Central America Infrastructure Report Q3 2010

Central America offers significant scope for new infrastructure investments. Given the scope and scale of opportunities for foreign and regional players to become involved in greenfiled and brownfield projects, Panama and Costa Rica stand out as the most conducive markets for such investments to take place. Crucially Costa Rica and Panama are the two countries that also have the strongest legal and institutional infrastructure, combined with low political risk that enable projects to source finance and advance into the construction phase.

This inaugural Central America Infrastructure report looks at six countries in the region: Panama, Costa Rica, Belize, El Salvador, Nicaragua and Honduras. Panama dominates the infrastructure sector in the region, with two of the largest infrastructure projects in Latin America, the Panama Canal new locks construction and Panama City Metro presenting strong upside to the country's construction industry value, forecasted to be US$1.56bn in 2010 and rising to US$3.9bn by 2014. Costa Rica currently is the largest market in terms of construction industry value, but is more mature compared to Panama and with only one relatively large infrastructure project in the pipeline (Limon port), upside to our forecasts is more moderate. Political risks, weak economies and the regulatory and legal deficit in countries like the Honduras and Nicaragua hinder the development of infrastructure and as such we do not see upside potential to our forecasts.

Major developments in the infrastructure sector in the region over 2010 have been concentrated in Panama and Costa Rica:

- Costa Rica's Federal Association of Engineers and Architects published the first of two volumes of an action plan on Costa Rica's infrastructure investments. It is a set of forecasts and recommendations for implementing infrastructure investments in the country over the coming 15 years.
- The Panama Metro tender drew in several of the largest global players in transport infrastructure, with shortlisted bidders including Brazil's Constructora Norberto Odebrecht, Spain's Fomento de Construcciones y Contratas (FCC) and Acciona, Italy's Impregilo and France's Alstom.
- The tender for excavation of a channel on the Panama Canal expansion project (PAC-4) attracted four bids from international consortia.

The Infrastructure Business Environment ratings highlight the disparities between the top performers, Panama and Costa Rica, and the rest of the countries in the region, whose small populations and weak economies have kept the scale of infrastructure development to a minimum and the dependency on official development assistance substantial. The Project Finance Ratings indicate a similar picture for the risks facing project sponsors and financiers. Precedent in concessions and PPPs, combined with political stability, make Panama and Costa Rica the outperformers in the region.