estate as a hedge against rising inflation. Property holds better value than bonds or cash during times of high inflation so this could buoy buying activity and hence underlying construction activity over the next year or two. Following a 5.2% spike in 2010, we forecast that the sector will expand by 5.2% in real terms in 2011. Annual real construction sector growth should broadly remain close to this level throughout the remainder of our core forecast period to 2015.
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