Infrastructure Development To Gain Further Momentum

The Peruvian government's announcement that it will award US$7.4bn in infrastructure projects in the coming months presents significant upside to our construction industry growth forecast for the country, which is already quite positive. After significant growth of almost 15% in 2012, we currently forecast more moderate (but still strong) growth of 7.1% in 2013, and annual average growth of 6.9% over the next ten years.

Potential Upside
Peru Construction Industry Value (PENbn) And Real Growth

Considering that the total value of the construction industry in Peru is estimated at US$16.8bn in 2013, an investment of this magnitude is set to have a significant impact. In addition, the announcement reinforces our positive outlook on the Peruvian infrastructure market which ranks fourth in our Risk and Rewards Ratings (RRRs) for Latin America, behind Chile, Mexico and Colombia. Peru scores above the regional average in all categories, with a particularly strong score for Country Rewards. The more attractive business environment in the country is also reflected in the amount of foreign direct investment (FDI), which has been growing at an average of 22% annually since 2005.

Upward Trend
Peru Inward FDI Stock US$mn And % Growth y-o-y

Projects to be awarded include the US$800mn Energy Node contract in the south of the country, the US$556mn Cusco-Chinchero International airport, the US$74mn Amazon Waterway in the Loreto and Ucayali regions and the US$3bn Enhancement of Peru's Energy Safety and South Peruvian Pipeline. This is in addition to Line 2 of Lima Metro and other transport, tourism, mining and energy projects that have also been shortlisted to be awarded soon. These projects will be developed as public-private partnerships (PPPs), which are particularly significant to Peru in order to share to financial burden between the private and the public sector as government spending will be affected by falling commodity prices.

Aligning with this trend, the Peruvian Water Authority (ANA) recently announced plans to invest US$1.27bn in projects in the Chira-Piura water basin, while the US$714mn Chavimochic water infrastructure project in the north of the country is currently being tendered. This project - the largest PPP irrigation initiative in Peru - has attracted the interest of international majors such as ACS, Ferrovial, Abengoa and Isolux.

Delays Create Downside

However, despite the positive outlook, we do highlight the potential for delays as a result of the Peruvian government's limited capacity to deal with large infrastructure projects. Land ownership issues as well as environmental permits continue to pose risks to the completion of projects. Although most of these projects will eventually be successful, developers may have to overcome significant hurdles on the way.

This article is tagged to:
Sector: Infrastructure
Geography: Peru

Enter your details to read the full article

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.