Investment reinforces infrastructure development in Peru

 

President Martín Vizcarra Cornejo pledged renewed infrastructure investment to drive economic growth and restore investor confidence. As such, the authorities are working to increase infrastructure spending from 4.5% of GDP in 2016 to 6% by 2021, with much of the momentum originating from the National Infrastructure Plan (Plan Nacional de Infraestructura, PNI) 2016-25, which estimated the cost of closing the country’s infrastructure gap at 8.6% of GDP in 2019, rising to 8.9% in 2021, after which point the cost will drop to 7.6% by 2025.

Developed by the Association for the Promotion of National Infrastructure, the PNI earmarked approximately $33bn for infrastructure projects between 2016 and 2019, and $32.8bn for the period from 2021 to 2025, a figure the association says could be covered by the government incurring debt, considering Peru has one of the region’s lowest public debtto-GDP ratios, which was 23.2% in 2016. Additionally, the participation of pension funds in the financing of projects and a narrowing of the infrastructure gap is also expected to occur.

International Collaboration

In preparation for the 2019 Pan American Games, Peru has been reaching out to international partners such as the UK, learning best practices from London’s hosting of the 2012 Olympics, for example. Collaboration with the UK, under the umbrella of the Joint UK-Peru Infrastructure Task Force, also led to the appointment of a panel of experts to provide advice on the development of the PNI and the launch of a terms of reference to share experience on delivery models for large infrastructure projects.

Peru’s openness to international collaboration is reflected in its attractiveness to foreign investors who are drawn to the country’s accessible legal framework, guarantees on private property and access to international dispute settlement mechanisms. Its efforts to boost investor confidence have paid off, with Moody’s granting the country an investment grade of “A3”, and Standard & Poor’s and Fitch both awarding Peru a grade of “BBB+”.

Foreign investment funds are eyeing projects such as road concessions and public infrastructure development in search of stable earnings. “What is moving a lot of the funds from abroad are the long-term investments with stable profitability in Peru,” Orlando Marchesi, principal partner at PwC Perú, told local press in February 2019.

Reconstruction

In addition to the government’s plans to increase private investment in infrastructure, the country has been implementing reconstruction projects to rebuild from the damage caused by the El Niño weather pattern of 2017, which brought deadly torrents of rain.

Among the projects is the rehabilitation of over 540 bridges, 6000 km of trunk roads, 30,900 km of rural roads and 45,000 km of irrigation canals affected by floods and mudslides. According to the Ministry of Economy and Finance, reconstruction spending in the north is expected to hit $1.2bn in 2019, up from $600m the year before.

Social Infrastructure

Also included under the umbrella of the PNI is the development of social infrastructure such as schools, hospitals and housing. The national plan calls for the creation of high-performance schools to help fill the educational infrastructure gap, which Daniel Alfaro, then-minister of education, estimated to be at PEN100bn ($30.3bn) in January 2019.

The construction of a number of high-tech hospitals is also in the offing, with the identification of 41 projects under the auspices of the government’s National Health Investment Programme. Investments in social infrastructure will be partnered with projects to improve social housing, with the aim of narrowing the country’s housing deficit, which is estimated at approximately 2m units as of 2018.

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The Report: Peru 2019

Construction & Real Estate chapter from The Report: Peru 2019

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