Colombia's Infrastructure Programme Picks Up Pace

Colombia's $50billion infrastructure drive could be one of the most exciting investment opportunities in the region. LatAm INVESTOR looks at how the story is playing out...

Beauty pageants might seem outdated or sexist to some, but there’s no denying that winning the title of Miss Universe opens up a lot of opportunities. So when a beautiful Colombian graduate, Paulina Vega, was crowned Miss Universe this February, she would have expected a flood of job offers and sponsorship deals. But even she must have been surprised to be offered a job by Colombia’s guerrilla movement, the Farc.

The rebels took her up on the usual ‘world peace’ spiel that competitors always give at these competitions and asked her to come to Havana, Cuba and help them in their peace talks with the Colombian government. Sadly, for the delegates in Cuba, it doesn’t seem like they’re going to get to spend much time with Ms Vega. Yet the crude PR move bodes well for the peace process. It shows that the Farc, which is incredibly unpopular in Colombia, is starting to court public opinion.

And that would suggest that its leaders are looking ahead to a post-peace accord situation, when their battle would move from the jungle to the ballot box. It’s just one of the many signs that Colombia’s peace talks are making serious progress and that’s great news for an exciting sector – Colombian infrastructure.

‘Guerrillas start when roads end’

The quote above is from Antonio Navarro Wolff, a Colombian guerrilla-turned-politician. His point is that guerrilla movements thrive in areas where the state has little presence. Yet the reverse is also true. It’s hard to build roads in areas with strong guerrilla presence. And that’s why the good news coming out of Cuba – and Colombia – should help the transport infrastructure sector.

Colombia's security situation is improving

Aside from the Miss Universe stunt, we’ve seen more concrete signs of progress from the Farc. Delegates at the peace talks have now reached agreements on three of the five main sticking points. The thorny issues of the cocaine trade, rural development and the future political participation of Farc leaders have already been settled in principal. Of course, it’s too soon to celebrate yet. They are still negotiating how disarmament would work and the legal liability of Farc commanders – but the progress so far is encouraging. A recent poll shows that the majority of Colombians now believe that these talks could yield positive results. Given all the false dawns, they’ve seen over the last half a century, their hope this time is significant.

One reason why there is so much hope is that we are already seeing changes on the ground. Initially the Farc’s request for a ceasefire was denied. That’s because in previous talks the rebels have used these ceasefires to rearm and regroup. But despite the rejection, the Farc has decided to launch a unilateral ceasefire. After waiting to see if it was genuine, the government has responded by stopping aerial bombing raids against the guerrillas. Another interesting development was flagged up by The Economist, which notes that the Farc has begun to work with the Colombian army to clear landmines.

Creaking infrastructure

As anyone who has been to Colombia will know, the country has a terrible network of transport infrastructure. It’s bad enough in cities like Bogotá, which are congested and don’t have a metro or urban rail system, but gets even worse when you try to travel between cities. Colombia is a huge country – roughly the size of France and Spain combined – and is made up of high mountain ranges, vast swathes of jungle and long coastal stretches that give it access to both the Atlantic and the Pacific.

"Colombia’s poor transport infrastructure is stunting the country’s economic growth…"

There’s no doubt that’s tough geography, but other countries in the region, such as Chile and, more recently, Ecuador, have invested heavily in the infrastructure needed to traverse challenging conditions. Yet in Colombia, people are still forced to use poor quality, single-lane roads that make travelling into the hinterland an arduous and lengthy ordeal. Colombia’s poor transport infrastructure is stunting the country’s economic growth as it hits productivity by slowing the flow of people and goods. And that’s why the current government is determined to fix the problem.

Emerging investment options

In 2013 LatAm INVESTOR sent a team to Colombia to interview leading figures in the public and private sector to produce a report on the country’s infrastructure sector. One of the most interesting meetings was with Luis Andrade, head of Colombia’s National Infrastructure Agency (ANI is its Spanish acronym). Andrade was under a lot of pressure, because the financial engineering needed to concession the road, rail and port programme was moving slower than expected. Disagreements with environmental groups and local communities were also delaying efforts on the ground. But back then, Andrade was defiant, promising that things would progress. Now, 18 months later, he seems to be slowly being proved right.

Colombia needs better roads

First up – the amount of road being built. When we interviewed Andrade, he hoped for 300km of new four-lane highway in 2014 – it actually came in at 212km. That’s below target, but still almost four-times more than the average in the decade leading up to this government. More of an achievement is that he’s managed to award the first package of concessions in his $25bn ‘fourth generation’ programme.

The first bundle of ten road projects was worth about $4.3bn, making it the biggest concession in Colombia’s history. The next package, worth $5.9bn, is already out to tender and expected to be awarded by the end of the second quarter. One of the biggest doubts about the infrastructure programme was the Colombian government’s ability to execute it. So far, these early signs have been encouraging. But this $25bn programme is only the start. In total, it’s estimated that Colombia will need to invest a total of $50bn in its infrastructure over the coming decade. That’s a huge investment for a $400bn economy.

The majority of the heavy lifting will come from the private sector, where local and international groups have already been busy raising money. British emerging market investor Ashmore Group is said to be looking to raise $1bn for two dedicated Colombian infrastructure funds. As projects come online, more options will open up for investors. For example, Goldman Sachs is said to be planning to sell bonds on international markets that will be backed by future revenues from motorway tolls.

Colombia’s infrastructure push is gaining momentum and investors would do well to get involved now.