Industry Trend Analysis - PPPs To Play Growing Role In Infrastructure Development - AUG 2017


BMI View: Government efforts to implement its newly-passed PPP programme coupled with improving business sentiment towards the Argentine construction market, will see private investment play a more prominent role in supporting infrastructure development over the coming years.

We are beginning to see Argentina's public-private partnership (PPP) programme gain traction, in line with our view that private investment will become an important driver of infrastructure growth from 2017 and help the government rollout its ambitious USD35bn national infrastructure plan. On June 16 2017, transport minister Guillermo Dietrich announced plans to launch PPP tenders for a number of major infrastructure projects in 2017, including a USD2bn concession to build and operate a new port facility in Buenos Aires; and seven roadway operation and expansion concessions covering 5500km of roadway and requiring USD3.9bn in investment. This announcement is the first step towards implementing the PPP programme since the associated law was passed in 2016, and strong government commitment coupled with an improving business environment in the country underscores our expectation for private sector involvement to support construction industry growth in Argentina over our 10-year forecast period up to 2026.

PPPs To Become Growth Driver
Argentina - Construction Industry Data
e/f = BMI estimate/forecast. Source: BMI/INDEC

Improving Operating Environment For Private Business

We are upbeat on the implementation of PPPs in the market's infrastructure space, as the programme will benefit from improving macroeconomic fundamentals and a number of business-friendly reforms by the Macri government, which have boosted investor confidence in the market. Our Country Risk team expects Argentina to see accelerating economic growth in H217 driven by growing investment and expanding exports, achieving average annual real GDP growth of 3.5% over the next ten years, up from -2.3% in 2016. Inflation, a major challenge to growth in recent years, is expected to decrease substantially in 2017 and 2018, further boosting the economy's attractiveness to investors ( see ' Growth Will Accelerate In H217 ' , May 31). These positive factors are reflected in Argentina's high score in the Country Rewards pillar in BMI's proprietary Infrastructure Risk/Reward Index ( see chart below).

Improving Outlook For Argentina
Latin America Infrastructure RRI - Country Rewards Pillar
Scores Out Of 100, Higher Score = More Attractive Market. Source: BMI Infrastructure Risk/Reward Index

European Interest Supports Outlook

Further underpinning our positive outlook for PPPs is the interest in the country's infrastructure market from two major European developers. On June 16 2017, Spanish infrastructure developer Abertis came to an agreement with the Argentine government that will see the company invest USD250mn in improvements to a 56km roadway concession in the Buenos Aires metropolitan area managed by Grupo Concesionario del Oeste (of which Abertis owns 48.6%). The agreement, which once enacted will resolve a multi-year dispute between the company and the Argentine government over the concession, will see company make this new investment and also withdraw a USD1bn claim brought against the Argentine government in December 2015 before the International Centre For Settlement Of Investment Disputes. The government, in turn, will extend the length of the concession, originally set to expire in 2018, to 2030. Moreover, on May 25 2017, Italian infrastructure developer Astaldi expressed interest in Argentine road contracts and highlighted the possibility that the company could bid on projects later in 2017.

Continuation Of Macri Reforms Will Be Key

We note the success of Argentina's PPP programme will hinge on the continued implementation of the Macri government's reform agenda. Indeed, improving investor sentiment towards Argentina over the past year is very dependent on the continuation of his government's reforms, aimed at improving relations between the government and private sector following years of poor relations under the former government. Accordingly, any sign that the government's reform agenda could weaken would likely weigh on private investment and pose a downside risk to our positive outlook for the PPP programme. Significantly, this is not our core view at present. Our Country Risk team expects Macri's political movement Cambiemos to perform well in October legislative elections, considered a bellwether of support for the president's reform agenda ( see 'Stregthening Economy Will Benefit Cambiemos', June 1).