How to close the infrastructure gap in Latin America
The countries of the region should increase investments in infrastructure up to 3 percentage points with respect to GDP to close the gap that separates them from the advanced economies
That 50 million Latin Americans joined the middle class in the past fifteen years is undoubtedly good news for the region. But it is not so good that this growth has not been accompanied by improvements in infrastructure, especially with respect to transportation, energy, telecommunications, or comprehensive water management.
The result of this reality is that the gap that separates the countries of Latin America from more advanced economies continues to limit the hopes of having an economic and social development that includes all the inhabitants of the region.
It has been proven that the development of new and better infrastructures has a direct effect on the increase of productivity, the reduction of inequalities, and the quality of public services. Therefore, why don't the countries of the region invest massively in their infrastructures?
The answer, in general, is the following: traditionally, the majority of the budget for infratsructure in Latin America, as well as for a large part of developing countries, came from governments, but today this is practically impossible in the face of the global economic context, as the growth prospects for Latin America in 2016 reach around 1 percent. In addition, it is necessary to develop comprehensive plans for the development of infrastructure in each country.
It is estimated that Latin America should increase investments by 3 percentage points with respect to GDP if it intends to enter the league of developed regions, and everything indicates that the public sector cannot, by itself, mobilize the necessary expenses. IDeAL: La Infraestructura en el Desarrollo Integral de América Latina, (Infrastructure in the Comprehensive Development of Latin America, IDeAL, for its acronym in Spanish), developed by CAF to guarantee the productivity of the allocated resources, states that it is essential to include the private sector in the long-term plans that contribute to minimize the risks associated to the change in priorities of new administrations.
Public-private investments represent a good tool to maintain the rhythm of investments in infrastructure projects. Among the advantages offered is the amount of additional funds, beyond public resources, to invest in development projects while, at the same time, incorporating the private sector's technical and managerial knowledge, contributing value added and greater technical efficiency.
Status of investments in infrastructure
In Latin America, investments in infrastructure have developed mainly in the areas of transportation (for the most part in highways), electric energy (supply and generation of electricity), telecommunications, and public equipment. The sectors that lag behind are those of water and sanitation, and urban transportation.
The region faces important challenges to finance infrastructure, among which the channeling of financial resources for projects that contribute a high socio-economic value stands out. These objectives can only be undertaken if the countries of the region commit to strengthen their institutions to provide legal security to investments while at the same time encourage an adequate risk management and transparency policies Tweet
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