Economy

Average public investment in infrastructure in Latin America fell, says IDB

According to the IDB's report, public investment in infrastructure in the region has been low and if anything, has been falling

Average Investment in Infrastructure according to the IDB
  • Traditionally, in Latin America, large infrastructure projects have been financed by governments;
  • Brazil is only ahead of Haiti in the ranking of the lowest disbursements in Latin America in infrastructure.

Average public investment in infrastructure in Latin America fell from about 2.3% GDP in 2013 to an estimated 1.7% GDP in 2019. This what an Inter-American Development Bank (IDB) study on public investment in infrastructure in Latin America, by economists Eduardo Cavallo, Andrew Powell, and Tomás Serebrisky, shows.

Traditionally, in Latin America, large infrastructure projects have been financed by governments. Such projects include roads, ports, bridges, electricity grids, dams, large power-plants, and water and sanitation infrastructure. According to the IDB’s report, public investment in infrastructure (and public investment in general) has been low and if anything, has been falling.

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As the distribution of this investment across countries is skewed (a few countries invest significantly more than the average and there is a longer tail for countries with low investment levels), the median is likely a better measure than the mean; and for the median country, public investment in infrastructure fell from about 2.1% in 2013 to an estimated 1.5% of GDP in 2019.

Brazil is second only to Haiti in the ranking of the lowest disbursements in Latin America in infrastructure, according to the IDB’s survey. Brazil invested only 0.5% of its GDP. Also, according to O Estado de São Paulo the COVID-19 pandemic will reduce infrastructure investments by 10% in the country. Besides, the privatization of 22 airports, six highways, two railways, and the sale of at least six state-owned companies were postponed by the Brazilian government.

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According to Inter.B Consultoria, investments may total BRL 124.6 billion this year, which means that about BRL 12 billion will no longer be invested due to interruptions or postponements. According to the projection, investments in infrastructure will reach 1.77% of GDP – far from 4.24% of GDP, which would be considered ideal.

Image: IDB’s report

Considering public infrastructure investment in 2013, the governments of Bolivia, Ecuador, Nicaragua, Panama, and Peru all invested 3.0% of GDP or more. However, between 2013 and 2017, investment declined significantly in all these countries, except Bolivia, says the report.

Most countries have seen declines to estimated 2019 levels. The governments of 12 countries invested an estimated 1.5% of GDP or less in 2019. In Brazil, investment dipped to under 0.5% of GDP.

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Also, the report says that for the Andean countries, recent estimates suggest that public infrastructure investment could be increased to as much as 7% of GDP on average by 2038, given a mixture of ambitious tax and spending reforms. Besides, public sectors in Latin America and the Caribbean have many assets that are not managed in a way that realizes their full financial potential, it says. “Indeed, in some cases those assets are not even recorded or valued in any systematic way, let alone exploited. A cataloging and review of public sector assets to consider how they may become significant net revenue earners could yield enormous gains to governments in the region.”

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