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Roadway and renewable infrastructure: driving forces for investment in Latin America

The large infrastructures in the region, which is undergoing a technological and environmental transformation, promise long-term returns and significant growth potential, focusing on the establishment of renewable energies and the improvement of road networks. We give a brief overview of the starting point and some of the most outstanding projects that are being carried out.

Large infrastructures are an essential asset for the economic development of a region, both due to the invigorating aspect of the projects and the structural improvement that their achievement provide. Following the impact of the pandemic in Latin America, and the gradual recovery of activity, countries are focused on the necessary improvement of their road networks and the promotion of renewable energies, which are allowing for potential investments in the infrastructure sector to be consolidated.

Colombia

According to a recent report, supported by the Development Bank of Latin America (CAF), the country offers $35 billion in investment opportunities in infrastructure, which will be divided into nine areas, including: transportation, urban development, social infrastructure, sanitation, water, and energy. In its transition towards clean energy, Colombia has numerous projects distributed throughout the territory for the generation of electricity at solar, wind, hydroelectric, and biomass plants. In 2019, two historical tenders of non-conventional renewable sources made it possible to take a historical leap in the roadmap towards decarbonization, which resulted in 14 plans, giving an important role to the Guajira region. The objective is that, by 2022, the installed capacity for the generation of solar and wind energy in the country will increase 50-fold, thus achieving a reduction of up to nine million tons of CO2 by 2030.

With regard to the road structure, Colombia has a road network of 206,627 km that extends over its rugged geography. In recent decades, according to an analysis by the Development Bank of Latin America, the transport infrastructure has been limited in relation to the economy and has had a very noticeable deficit in infrastructure – roads and railways – per inhabitant, which is why it requires a significant transformation. Although investments in road transportation have increased considerably in recent years, especially in the road sector where they exceed 1.5% of GDP, the country will need to make an effort to continue growing, as vehicle traffic will increase by 3.2% per year according to the organization. The projects to be covered as priorities in the area of roads would be those aimed at improving the conditions of surfaced routes and connections between the central area and the coasts, while for the railways, the construction or refurbishment of sections towards the ports of the Atlantic.

Argentina

The region has a three-level network of roads: the core route, under national management; the secondary level, under provincial management, and the tertiary level, run by the municipality. As indicated in an industry report by CAF, due to the country’s political characteristics, the national network has decreased in the last 50 years, although the surfacing levels of the national network are notably high, at 92%. With regard to the railway network, the country has an extensive infrastructure of over 18,900 km, with more than 10,500 km that are inactive, between unused (but potentially recoverable) and abandoned sections.

Current investments in transportation do not exceed 0.5% of GDP, and 0.07% in railways, which has resulted in a stagnation of its development. Although coverage analyses are positive, efforts in this case should be directed at the more than 600,000 km of the network that are unsurfaced, as well as the scarcity of high capacity networks – highways and freeways. According to CAF estimates, the region must at least double its infrastructure investments over the next 20 years, in addition to boosting the annual budget for maintenance.

In the energy sector, the country has great potential in the field of renewables, due to its outstanding natural resources for solar and wind power generation. The government is supporting the sustained growth of its energy matrix through projects: during the months of July and August 2021, five new generation plans were authorized in the provinces of Buenos Aires (two biogas), Cordoba (two PAH) and San Juan (one wind farm), which jointly incorporated 103.22 mW of installed power. In the first two quarters of the year, 10 and 5 projects were authorized, respectively, which incorporated 569.84 mW of installed power.

Brazil

The Brazilian energy sector is characterized by having a significant renewable matrix (around 50% in 2019), with hydroelectric energy being the main source in the region. The pre-pandemic data are, as a recent ICEX report indicates, enlightening: the country invested a total of €5,450 million in 2019, which represented an increase of 74% compared to the previous year. Although the country’s energy tenders were interrupted with the arrival of COVID-19, projects resumed in the summer of 2021, with photovoltaic plants taking center stage. The Brazilian National Electricity Agency (ANEEL [Agencia Nacional de Energía Eléctrica]) closed September with 4,882.88 mW in electricity generation plants released for sale, anticipating the 4,790.4 mW forecasts established at the beginning of the year by more than three months.

With regard to the road network, the country has 1.5 million kilometers, with a road density of 185 km/1,000 km2 according to a CAF report that also indicates that only 15% of the total network is surfaced. The railway network also has a considerable extension, dedicating 29,075 km to freight transportation. Investments in both transport infrastructures accounted for 0.58% of GDP on average between 2003 and 2015. In terms of future opportunities, concessions focus on the operation of improvements and maintenance of roads, which differs from other regions, where there is a tendency to build and operate new networks. According to the report, if the country wanted to close the infrastructure gap with the world’s high-income countries, investments in this area should reach 4.1% of GDP in 2040 (9-10 times the current investment).

Mexico

The second most populated country in Latin America has developed its road networks alongside its economic growth, and both roads and railways are among those with the highest quality within the region (40% of its roads are surfaced, compared to the regional average of 19%). Moreover, railways are characterized by the decentralization of its region and the exchange with the United States – almost exclusively for freight transportation. It must be taken into account that, given its geographical position, Mexico is an important strategic point with great logistical and commercial potential. Investments on this front accounted for 0.6% of GDP on average, still led by the public sector. However, as indicated by CAF, the Mexican government has just launched the National Agreement for Investment in Private Sector Infrastructure, which covers an investment of USD 45,000 million until 2024, of which USD 15,000 will be allocated to the transportation sector. For their part, the institutions have committed to developing a stable institutional and macroeconomic environment. Projects include the Interserrana Highway, the international bridge in Nuevo Laredo and the García-Monterrey Airport railway corridor.

In the energy sector, the region has over 300 wind and solar projects, with a significant investment burden, but the sector is currently waiting for an initiative presented by President López Obrador that would entail absolute control of the Federal Electricity Commission, and that could impact the renewable energy matrix – solar and wind power – of which 99% is managed by private investment.

Chile

This is an exemplary country in the common effort for a transition towards renewable energies. Chile has increased its commitment to unconventional sources in the last decade, reaching an important milestone in 2020, when they accounted for 46.5% of total power generation. It intends to achieve carbon neutrality by 2050. Looking ahead to 2022, Chile has a total of 23 projects ready to implement, including solar farms such as Andes II and Elena, and wind farms such as Caman and Llanos del Viento.

The transportation sector is essential for the economic development of the region, as it accounts for 7% of GDP – mainly through its roads. The Chilean road network has over 85,000 km, with a high surface rate of national roads, at 82%, a percentage that decreases when analyzing regional and neighboring roads. Barely 24% of the total network is covered, meaning that in the country there is 1.1 km surfaced for every one thousand inhabitants; a value indicated by CAF as very low. With regard to the railway network, its main structure has a north-south axis of around 2,500 kilometers from which branches emerge, as well as five international connections. Its logistics center is located near the ports. The country is currently in the midst of seeking investment to improve maritime transport, which also involves the optimization of land interconnections.

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