BMI View: Significant data revisions this quarter do little to alter the general construction industry landscape in Latin America, with a strong divergence in performance anticipated over the medium-term. Panama continues to lead the way for infrastructure investment, primarily owing to the huge US$5bn Panama Canal Expansion. Costa Rica also holds potential, currently possessing a strong project pipeline and the largest construction industry in the region. Nicaragua, too, should see a recovery in growth. Trailing behind are Guatemala and Honduras, where macroeconomic and political risks weigh heavy on growth prospects.

Central America Infrastructure Market Report Q1 2012

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Key Regional Themes:

November 2011 elections in a couple of countries in the region have created some uncertainty. Daniel Ortega secured another term in Nicaragua, implying a continuation of his pragmatic approach to FDI, which has provided crucial capital for the construction sector. However, the election of Molina in Guatemala could create a short-term spike in risk, as he vows to wage war against the drug cartels deterring private investors exactly, when the country is trying to develop its PPP sector.

Security risks have risen across the region, as drug related violence has escalated, especially in Honduras and Guatemala. This is deterring private investment, especially into infrastructure, where a stable political outlook is required, and assets are prone to disruptions in use or damage from violent outbreaks.

Port infrastructure appears to be a priority area of investment across the region. The most important project is undoubtedly the expansion of the Panama Canal. The US$5bn project, to be completed in 2014, will significantly alter the regional trade and shipping dynamics. Other notable projects include the US$1bn Moin Container Terminal in Costa Rica, to be built and operated by APM Terminals, and the US$500mn plan for a port at Monkey Point in Nicaragua, for which Andrade Gutierrez was contracted for a feasibility study in August 2011.

Power projects are also seeing increased investment. Hydropower is the dominant source of electricity and will remain so given the number of projects in development across the region. Key hydropower projects include: the US$300mn Patuca III in Honduras, the US$700mn Tumarin project in Nicaragua, the Tres Ninas project in Guatemala, the Paz hydropower project in El Salvador and the Changuinola in Panama.

Renewable energy is finding a fruitful environment in Central America, with wind power having taken off over recent months. The completion of Gamesa and Iberdrola’s 100MW Cerro de Hula Wind Farm in Honduras is one of the first of many projects planned in the region, with Costa Rica and Nicaragua also fertile destinations for wind investment.