INSIGHT March 2021 ISSN: 2054-1368 Americas Infrastructure Argentina Contents Public Infrastructure Investment to Drive Argentina
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INSIGHT March 2021 ISSN: 2054-1368 Americas Infrastructure Argentina Contents Public Infrastructure Investment To Drive Argentina........................................1 Argentina Construction Recovery In 2021 Public Infrastructure Investment To Drive Argentina Construction Key View Recovery In 2021 ..............................1 Latin America (Region)..............4 • We have broadly maintained our forecasts for Argentina’s construction industry, which we expect will see growth of 22.0% y-o-y in 2021 and average annual real growth of Tracking Our Infrastructure Key 3.8% y-o-y between 2022 and 2025. This will follow an estimated contraction of 25.4% Themes For 2021 ..............................4 y-o-y, adjusted this quarter from a previous estimate of a contraction of 27.3% y-o-y. • Base effects will underpin robust annual growth for the construction industry in 2021, Panama ........................................ 10 following the removal of government restrictions on on-site construction activity Panama Construction Recovery which drove the sharp decline in construction activity seen in 2020. To Gain Pace In 2021 Following • Public investment will play a central role in driving the construction industry’s performance over the next several years, as the Fernández government eyes a Historic Contraction......................10 strengthened role for the public sector in the infrastructure and building sectors. United States ............................. 12 • Private investment growth will also contribute to the construction industry’s recovery, Developer Selection Marks Key though we highlight that factors including high inflation and policy uncertainty will continue to weigh on investor sentiment and will prevent a stronger rebound in private Step Forward For Maryland construction investment. Highway PPP ....................................12 Growing Scrutiny Of US Pipeline Argentina’s construction industry is on pace to see a sizeable rebound in 2021 Projects Challenges Canadian Oil and a strengthening in the following years, after the industry saw a sharp Sector..................................................13 downturn in 2020 amidst the Covid-19 pandemic. We have broadly maintained our forecasts for Argentina’s construction industry, which we expect will see growth of 22.0% y- o-y in 2021 and average annual real growth of 3.8% y-o-y between 2022 and 2025. This will follow a deep contraction in real construction industry value in 2020 amidst the Covid-19 pandemic with the industry contracting by an estimated 25.4% y-o-y, adjusted this quarter from a previous estimate of a contraction of 27.3% y-o-y. Head Office 30 North Colonnade, Canary Wharf, London E14 5GN, UK Company Locations London | New York | Singapore | Hong Kong | Dubai | Pretoria © 2021 Fitch Solutions Group Limited. All rights reserved. All information, analysis, forecasts and data provided by Fitch Solutions Group Limited is for the exclusive use of subscribing persons or organisations (including those using the service on a trial basis). All such content is copyrighted in the name of Fitch Solutions Group Limited and as such no part of this content may be reproduced, repackaged, copied or redistributed without the express consent of Fitch Solutions Group Subscriptions Contact: Limited. All content, including forecasts, analysis and opinion, has been based on information and sources believed to be accurate and reliable at the time Tel: +44 (0)20 7248 0468 of publishing. Fitch Solutions Group Limited makes no representation of warranty of any kind as to the accuracy or completeness of any information provided, and accepts no liability whatsoever for any loss or damage resulting from opinion, errors, inaccuracies or omissions affecting any part of the content. Fax: +44 (0)20 7248 0467 This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solelyesponsible r for the content of this report, without any input email: from Fitch Ratings. Copyright © 2021 Fitch Solutions Group Limited. [email protected] Americas Infrastructure Recovery From 2021 For Construction Industry Argentina - Construction Industry Value and Real Growth e/f = Fitch Solutions estimate/forecast. Source: INDEC, Fitch Solutions Underpinning our outlook particularly in 2021 is the impact of base effects, due to the deep contraction in construction activity seen in 2020 as a result of government restrictions on on-site construction activity aimed at preventing the spread of Covid-19. Those restrictions and the broader impact of weakened economic activity and uncertainty amidst the pandemic drove a historic contraction in construction activity extending from March through September with construction activity falling by an average 38.1 y-o-y in the seven months included in the period according to INDEC’s Monthly Estimator of Economic Activity (EMAE). April and May, in particular, stood out for their massive contractions in construction activity, with declines of 69.5% y-o-y and 48.8% y-o-y respectively. Following the removal of restrictions, construction activity strengthened in the second half of 2020, with activity nearly returned to pre-pandemic levels as of November 2020 with construction activity contracting by just 3.3% y-o-y. While we highlight considerable downside risk to our forecast for the construction industry in 2021 due to the potential for new restrictions to be implemented by the government as the Covid-19 pandemic continues to be a challenge in Argentina and globally, we expect that the likely absence of such measures over the coming months will be key to supporting the robust recovery of the country’s construction industry. Sharp Slowdown Followed By Strengthening In Q4 Argentina - Monthly Estimate Of Economic Activity (EMAE), Construction (Index 2004=100) Source: INDEC, Fitch Solutions Public investment will play a central role in driving the construction industry’s performance over the next several years, as the Fernández government eyes a strengthened role for the public sector in the infrastructure and building sectors. Since coming into office in December 2019, the Fernández government has announced a number of infrastructure and building programmes aimed at expanding public investment into construction projects, in particular as part of economic recovery efforts amidst a sharp downturn in economic activity amidst the Covid-19 pandemic. These programmes include: fitchsolutions.com THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Page 2 Any comments or data included in the report are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research. Americas Infrastructure • The Argentina Construye plan announced in May 2020 by President Fernández and including investment of ARS29bn (USD426mn) in 2020 in housing construction works. The plan aims to create 750,000 direct and indirect jobs between 2020 and 2021, with the goal of building 5,500 new units of public housing and supporting repair works on another 42,900 housing units, along with other measures, including credits for materials purchases. • The relaunch of the Procrear programme announced on August 4, 2020 by President Fernández, through which the government aims to provide new housing credits totalling ARS25bn (USD342mn) to improve access to adequate housing and stimulate economic activity. According to the president’s announcement, the government aims to provide 300,000 credits for home improvement expansions and the construction of 44,000 new housing units between 2020 and 2021. • The Argentina Hace programme, which aims to support local economic recovery through the development of public infrastructure projects. The programme was first announced in January 2020 with the goal of creating 20,000 jobs and investing ARS30.0bn in municipal and provincial infrastructure projects including water and sanitation infrastructure, social infrastructure including health centres and schools, local road improvement projects and urban infrastructure improvements such as public lighting, sidewalks and handicap accessibility. In addition to these programmes, government-directed investment in the rail sector backed in turn by Chinese funding is also set to be a key driver of construction growth, with a robust increase in funding outlined in recent agreements between Chinese firms and the Argentine government posing sizeable upside risk to our forecast. On December 11, 2020 Argentine President Alberto Fernández announced the signing of four agreements with Chinese firms involving USD4.7bn in funding for rail investments in the country to be undertaken over the coming years. The deals include: • USD817mn in funding for investments for the Belgrano Cargas freight rail line through an agreement between Argentine state- owned rail infrastructure operator Administración de Infraestructura Ferroviaria (ADIF) and Chinese firm China Machinery Engineering Corporation (CMEC). 65% of planned funding will go toward infrastructure improvements on the line while the remaining 35% will go toward the acquisition of rolling stock and other equipment for the line, continuing a modernisation programme already underway in recent years due