Linking countries in Latin America

By Chris Sleight09 May 2012

Odebrecht is constructing the BRL 2.91 billion (US$ 1.5 billion) Embraport complex, some 80 km north

Odebrecht is constructing the BRL 2.91 billion (US$ 1.5 billion) Embraport complex, some 80 km northwest of Sâo Paulo. Current construction work involves driving more than 2000 concrete piles up to 90

A combination of the need for infrastructure of all kinds and greater financial discipline in many countries than previously seen makes Latin America one of the most promising regions in the world for construction growth. Although infrastructure covers a range of structures and sectors, road building is particularly in focus in the region as countries aim not only to improve national connections, but also cross-border links.

In Colombia for example, the government has announced plans to invest US$ 8.8 billion per year on infrastructure between 2014 and 2018. Representing about 3% of the country's GDP, the National Infrastructure Agency (ANI) hopes this will see the construction of some 1100 km of dual carriageway roads, 1000 km of railways and increase port capacity by 250 million tonnes per year.

ANI director Luis Fernando Andrade said the country was looking to European companies, particularly Spanish companies, to invest in infrastructure and provide construction know-how.

In Mexico there is a dual focus on housing and infrastructure. This year the Mexican government says a MXP 4 billion
(US$ 320 million) increase in housing programmes will see some 250,000 homes built - a +35% increase on 2011.

Meanwhile, it has added MXP 38 billion (US$ 3 billion) to its highway budgets for the construction, rehabilitation and maintenance of some 1280 km of roads this year.

Joining countries

Guatemala meanwhile has announced a US$ 1.5 billion highway investment programme this year, which will see two key routes built. The first will connect the Atlantic port of Santo Tomas de Castilla, in Izabal and Puerto Quetzal on the Pacific at a cost of US$ 450 million. The second will see a continuous road completed between the borders with Mexico in the north and El Salvador in the south at a cost of US$ 650 million.

Indeed, there are several projects underway in Latin America which are designed to increase connectivity between key locations in different countries. Ecuador and Peru for example have announced plans to invest some US$ 368 million in 2716 km of roads that are shared between the two countries.

Following the completion of a link between Loja, Ecuador and Sullana, Peru, the new funds will be directed towards the 538 km route from Guayaquil, Ecuador and Piura, Peru and the 244 km link between Arenillas, Ecuador and Sullana. Two other routes have been identified for further funding.

In a similar agreement, the governments of Bolivia and Peru have agreed to build a cross border link between the southern Peruvian state of Puno that will ultimately link to the Bolivian capital of La Paz. Studies are underway into the project, which is expected to include some 4 km of new road across the border area.

Chile-Argentina link

But arguably the most ambitious cross-border project is the Aconcagua Bi-Oceanic Corridor (CBA), which will link Argentina and Chile thorough a 52 km rail tunnel under the Andes mountain range to provide a continuous link between South America's Pacific and Atlantic coasts.

The project developer is a private consortium comprising Chilean transport company Empresas Navieras, Japan's Mitsubishi Corporation, Argentinean contractor Contreras Hermanos SA, Italian underground engineering company Geodata and Argentinean conglomerate Corporación América, which has interests in airports and infrastructure.

Although they are share a land border, the Andes pose such a formidable barrier that 83% of freight shipped between Argentina and Chile goes by sea. The current land route - comprising Highway 7 on the Argentinean side and Highway 60 in Chile is often closed in the winter months due to snow, and is also slow due to the high altitude and difficult terrain.

The proposed rail tunnel will run from Lujan de Cuyo, Argentina and Los Andes, Chile, and it is designed to be open 365 days a year, with tunnel portals below the snow line, and much lower than the current high altitude road tunnel. The total distance between the two cities is 205 km, and it is expected that some 52 km of this will be through a tunnel. This would be by far the longest tunnel in Latin America, and the third longest transport tunnel in the world.

