Navigating the changing currents

Welcome to our first Latin America Market Report. This report encapsulates the multifaceted challenges and opportunities within the Latin American construction industry, as observed through market analysis and our recent survey of Peruvian construction stakeholders.

Over the past six months, two-thirds of our survey respondents experienced project disruptions due to localised conflicts, reflecting broader political and economic instability.

Peru's political turmoil, particularly noticeable in the last year, has significantly affected its economy and the construction sector. Protests and roadblocks, such as those on the Pan-American Highway, have caused logistical delays and major projects, like the Lima Metro Line 2, have been stalled due to political indecision.

In Colombia, President Gustavo Petro's left-wing administration has embarked on an ambitious agenda of structural reforms encompassing key sectors such as healthcare. However, internal discord within the governing coalition has significantly weakened the government's majority, casting doubts on the smooth passage of these proposed changes.

The El Niño weather phenomenon has exacerbated regional challenges, prompting the Peruvian government to allocate over $1 billion for mitigation. Seven in ten survey respondents reported extended project timelines and increased material and labour costs due to El Niño.

Investor confidence is identified as the biggest threat to the construction industry by 30% of respondents, followed by concerns over interest rates, inflation and labour availability. High inflation, affecting 97% of respondents, is particularly problematic, squeezing budgets and impacting project viability.

Political and contractual uncertainties have led 45% of respondents or their supply chains to decline tender opportunities in the last six months. The primary reasons include unfavourable tender conditions and unacceptable risk profiles.

The labour market also faces significant challenges, with active construction job postings fluctuating around 100,000 this year — a sharp decline from the high of 424,000 last year. However, approximately 60% of survey respondents reported labour supply issues and 70% saw labour rate increases in the past six months. The World Bank attributes these labour issues to inadequate education and training systems, which are not aligned with private sector needs. This shortage of skilled labour is a major constraint on expansion efforts in the region.

According to ACNUR (UN Refugee Agency) 2023 data, over 7.7 million Venezuelans have left their country, with more than 6.5 million hosted by Latin American and Caribbean nations. A majority of respondents (85%) view the impact of socio-economic migrants positively, with a previous World Bank study estimating a 3.2% growth in labour productivity due to Venezuelan migration.

Despite these challenges, there is optimism for the future. Four in ten survey respondents noted an increase in tender opportunities in the last six months, with 54% expecting further increases. Public investment in infrastructure and mining projects is anticipated to drive growth, with 60% of respondents foreseeing more tender opportunities in 2024 compared to 2023.

Hope for future growth in the construction sector is echoed in countries across the region due to significant investment in infrastructure. Ecuador has a steadfast commitment to modernisation and the enhancement of connectivity, undertaking a slew of ambitious projects aimed at propelling economic and social advancement across its varied landscapes. Central to this endeavour is the ongoing modernisation and expansion of Ecuador's road network.

Similarly, Panama sees a surge in public infrastructure projects, notably the Panama City metro expansion and a fourth bridge over the Panama Canal, signalling a robust investment climate. The Colombian government aims to allocate over US$10 billion towards intermodal infrastructure projects. It has also identified 13 social initiatives in various stages of pre-feasibility and feasibility, including the construction of five tertiary care hospitals, schools, wastewater treatment plants, aqueducts, and irrigation districts.

In Venezuela, there is a growing need for investment in public services, and the construction sector is expected to reactivate in response to easing oil sanctions and the demand for services and infrastructure at oil exploitation sites across the country.

Chile aims to become a leader in renewable energy, leveraging its natural resources for solar, wind, and geothermal energy and the government increasingly leverages public-private partnerships (PPPs) to finance and execute large infrastructure projects, including transportation networks, energy infrastructure and digital connectivity.

To enable the delivery of much-needed infrastructure, the Latin American construction industry is increasingly embracing digital technologies. Two-thirds of our survey respondents said they are familiar with digital tools. Artificial intelligence (AI) and digital transformation enhance project efficiency, with predictive analytics aiding in planning and scheduling and AI-enhanced building information modelling offering cost-effective design solutions.

Over half of survey respondents say their projects are utilising modern methods of construction (MMC) to boost on-site productivity and generate better outcomes.

In conclusion, the Latin American construction industry is navigating a complex landscape marked by political instability, economic challenges and environmental impacts. However, cautious optimism about changing currents is driven by increasing tender opportunities and advancements in digital technologies and MMC.

Standardising contracts and improving labour skills through better education and training systems are critical to addressing current issues. Embracing AI and digital tools will be pivotal in optimising project efficiency and achieving sustainable growth in the construction sector.