Real Estate & Construction

Go big or go home

Colombia is betting big on infrastructure under the leadership of President Iván Duque, who has not only renewed the country's commitment to the historic USD18-billion 4G road infrastructure program but also established relations with China, the region's second-largest trading partner.

Up until recently, it cost more to transport a container from Bogotá to the coastal seaport city of Buenaventura than to ship it from there to Shanghai. According to the World Economic Forum (WEF), roads in some parts of the country are still among the worst in the Latin America and Caribbean region. For more than 25 years, governments have tried to improve the situation, with little success.

That said, the government has upped the ante in recent years, and the numbers back it up. In Latin America, Colombia has the second-highest number of infrastructure projects under construction, and it is ranked third in terms of the number of projects in operation.
Driven mainly by the USD18-billion 4G public-private partnership (PPP) infrastructure program, the most ambitious infrastructure program in the country’s history and one of the largest in South America featuring projects such as the USD3.3-billion La Sabana Airport in Bogotá; the USD1.43-billion Magdalena River Navigability Project, which aims to connect the center to the Caribbean port of Barranquilla; and the USD4.4-billion Bogotá metro rail project, which is scheduled to begin in 2020, Colombia’s infrastructure sector is set to continue its recent growth trend over the coming years.
Remarkably, improvements made under the 4G program have almost single-handedly boosted Colombia’s ranking in the Logistics Performance Index from 95 in 2016 to 54 in 2018. The program has been such a success that today it is recognized worldwide as a leading example. It focuses on the construction and restoration of 40 highways totaling more 7,000km, 141 tunnels, and 1,300 viaducts, with the aim of connecting Colombia’s main ports with industrial hubs and consumption nodes. Given the scale of the 4G program, BMI expects the road and bridge segment to grow by 6.1% between 2018 and 2022 and drive the growth of the construction industry. As of May 2019, 70% of the program was financed and under construction through the mobilization of multiple sources of finance: 31% from local banks, 32% from international banks, 16% from institutional investors, 11% from investment funds, and 10% from Financiera de Desarrollo Nacional (FDN).
The fact that the majority of equity and debt for projects is being provided by the private sector indicates that initiatives taken by the government have been central to the growth of the sector. For example, the Infrastructure Law 1882, which was implemented in 2018, modified the rules of public contracting and PPPs and made improvements to tendering process and the liquidation of infrastructure contracts, with the aim of improving transparency, efficiency, and legal security.
US-based asset manager BlackRock, UK-based John Laing Group, state-owned China Harbour Engineering, and Xi’an Metro Company are some of the international firms that are providing debt, building infrastructure projects, and buying stakes in roads. Meanwhile, local construction companies are selling their stakes in nearly completed projects and using those profits to invest in new projects. In 2019 alone, stakes in projects worth USD3 billion were put up for sale.
2019 was also the year when Chinese companies finally made their way into Colombia, the only Latin American country that had reservations about investment from the region’s second-largest trading partner. And a lot has changed in a matter of months. Chinese companies have committed billions to Colombia, acquiring a gold mine and winning bids for Bogotá’s metro line, the electric-powered Western Tram-Train, and a regional rail line, among other projects. To top it off, two Chinese companies, namely Sunwin Bus Corporation and BYD, have so far provided dozens of electric buses to the municipal governments of Cali and Medellí­n, making them the first cities to advance Colombia’s goal of replacing 75% of public buses in seven cities with zero-emission vehicles by 2040.
By lowering high logistics costs that hamper the country’s productivity and drive up costs of goods, the government’s infrastructure programs are expected to have a positive impact on Colombia’s economy for years to come, though a great deal of that will depend on the policies of future administrations.

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