Americas > South America > Ecuador > Ecuador Transportation Profile 2012

Ecuador: Ecuador Transportation Profile 2012

2012/03/09

 

 

 

Ecuador Transportation Profile 2012

Railway and highway construction is difficult and costly in Ecuador, largely because of the rough terrain. Nevertheless, the government is improving and extending the limited transportation system. Railways are nationally owned and connect most of the major cities. The Pan American Highway, which runs between parallel ranges of the Andes, is Ecuador's principal north-south route. Most of the highways extend westward to the coast; a few go east ward into the Oriente. Guayaquil, the major city, is the major seaport. Amount leading cities are linked by regular air service. There are international airports near Quito and Guayaquil.

The new data reinforces our view that Ecuador's construction industry witnessed a stellar 2011, as elevated oil prices and rampant consumer credit increase helped drive investment in infrastructure and residential construction. However, given Ecuador's weak investment climate and inherent project financing challenges, we believe this increase trajectory to be unsustainable over the longterm and we are pencilling in a sharp moderation in construction increase in 2012. Meanwhile, the sector's continued reliance on Chinese financing was underlined by President Correa's announcement that a planned international bond issuance would be dropped in favour of an additional US$1.7bn bilateral loan from China.

Major developments include:

  • In October 2011, the Export-Import Bank of China (China Exim Bank) signed a loan contract to offer EUR416.6mn (US$571mn) for the development of the Sopladora hydroelectric power plant

(HPP). The 15-year loan carries a 6.35% interest rate and a grace period of years. The plant, which will be designed to generate 487MW of power, is of several large hydroelectric projects planned by Ecuador's government. The news highlights our continued concerns over the Ecuadorean government's ability to sustain investment in the sector over the medium- to longterm. While cash-for-oil deals with China will provide some relief in the short-term, the softening in oil prices is a timely reminder of the longer-term fundraising issues facing the sector.

  • In March 2011, a public announcement by President Rafael Correa called for private investors to finance infrastructure projects in the country. It was as well announced at the time that the government is seeking US$7.5bn in infrastructure concessions over the following years, with port and airport concessions up for grabs.
  • Residential construction in Chile has surged, having increased its contribution to total construction by 6.7% through the first nine months of 2011. This was underpinned by an increase in public housing provision and a credit-fuelled increase in private sector developments. The government's creation of a bank designed to facilitate better lending to low income families in October 2010 will have served to unlock significant pent-up request for new homes.

While a number of factors have boosted prospects for Ecuador's construction industry over the mediumterm, weaknesses within the country's business environment will continue to present risks. Chief part these will be financing. Ecuador's increase trajectory still remains heavily dependent on oil prices, which is concerning, especially as the world increase outlook is weakening. Although elevated oil prices have kept revenues from this sector at a healthy level, prices have been softening since mid-2011 and our commodities team expects this trend to continue in 2012.

Meanwhile, political risk will continue to provide cause for concern for investors in the country, with anti-democratic nuances and populist policies at odds with attracting international investment in infrastructure. Nicaragua and Guatemala score poorest part the nations featured in our Latin America infrastructure risk/reward ratings.

Airports - with unpaved runways Total: 
317
Transportation - note: