Some of the largest economies in Latin America are dusting off infrastructure megaprojects that had been put on hold due to the corruption scandal of Odebrecht or falling commodity prices in order to kick-start investments, improve competitiveness and people's quality of life.
According to the IDB and CAF, investment in infrastructure should top 5% of GDP on average in the region if Latin America is serious about reaching those goals. And although the infrastructure gap with other regions is getting smaller, the average for Latin America was around 2.8% of GDP in the 2008-15 period.
The public sector continues to be the region's main investor in infrastructure, with a 60% share of investment. But while projects were previously financed primarily with fiscal resources, and then with direct loans, now there are multiple instruments to have the private sector more directly involved.
Project finance allows structured financing based on long-term cash flows generated by a company incorporated for a specific project, taking the assets as guarantees. The key lies in the long-term predictability of the project's cash flow, which is why Power Purchase Agreements (PPA) are much sought after in the region's energy sector.
Public-Private Partnerships (PPP) are also a key tool to facilitate project finance to develop infrastructure, particularly that which relates to transportation, as in the case of Colombia's fourth generation (4G) highway program.
Equally, the region needs private sector financing for projects that have financial solvency and credibility, especially from banks. In that sense, Chinese banks invest more in infrastructure in Latin America than the World Bank and the IDB combined. At the domestic level, however, the Basel III capital requirements are finding their way to the region and making local banks hesitant to pitch in. As a result, many projects are forced to seek financing from institutional investors or the capital market.
In this report we take a look at the financing context of the infrastructure sectors in Argentina, Brazil, Chile, Colombia, Mexico and Peru.
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