Argentina Infrastructure Report Q4 2009

Our forecasts remain the same as the last quarter, as data continues to point to a protracted recession lasting into 2011. We therefore expect a 3.4% contraction in real construction activity in 2009, before an even deeper contraction (of 5.3%) in 2010. Despite significant plans for infrastructure investment by the government, there are doubts as to how far such plans are viable, given the negative impact of the economic downturn on an already-strained fiscal situation. Alongside funding concerns, further questions about the government's ability to push through its infrastructure spending plans have been raised by a poor showing in mid-term elections in June 2009, which saw the administration of President Cristina Fernandez suffer embarrassing defeats (including the loss by her husband, ex-President Nestor Kirchner, of Buenos Aires province). This electoral defeat may increase opposition to the use of the public purse - including the possible use of US$26bn in proceeds from a controversial nationalisation of the private pension system - for ambitious infrastructure spending projects. Against this strained backdrop, we foresee total annual capital investment (inclusive of private and public investment) in Argentina falling from an estimated US$91.5bn in 2008 to US$76.1bn in 2010.

We extend our analysis of Techint this quarter, which has significant interests in Argentina and the wider Latin region. Despite sector and geographic diversification, the global economic downturn poses major challenges to Techint. Its businesses are largely pro-cyclical, especially steel and construction. A strong orientation toward Latin America is a further cause for concern during the current global economic downturn. In a context where many governments have macroeconomic profiles that are not as robust as other developing nations (particularly compared with many governments in Asia), public infrastructure spending is relatively vulnerable to the downturn. As such, the availability of both private sector and public sector contracts will likely take an extended hit.

Spanish company Grupo Guascor is reportedly finalising the agreement for a US$2.4bn wind farm in the southern part of the country (June 2009). The wind farm will have a capacity of between 600MW and 900MW and construction is due to begin in one year in the province of Santa Cruz. A report by BNamericas cites local media reports that Guascor will finance about 30% of the cost from its own resources and raise the remainder in the local and international financial markets. However, another report by Dow Jones cites officials from the Planning Ministry saying that 'private Spanish funds will be responsible for 100% of the investment'. It appears, therefore, that the issue of financing is still uncertain.