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Chile, Brazil and Colombia Most Attractive in Latin America for Private Investment in Infrastructure Santiago de Chile, Chile, 25 April 2007 – Chile, Brazil, Colombia and Peru lead the region with respect to the attractiveness of their private investment climate for infrastructure. Covering 12 economies in Latin America and the Caribbean, the study, “Benchmarking National Attractiveness for Private Investment in Latin American Infrastructure”, assesses the main drivers of private investment in infrastructure projects for ports, airports, roads and electricity. This is the first time that the World Economic Forum has developed an index specifically analysing the investment environment for infrastructure. The World Economic Forum on Latin America 2006 in São Paulo identified poor infrastructure as a major obstacle to the region’s ability to compete globally and as one of the priority areas in which the World Economic Forum needed to explore alternatives and catalyse actions to overcome the current shortcomings. The study features the Infrastructure Private Investment Attractiveness Index (IPIAI), a customized, methodological tool gauging the institutions, factors and policies making it attractive for private investors to invest in infrastructure projects. An assessment of infrastructure investment opportunities is also performed for each of the countries covered.
Infrastructure Private Investment Attractiveness Index
The eight pillars measured by the IPIAI are: “The IPIAI provides country-specific diagnostics about relative national strengths and weaknesses in attracting private infrastructure investment,” said Irene Mia, Senior Economist at the World Economic Forum’s Global Competitiveness Network. “From an investor’s perspective, the IPIAI provides a customized toolkit for investment decisions and location choices in Latin America while it guides policy-makers in the choice of the best policies to foster their national attractiveness for private investment in infrastructure and in prioritizing sectors and measures,” said Julio Estrada, Research Projects Manager for Latin America at the World Economic Forum. The twelve countries included in the study were grouped into four different clusters, each showing a specific attractiveness profile. The classification under a particular cluster has specific policy implications for a given country in that it indicates the reforms and policies to prioritize to catalyse high volumes of private investment in infrastructure, which differ from those for countries in other clusters. Cluster 1 is formed by Brazil, Peru and Colombia, who show a fairly strong performance across most pillars, with the exception of the legal framework for Brazil, the civil society–government related dimension for Peru and the track record on private investment projects for Colombia. What is common to the three countries is that their governments and entrepreneurs face a challenge of execution and innovation, to deal with the specific complexities in increasing the flow of successful projects. Cluster 2 is composed of Mexico and El Salvador. Both perform fairly strongly in the general investment environment dimensions and, very importantly, they also display a developed financial sector, providing financing for infrastructure investment projects. At the same time, they have a weak track record on private infrastructure investment and perform poorly in the pillar that relates to the social and civil society–government relations. Cluster 3 includes Guatemala and Uruguay and, to a lesser extent, Dominican Republic. These countries have decent general investment environments but are weak in the infrastructure investment specific factor. In particular, Guatemala shows little sophistication in its financial markets, with an underdeveloped pension fund system. Dominican Republic has a similarly underdeveloped financial system with the added complexity of a very recent and severe bank crisis from which it is only starting to recover. Uruguay’s financial system also has yet to fully recover from the macroeconomic crisis of the first half of the decade, displaying very little long-term credit availability in local currency and pension funds investing mainly in government debt. Reforms to streamline projects and improve the government’s capacity to facilitate private investment are a priority, together with those targeted at reinforcing and developing the financial sector, which are more complex and require a comprehensive and consistent medium-term approach. Cluster 4 In this cluster, which includes Argentina, Bolivia and Venezuela, general investment conditions are poor. Most private infrastructure investment in these countries is related to industry-specific initiatives in areas where benefits are directly captured by investors (mining, oil and gas). The use of private investment to provide public goods is almost nonexistent. The challenge for these countries is the adoption of an extensive agenda of reforms targeted at improving the general investment climate. The study is based on publicly available hard data as well as perception data. In particular, the authors used the results from the World Economic Forum’s Executive Opinion Survey (EOS) and conducted a mini-survey among practitioners and legal experts on government readiness to deal with and manage private investment projects. Data from the Centre d’Etudes Prospectives et d’Informations Internationales (CEPII) and Latinobarómetro were also used. “Perception data represents a useful complement to hard data, since they capture key dimensions of national attractiveness for private infrastructure investment and for infrastructure quality, for which there is no quantitative data available for all the countries covered,” said Thierry Geiger, Economist at the World Economic Forum’s Global Competitiveness Network. The authors of the study are Irene Mia, Julio Estrada and Thierry Geiger of the World Economic Forum. Note to Editors: The host broadcaster of the meeting is Television Nacional de Chile – TVN.
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