Building in Latin America: When Projects Go South (of the Border)

Insight From Insight 25 Article

By Israel Almodovar, Director at Navigant, and Todd Metz, Founding Partner – Varela, Lee, Metz & Guarino 

A period of rapid broad-based increase in international commodity prices, also known as a commodity supercycle, started in the early 2000s. The economies in Latin America, largely dependent on the export of commodities, especially in the mining sector, benefited from these price increases with an outstanding growth in the region’s gross domestic product (GDP). As a result, the need for large-scale infrastructure projects to support the commodity boom led to an influx of international construction-related companies into the region. From owners to contractors and other construction industry players, Latin America became a hot spot for multicultural projects. But as the supercycle slowed down starting around 2011, so did GDP growth in Latin America.

This slowdown, combined with other factors such as corruption allegations, increased political uncertainty, and slow recovery of global oil prices, had a direct impact on the construction industry in the region. However, after a few years of contraction, the industry is forecasted to start rebounding in 2018 based on projections of global oil price increases, dissipation of political uncertainties, and the predicted support by both stronger government spending and greater private investment in the construction industry.

Moreover, the use of the public-private partnership structure has become more popular in the region, requiring an adequate regulatory framework, as well as teams with extensive experience in design, construction, operations, and project financing. These projects involve not only the mining projects to directly support the commodities market, but also the infrastructure projects to support the economic growth and social progress of the region. As a result, the influx of international construction industry players into Latin America is expected to continue for both private and public projects.

In this article, based on our experience, we describe several challenges that international construction industry players face in developing and managing projects in Latin America. With that said, we cannot forget that, while there is a tendency to view Latin America as a homogeneous region, it is really the amalgamation of more than 20 countries with a common language, but different laws, codes, regulatory environments, and cultures.

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