New Market Research Report: Argentina Infrastructure Report Q1 2014

We maintain our view that Argentina's construction industry will remain in the red until 2015. After a sharp contraction in 2012, official data indicates negative growth at 0.5% in H113 and we expect this trend to continue in 2014. As such, we currently forecast -2.6% real growth for the industry in 2013 before it starts trending upwards at -0.2% in 2014. Our bearish near-term outlook for the sector is supported by the underlying weakness in the market, a result of fundamental policy and regulatory constraints. There is some upside potential from residential construction - given strong base effects in place - and the oil and gas infrastructure with a number of projects in the pipeline which will contribute with some stable, but weak, growth. However, this will not be enough to offset the downward trend in the industry in 2014.

Key developments in the sector:

* Our Country Risk team forecasts that Argentina's economy will slow in 2014, with real GDP growth falling to 2.5% from an estimated 2.9% in 2013, as currency devaluation pushes inflation higher, weighing on consumer and government spending. Despite government efforts to halt the rapid price growth, our country risk team estimates that consumer price inflation remains above 20% in year-on-year terms.
* Policies on the residential construction sector will have a medium-to-long term impact on the industry. On the upside, infrastructure should remain the one area of growth, as a number of projects progress. However, this will not be enough to reverse the trend of falling industry.
* Nationalisations continue to affect the railway sector. In June 2013, the government announced the nationalisation of two cargo railway concessions operated by the Brazilian firm America Latina Logistica (ALL). The first line runs through the centre of Argentina while the second line connects the country with Paraguay, Uruguay and Brazil - they are two of the most important freight railways in all of Argentina. The government argues that the reason for the expropriation is the noncompliance with the contractual agreement in the form of underinvestment, unpaid royalties and accumulated fines for up to 30% of the concession.
* The biggest project in the planning phase is the combined Nestor Kirchner (600MW) and Gobernador Jorge Cepernic (1,140MW) hydropower plants. The two power plants have a combined cost estimate of US$5bn and would take 66 months to build. This project was awarded in August 2013 to a consortium comprising domestic companies - Electroingenieria and Hidrocuyo - and the Chinese Gezhouba Group. The new dams total electricity capacity upon completion will represent almost 17% of Argentina's current hydropower capacity.

Full Report Details at
- http://www.fastmr.com/prod/723411_argentina_infrastructure_report_q1_2014.aspx?afid=301

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