Latin American focus on infrastructure PPPs will open up opportunities for China

The Inter-American Development Bank has identified increased infrastructure spending as a critical element of economic growth plans for the region

The Inter-American Development Bank and IDB Invest have called for an ambitious growth agenda for Latin America and the Caribbean, focused on closing the region's infrastructure gap.

Public Private Partnerships have been identified as a key element of the infrastructure strategy, and will create more opportunities for Chinese involvement. In a sign of the growing importance of China across Latin America, the next IDB Annual Meeting will be held in Chengdu in March 2019.

In his opening speech at the Annual Meeting of the Boards of Governors, held in the Argentine city of Mendoza, IDB President Luis Alberto Moreno said that one of the causes of subpar growth is that Latin American and Caribbean countries invest far less than more dynamic economies in key sectors such as infrastructure, both in volume and efficiency.

“In the next 20 to 30 years, the region should invest around five percent of its GDP each year, nearly double the current levels,” Moreno said. “It is a question of promoting competitiveness, connectivity, and, in doing so, better living conditions for our citizens.”

Starting this year, the IDB will undertake a series of studies to advise borrowing member countries on what kind of infrastructure investments would be most effective in boosting productivity in lagging sectors. This will include projects featuring IDB Invest, its private sector arm.

Ahead of the Annual Meeting, 900 business leaders participated in the Business Forum of the Americas in Mendoza. They discussed an ambitious agenda focused on boosting investments in infrastructure, promoting regional economies, and speeding up regional integration in Latin America and the Caribbean.

The Forum helped shape a series of proposals that will be presented to the heads of state and government attending next week's Summit of the Americas in Lima, Peru.

Public Private Partnerships (PPP) were identified as being crucial to leverage more resources and close the infrastructure gap. Between 2006 and 2015, the region received more than US$360 billion worth of investments for more than 1,000 infrastructure projects through PPPs.

China is stepping up its involvement in PPPs in the region. In Brazil it is building port project Porto Sul near the city of Ilheus, with the state of Bahia as a partner. Chinese companies are also expected to bid on railway concessions which will be awarded this year, as well as Line 6 of the Sao Paulo Metro.

Chinese involvement in Brazilian infrastrucure is also being supported by the Cooperation Fund for the Expansion of Productive Capacity, established by the Secretariat for International Affairs of the Ministry of Planning, Development and Management of the Federative Republic of Brazil (SEAIN) and the China-LAC Industrial Cooperation Investment Fund Co., Ltd. (CLAIFUND).

The United States has traditionally been the most influential foreign presence within Latin America and the Carribean, and the IDB has its headquarters in Washington DC.

However China is also facing competition from Japan for influence in the region. Japan has been a member of the IDB for over forty years, and has particularly close bilateral ties to Brazil.

China formally joined the IDB in January 2009, becoming the bank’s 48th member nation, and initially contributing US$350 million to various programs.

In Mendoza the IDB and the Japan International Cooperation Agency (JICA) formalised a Memorandum of Cooperation to jointly promote quality infrastructure and co-finance eligible projects for the private sector.

The partners intend to closely align future efforts with the Co-financing for Renewable Energy and Energy Efficiency (CORE) program originally established in 2012 between JICA and the IDB, as well as the Japan Quality Infrastructure Initiative (JQI) created in 2016.

The collaboration between IDB Invest and JICA will prioritize co-financing private sector infrastructure projects, expanding on the work between the IDB Group and JICA in energy to include transportation and water and sanitation. The signing of this MOC is also significant as the first-ever agreement signed between JICA and IDB Invest, the IDB Group’s newly rebranded private sector institution.

In another agreement signed in Mendoza, the IDB and the Government of Japan made a joint pledge to support PPPs in Latin America and the Caribbean. The agreement includes a commitment by the Japanese government to transfer $5 million to the Bank’s Contingent Recovery PPP Preparation Program.

In line with the shared focus of Japan and the IDB on quality infrastructure investment, the funds will be managed by a newly created PPP-focused unit at the Bank, which is increasing the focus on partnerships as an efficient and effective means of filling the region’s infrastructure financing gap. The new funding will support public sector projects through the IDB, as well as private sector projects through the IDB’s private sector arm IDB Invest.

China is likely to follow suit by putting in place its own agreements with IDB Invest, including specifically with regard to PPPs.