Abstract
In BMI’s Q309 Ecuador Infrastructure Report we are forecasting
construction industry value to grow by
0.45% to reach a value of
US$4.53bn. Ecuador’s infrastructure sector continues to be in turmoil
and
therefore we believe risks are to the downside.
On the positive
side, the utilities sector received a boost from China, with Sinohydro-Andes
having
signed a letter of intent for the project. The company, through the
Export-Import Bank of China, will
provide 85% of the project costs. The
remainder of the funds will come from the Ecuadorian and
Argentinean
governments. The 1,500MW power plant will cost US$2bn in total and once
completed –
scheduled for 2014 – the plant will be a major
boost to electricity generating capacity in the country.
On the negative
side the business environment continues to decline. The Odebrecht issue is
persisting –
the Ecuadorian government has filed a court claim for
US$250mn for compensation for failures during
the construction of the San
Francisco Hydropower Plant. Odebrecht has rejected the claims and called
the
measures unjustified. In addition, the Manta Port issue is still
unresolved. The Ecuadorian government’s
hard stance on construction
companies has impacted on several contracts, with a number terminated. The
prominence of these issues, illustrated in our new and ongoing projects
section, will undoubtedly be a
cause for concern for companies looking to
get involved in the country. As a result, it has fed through into
our
Infrastructure Business Environment Ratings, with Ecuador placing last in the
Americas region, with
a score of 41.8 out of 100.
Despite these
issues, some projects are making progress. The transport sector has seen a
number of road
projects and the utilities sector a number of power
projects. As such we still believe there will be growth
in the
construction industry value in 2009. The real impact of the declining business
environment will be
felt in 2010. The business environment has also been
severely dented by President Correa’s decision to
default on the
country’s international loans. This has effectively dried up any source
of funding from
outside the country, with the prospect of loans from both
international banks and multi-lateral institutions
practically ruled
out.
With external sources of financing having dried up, the
responsibility will fall to the government to
support infrastructure
development. While the newly re-elected President Rafael Correa has made
commitments to do so, BMI is concerned, with oil revenues declining, that
there will be much less money
in the pot. In addition, the economic
climate is also in decline, and BMI believes the country will enter
into
recession in 2009 (-2.3% real GDP growth), which will get deeper in 2010
(-5.5%).
As such, in 2010 BMI is forecasting the construction industry
value to contract by 5.24% y-o-y.
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