The final route of the tunnel has now been set, with entry on the Argentinean side at Punta de Vacas, which is about 50 km west of Mendoza, and sits at an altitude of 2393 m. The tunnel will emerge at the small Chilean town of Saladillo, which is at an altitude of 1536 m. In order to ensure high speeds for the train, the gradient in the tunnel is limited to a maximum of 3%.

Construction calls for three tunnels to be driven simultaneously, the main tunnel from Saladillo, and side access tunnels from Juncal in Chile and Puente del Inca in Argentina. Once they intercept the railway's route, the two side access drives will each branch out east and west to allow the tunnel to progress on five fronts in total. Tunnel boring machines (TBMs) are expected to be used throughout.

The first phase of the project is due for completion in 2022, and is expected to have a capacity of 24 million tonnes of freight per year, although the initial throughput is expected to be 13 million tonnes. A second phase of the project is planned, which would see new approach tracks added, taking capacity to 33 million tonnes per year. Ultimately, a second tunnel could be added in the third phase, for a total capacity of 77 million tonnes.

Brazil

A key focus in Latin America is of course Brazil. It represents almost 40% of the region's GDP, is home to about a third of its population and includes several large cities such as Sâo Paulo and Rio de Janeiro.

As the largest economy in the region, Brazil is also the largest construction market - IHS Global Insight puts its construction output this year at some US$ 104 billion - and the spotlight is of course on the country at the moment as it prepares for the 2014 World Cup and 2016 Olympic Games.

The total infrastructure investment ahead of these two sporting events is put at more than US$ 60 billion, much of which will come ahead of the 2014 World Cup which will see games played throughout the country. The 2016 Olympics will see investment focussed on the host city of Rio de Janeiro.

But as big as these events are, they do not represent the bulk of Brazilian infrastructure spending over the coming decade.

Government spending on oil infrastructure, energy, transportation and housing over the next eight years are expected to run into several hundred billion Dollars per year, with private investment adding to the total.

This surge of activity in Brazil is having an interesting knock-on effect in the construction equipment sector. High import tariffs and the requirements to secure subsidised financing from the Brazilian Development Bank's Special Agency for Industrial Financing (FINAME) means there is a huge competitive advantage to be gained by manufacturing in Brazil. Now that equipment sales are reaching significant levels, a wave of factories are being built by new players and incumbents alike.

Newcomers include Doosan, Hyundai, John Deere, Liugong, Sany and Zoomlion, and they have joined established players such as Caterpillar, CNH, Dynapac (Atlas Copco), JCB, Terex and Volvo, many of which are investing in greater manufacturing capacity.

Planned investments in manufacturing capacity by the newcomers alone is close to US$ 1 billion, and that will come on line over the next two years. There is a strong focus on excavators, wheeled loaders and to a lesser extent, backhoe loaders, while Zoomlion will focus on the concrete segment with a factory producing pumps and mixers.

And the established players in the market are certainly not being idle. For example, last year JCB broke ground on a new US$ 100 million factory near its existing facility in Sorocaba. In 2010 Caterpillar announced a US$ 180 million investment plan to upgrade its earthmoving equipment factory in Piracicaba and acquire another facility in Campo Largo for smaller machines such as backhoe loaders, compact loaders and compact excavators.

But the biggest investment to date in Brazilian construction equipment manufacturing came earlier this year, with CNH's announcement of a new US$ 350 million new factory in Montes Claros. This is in the same state, Minas Gerais, as the company's existing factory in Contagem, which builds a range of machines under both the Case and New Holland Brands.

"We started to become quite congested in the single plant, because we are assembling a wide variety of machines. For capacity reasons, and to reduce the complexity, and considering also the potential of the market, we decided to invest in the same state, but in a different location," said CNH Construction Equipment president, Mario Gasparri.

It says something about the confidence in the Brazilian construction market, when the construction equipment industry alone will invest over US$ 1.5 billion in new production capacity in the space of less than five years. Never mind the machines that will be produced in the future from these factories and the projects they will be used on, just building this amount of production capacity constitutes quite a useful amount of construction work.

This is just one of the factors that underlines the bright future for the construction industry in Latin America, and the confidence the business community has in the region.

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