Venezuela Infrastructure Report 2014 - New Market Report

From: Fast Market Research, Inc.
Published: Tue Jan 28 2014

BMI View: We have revised down our forecasts to reflect a more aggressively deteriorating environment in Venezuela's construction sector. Although we anticipated a substantial decline in industry growth in 2013, we are now estimating a recession for the year, which we believe will persist until 2015. High input costs, a weakening government fiscal position and an unattractive environment for private investors mean there will be few sources of growth for the industry until fundamental economic and political changes take place.

As anticipated, 2013 has been the start of a steep deceleration in growth in Venezuela's construction industry. We are now estimating a contraction of 3.9% for the year, and we believe negative growth will persist through to 2015 (-2.1% in 2014, and -0.6% in 2015). A slimming project pipeline in the infrastructure sector, partly due to growing fiscal pressure on the government, will see current major projects draw to a close with few new on the horizon. Growth is also being eroded by a scarcity of inputs and high costs. However, we anticipate that the government will continue to prioritise social spending programmes including the Great Housing Mission (GMVV).

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Key updates from our 2014 outlook:

* Extremely high inflation in the construction sector will persist. For the first ten months of 2013, construction industry inflation has averaged 40%, hitting 67% in October 2013. High costs are related to a scarcity of inputs. Capacity utilisation at the country's steel and cement plants is very low, leading to a shortage in basic building materials. A shortage, combined with expensive imports, is eroding real growth, but driving a substantial expansion in nominal industry value - leading to a distortion in industry data. We are factoring in above 20% inflation through to 2017.
* Our muted outlook for the economic and political environment in Venezuela is weighing on our expectation of both government ability to invest in infrastructure and private investment into the sector. Recent elections affording President Nicolas Maduro greater security of leadership will ensure Chavez era policies will continue until at least 2014 (when a midterm vote is possible, but unlikely) and most likely through to the next presidential election in 2016. Consequently, we do not see scope for a broad based recovery in the political or economic environment, weighing on investment potential in the infrastructure and construction sector.

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