Argentina Infrastructure Report Q2 2008

Amidst some controversy, Cristina Fernndez de Kirchner was elected as president in October 2007.

Early indications suggest that the present administration will follow the course established by the previous one lead by Nstor Kirchner. The incoming government is maintaining a pro-growth agenda and the economy has a clear momentum. Within this climate BMI is predicting a healthy 6.0% growth in GDP in 2008. We continue to predict a soft economic landing over the five-year forecast period, though remain wary of downside risks of accelerating inflation and an energy deficit.

Under these circumstances, the prospects on the whole look good for the Argentinean construction industry. The industry, it is fair to say, has had its fair share of up and downs since the heady days of the 1990s. Throughout most of that decade an influx of credit and a sizable demand for residential accommodation caused year on year growth in the sector to peak at 22% in 1997. Shortly thereafter, Argentina was hit by a recession and the fortunes of the industry reversed. In 2002 the economy recovered substantially and the prospects for the construction industry have looked up ever since. This is clearly illustrated when we consider that the country's economy has grown at more than 8% for the last five years and that the Argentine construction sector grew at 6.1% for the year to July 2007. However, the lingering effects of the recession are expected to persist until 2012.

These and other effects have caused some of Argentina's bigger construction companies to look further afield, particularly in other Latin American countries, for projects. A case in point is Techint Engineering & Construction (TEC), who through their Chilean partner company Comin S.A., of which they own a 51% stake, have been engaged to complete the construction of the Esperanza project's truck shop, in Chile's Second Region.

Within the country, infrastructure development is clearly an area of prime focus, and a lucrative area for local construction companies. Another of Argentina's biggest firms in the sector, Sideco, for instance, is charged with the building of more than 12,000 km of freeways and highways, in addition to other responsibilities. A key government concern is the development of Argentina's railway infrastructure, which needs a revamp. Recently, a number of consortia were invited to put in bids for the construction of a high speed railway between Buenos Aires and the city of Mendoza. This is simply the latest in a string of railway projects to be launched in the country. Other areas of activity include oil and gas exploitation, electricity generation, and hotel, commercial and residential construction. All the latest development in these sectors can be found in the 'Key Projects' section of this report.

Still, a few roadblocks in the course of further growth can be identified. Availability of private funds or rather the lack of it remains an area of concern. Recent state efforts to attract private investment into the construction industry have met with only limited success. Further, the investment of state funds into infrastructure may accentuate an existing deficit. Though the debt-restructuring process is being effectively resolved and should eventually provide access to international capital markets, high levels of inflation and lack of structural reforms will prove to be obstacles to the country's investment outlook.

That notwithstanding, the country has huge potential for the development of its infrastructure. BMI forecasts the construction industry to grow at an average annual rate of approx. 5% in the period 2008-12, reaching a value of US$25.89bn by 2012. By 2012, the construction industry is forecast to employ over a million Argentines.