Central America Infrastructure Report - Q1 2011

Abstract

Panama dominates the infrastructure sector in the region, with two of the largest infrastructure projects in Latin America: the Panama Canal's new locks construction and Panama City Metro, We have revised our forecasts upwards for the construction sector in Panama from 2011 onwards, where growth is going to average 20.4% annually between 2010 and 2015 (this growth rate prices in the Panama City Metro project, which is due to enter construction in January 2011). Costa Rica is currently the largest market in terms of construction industry value, but is more mature compared to Panama and with only one relatively large infrastructure project in the pipeline (Limon port), upside to our forecasts is more moderate. Political risks, weak economies and the regulatory and legal deficit in countries like Honduras and Nicaragua hinder the development of infrastructure and as such we do not see upside potential. Major developments in the infrastructure sector in the region: * A regional trend for countries to become transhipment hubs in preparation for intensified canal seaborne trade is spearheaded by the construction of new terminals at Costa Rica's port of Moin's. * Our forecasts show moderate growth in Guatemala's construction industry value, but we note upside potential from major projects in the pipeline in the electricity sector. * The Port of Monkey Point (Nicaragua) construction contract with South Korean companies not only highlights the trend for maritime capability upgrade, but also showcases South Korea's ambitions as it seeks to expand its footprint in emerging markets. * China's latest play in Latin America came in September 2010, with an agreement between the Honduran government and Chinese firm Sinohydro to cooperate on the construction of three hydroelectric power plants. BMI's Infrastructure Business Environment Ratings highlight the disparities between the top performers, Panama and Costa Rica, and the rest of the countries in the region, whose small populations and weak economies have kept the scale of infrastructure development to a minimum and the dependency on official development assistance substantial. BMI's Project Finance Ratings indicate a similar picture for the risks facing project sponsors and financiers. Precedent in concessions and public private partnerships (PPPs), combined with political stability, make Panama and Costa Rica the outperformers in the region.