Argentina Freight Transportation Report Q2 2008

Bolivia and Argentina signed a contract in March 2007 to build a US$1.5bn, 1,500km gas pipeline that will eventually quadruple the amount of natural gas Bolivia exports to its southern neighbour. The deal finalised the terms of an agreement the preceding October between Bolivian President Evo Morales and the then Argentine President, Nstor Kirchner, and brought a step closer to reality a project first proposed by the two South American nations three years previously. The Northeast Argentina Pipeline (GNA) will be able to pump up to 20mn m3 of gas daily from Bolivia to Argentina, effectively quadrupling the 7.7mn m3 daily capacity of the existing pipeline built between the two countries in the 1970s, officials said.

Completion is planned by 2010, but in our view could slip to a later date. Meanwhile, in mid-2007 Argentina entered its fourth-straight winter with cold-weather natural gas shortages. President Kirchner's administration blames shortages on private energy companies for not investing, while analysts say a fiveyear- old utility rate freeze for residential clients gives companies little incentive to do so. Gas distributors were forced to severely restrict gas supplies to industrial clients in July, threatening to undermine economic growth and leading some industry executives to rethink investment plans. In our latest Argentina Freight Transport Report, BMI concludes that pipeline throughput growth will reach an annual average of 4.8% over the next five years, expressed in terms of million tonnes-kms (mntkms). This will be a little faster than the country's economic growth rate over the same period.

Various factors support this prediction. Across our 2007-201 forecast period, we now expect average annual GDP growth of 4.6%. Energy demand will expand more strongly, however. Despite the Bolivia deal, there are still some question marks about how fast new capacity will be built. We still envisage that pipeline throughput will only begin to pick up a little more towards the tail-end of our forecast period as we are predicting that the new pipeline will only come onstream around 2011.

The outlook for the overall freight industry is moderately encouraging. Road haulage will continue to be the dominant freight transport mode. Growth will be somewhat constrained by capacity limits, with investment needed in both the highways network and truck fleets. Nevertheless, over the forecast period annual average growth in road freight carried will be 5.4%, down from the preceding five years, when growth was 6.1% a year. BMI now forecasts 5.7% annual growth in rail freight over the next five years, with China-funded new investments helping to lift capacity. We are forecasting maritime traffic to grow by an annual average of 4.5%, with the growth concentrated in the early part of the forecast period because of the global shipping boom. We see airfreight registering satisfactory, but not spectacular, growth rates - partly because much of Argentina's international trade remains in the relatively higher bulk/low value pattern and is therefore not particularly suited for transport by air. However, we take LAN's entry to the Argentine market as a positive sign of some supply-side impetus and are now forecasting average annual airfreight growth of 6.7% in the forecast period.

We have awarded Argentina a combined freight transport business environment ranking of 33.0 (out of a theoretical maximum of 70.0), which places it below the average score of 38.9 for the range of key Latin American markets that BMI monitors. The positives include the country's long-term economic risk and political risk and infrastructure growth.

The total value of transport and communications GDP will rise to US$32.6bn in nominal terms by 2011, representing 9.0% of Argentina's GDP. The transport and communications sector employed around 652,980 people, or 7.1% of the labour force, in 2006. We see the figure rising to 686,380 by 2011, although as a proportion of the labour force it will remain unchanged at 7.1%.