Research and Markets: Ecuador Infrastructure Report Q2 2011 – elevated political risk clouds the outlook for foreign investment

June 9, 2011 | Filed under: Press Releases | Posted by: Gamut News Staff

Jun. 9, 2011 (Business Wire) — Research and Markets (http://www.researchandmarkets.com/research/4c6ffb/ecuador_infrastruc) has announced the addition of the “Ecuador Infrastructure Report Q2 2011″ report to their offering.

Ecuador Infrastructure Report provides industry professionals and strategists, corporate analysts, infrastructure associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Ecuador’s infrastructure industry.

BMI’s outlook for Ecuador’s construction sector remains largely unchanged this quarter. Data from the Banco Central Del Ecuador indicates that the sector witnessed real growth of 5.37% (y-o-y) in 2009 and BMI estimate that it grew by a further 4.45% in 2010. BMI forecasts that Ecuador’s construction industry will experience 4% growth in 2011, before moderating to a more modest average growth rate of 2.36% between 2012 and 2015 – a growth figure broadly in line with government capital investment levels. However, a further deterioration in the country’s business environment brought on by elevated political risk levels, presents downside risk and clouds the outlook for foreign investment in the country’s infrastructure sector.

Major recent developments include:

  • The signing of a contract renegotiation agreement between Ecuador and private consortium Corporacion Quiport for the construction and operation of the new international airport in the capital city brings more than a year of negotiations to a close. The protracted dispute has severely delayed the commissioning of the new airport and illustrates the substantial risk for investors operating in Ecuador’s business environment, which remains far from market orientated.
  • Political risk levels remain elevated in a country already renowned for political instability. Following an attempted coup in September 2010 and strong opposition to President Rafael Correa’s fiscal austerity measures, BMI expect heightened political risks to persist in 2011, further weakening foreign investor sentiment in the country’s business environment. This is reflected in the further deterioration of the country’s Infrastructure Business Environment Ratings, declining to 39.3 out of 100 from 43.9 the previous quarter.
  • In October 2010, the Ecuadorean government created a bank designed to facilitate greater lending to low-income families. The lending body, an arm of the country’s social security institute intends to approve US$845mn in mortgage loans in 2011, according to Bloomberg, and will allocate a further US$600mn for the financing of housing projects. As a result, residential construction is expected to reach surge in 2011 having been subdued in recent years.
  • With the country’s dire public finances and limited access to external credit and international loans, BMI believe that bilateral creditors, notably China, will remain a key source of financing for infrastructure projects in the country as well as multilateral bodies such as the Inter-American Development Bank (IDB). Indeed, in September 2010 China-based consortium China Gezhouba Group-Fopeca secured a contract worth US$672mn from Ecuadorian utility Hidropaute for a 487 megawatt (MW) hydropower plant, which will be part funded by the Export-Import Bank of China.

While a number of international companies are present in the country’s construction industry, recent political events in the country make the outlook yet more uncertain for foreign investors. Thus Ecuador, along with Venezuela continues to present the highest level of investor risk in Latin America. Indeed, expropriation of private sector assets has occurred in both countries and continues to be a threat. Prevalent corruption, as well as unpredictable political, legal and regulatory environments heightens risks, making both countries precarious places in which to invest.

Companies Mentioned:

  • Isolux Corsn
  • Semaica
  • Sevilla y Martnez CA

For more information visit http://www.researchandmarkets.com/research/4c6ffb/ecuador_infrastruc

Research and Markets
Laura Wood, Senior Manager,
press@researchandmarkets.com
U.S.
Fax: 646-607-1907
Fax (outside U.S.): +353-1-481-1716

  • Verdi1997

    Fiscal austerity? What fiscal austerity? The government is spending heavily on social programs and, true, it has increased tax collection on domestic flows and some assets, but from very low levels, though, to be sure, people complain about it.

    Dire government finances? The government has reduced its exposure to by now dubious and profligate lenders, such as the US, and diversified sources of financing, not to mention trade. Quite pragmatic and intelligent. To be sure, spending on social programs has increased at an even faster pace than government revenue, but the recent spike in oil prices has helped reduce budget funding pressures and now even reversed the trade deficit.

    Having said that, nonetheless, the investment environment is still tricky and risky, not for the squeamish.

  • guest

    Only a fool would invest in that country full of crooks. Even the presidential campaign was funded with FARC money.