Recent Study: Ecuador Infrastructure Report Q3 2013

From: Fast Market Research, Inc.
Published: Thu Jul 25 2013

Full-year data from the Banco Central del Ecuador reveal a notable deceleration in construction activity in H212 and confirm our view that, after two years of double-digit growth, a slowdown is on the cards for Ecuador's construction sector. Having expanded by an estimated 14.0% in 2012, we predict that real industry growth in 2013 will come in at a more modest 6.5% and this trend is likely to continue over the medium-term, with BMI forecasting average annual growth of around 4% between 2013 and 2017.

We believe that a drop-off in government spending following February's general election and a weakening consumer outlook are likely put the brakes on infrastructure investment and residential construction respectively. Meanwhile Ecuador's persistently weak business environment and prohibitive financing conditions will continue to starve the sector of much-needed investment over the medium-term at least.

Major recent developments:

* As BMI expected, Ecuador's President Rafael Correa was re-elected in a first round victory in the February 17 general election. With 56.7% of the vote, ahead of the closest challenger, Guillermo Lasso, with only 23.3% of the vote, we believe Correa's populist agenda will accelerate through his next fouryear term. While this poses some upside risk to our forecasts given the focus on social and economic infrastructure investment, we believe chronic financing difficulties will see the government struggle to maintain the ambitious levels of spending.
* It was announced in January that the prequalification process for the construction of phase II of the metro project in Quito will likely be launched by state-owned subway operator Metro de Quito in March 2013. The construction of phase II will be carried out in line with the guidelines issued by development bank IDB, according to an announcement made by Metro de Quito in November 2012. The phase II involves the construction of 13 of the total 15 planned metro stations, acquisition of the rolling stock material, and a 22km tunnel and other civil works. Additionally, the phase II also includes a supervision contract to oversee the construction.
* The announcement in November that Ecuador's Manta Port concession had failed to attract any bids underscores our long held pessimistic outlook for the country's business environment. We had long held the view that the concession would be a tough sell, given the controversial and premature end of the previous concession. With President Rafael Correa winning a third term we see it unlikely that any significant improvement will be made to the business environment over the next four years; this will result in the country continuing to fail to attract the private investment necessary to see tangible improvements in its infrastructure.

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