Optimism and cooperation guide recovering construction sector
Infrastructure concessions aim to reshape the country’s façade

Recognizing that its economic growth is directly linked to the health of its construction sector, Ecuador is taking necessary measures to help its construction sector rebound from its downward slide of the past two decades. Roddy Cabezas, President of Ecuador’s Federation of Chambers of Construction and Quito’s Chamber of Construction, explains that during the 1970s construction represented 9% of the country’s gross national product (GNP). By the 1990s this figure had fallen to 2.5%, and recently it has dropped to -7%. “Our country’s infrastructure has been neglected by the governments of the last two decades. For instance, the Ministry of Public Works represented 14% of the government budget in the late 1970s and it has plunged to 4% of the budget. Consequently, right now we have a $27 billion infrastructure deficit,” says Mr. Cabezas. He firmly believes that this shortage of infrastructure has hindered the potential growth of all of Ecuador’s productive sectors.

Before Ecuador’s construction sector can attract much-needed investors to make large investments over extended periods of time, several challenges must first be overcome. Ecuador must reverse its image as a high-risk country, which over the years has made obtaining financing from international entities difficult. Problems in the country’s banking sector, which have made it virtually impossible for construction companies to borrow money locally, must be resolved. In addition long-term financing must be made more readily available. The country’s deficit in infrastructure, including roads, bridges, ports, potable water and sewerage, must be reversed. “A country that has not resolved the problems of infrastructure is one that cannot pretend to be part of globalization and have the expected success,” says Mr. Cabezas.

Through the implementation of its Modernization Law, Ecuador has taken preliminary steps toward involving the private sector in public services and infrastructure. Moreover, according to Mr. Cabezas, all of Ecuador’s Chambers of Construction are working together to promote mechanisms that would guarantee the continuity of established infrastructure objectives. They have also instituted laws and regulations to provide security for investors.

“The concession processes in Ecuador have had difficulties, given that they are new processes, where new laws have been implemented to guarantee that these projects have the adequate legal structure. Ecuador has a long way to go, however we are determined to follow through with our responsibility as concessionaries, but we expect the Ecuadorian government to correspond accordingly,” says Marcelo Herdoíza, General Manager of Panavial, which won the concession for eight sections of the Pan American road designed to interconnect all of South America.

Until 1998 Ecuador had a shattered road system, due in part to El Niño, which caused floods and the collapse of many roads, as well as to the lack of investment in maintenance. With the implementation of aggressive rehabilitation programs throughout worst-affected areas and the commencement of the concession processes, Ecuador has begun revamping its road infrastructure. The Ministry of Public Works, through the creation of a Sub-Secretariat of Concessions, has awarded four major road system concessions. Local banks are financing $100 million for reconstruction and $200 million for maintenance of the infrastructure, which covers 409.4 kilometers.

“These concession projects are changing the country’s road façade as well as providing rehabilitated roads that provide more security for its users. As we enhance the quality of our roads, transporters may mobilize their products with more tranquility and safety in addition to allowing them to save time on the road. On the whole, these improvements of road infrastructure generate and foment the economic development of our country,” explains Mr. Herdoiza. He notes that for the concession processes to be successful, contractual agreements must be kept and mechanisms by which companies recuperate their investments must be clearly stipulated.

Within the construction sector, housing development is an area of growth in need of investment. According to Mr. Baquerizo, Ecuador has a deficit of more than one million homes — nearly 30 % of the population in Ecuador does not have suitable housing. “We need money to build homes, but in a financial crisis like the one we are living, the last things available are long-term loans,” he says. “Still, we need to provide homes to all those Ecuadorians. How do we do it? Through the emission of mortgage notes, similar to those from Fanny Mae, by which financial institutions emit bonds guaranteed by the houses.”

Potable water and sewerage companies also provide many investment opportunities. The country’s municipal governments, with the help of the National Council on Modernization (CONAM), are pursuing private sector investment. The Municipality of Guayaquil has already signed a concession contract with International Water, which will manage the company over the next 30 years. According to Jaime Duran, General Manager of Coandes, a 20-year-old construction corporation dedicated to development of potable water, sewerage, irrigation, canals and roads, approximately 60% of the country has potable water services and about 30% has sewerage services. “Given that these types of projects require significant amounts of investment due to their complexity and magnitude, they cannot be done through the national savings,” he says. “This is why we depend on the credit provided by international organizations like the World Bank, the IDB and the Andean Development Corporation.” Coandes is involved in a $120 million project, financed by the IDB, that is projected to provide potable water and sewerage in the southern part of the capital city of Quito to a community of about 600,000 people.

International companies such as the Brazilian construction firm Odebrecht are already invested in ventures designed to enhance the country’s infrastructure. For the last 15 years Odebrecht has been working on irrigation, hydroelectric and road projects worth hundreds of millions of dollars. General Manager Luis Antonio Mameri sees great potential for growth in Ecuador and plans to bid on future concessions for airports, roads and bridges.

As Ecuador’s construction sector continues to strengthen and expand, its leaders project great optimism and commitment in meeting their industry’s challenges. Through increases in investments and construction projects, they hope to be instrumental in bringing their nation to a level at which it can confidently compete in today’s world marketplace.