Afin chief draws up plan to close Peru's infrastructure gap

Q: Afin estimated an overall infrastructure gap for Peru of $160bn. What does this mean for the country? Does it have the resources to close that gap?

A: In order to close the gap, the state should invest about 6% to 7% of national GDP every year. Currently, it has been investing about 4% to 5% of GDP. In 2016 alone, the country invested 84% of the expenditure allocated to infrastructure into public works projects, and another 16% into public-private partnership [PPPs] schemes. We suggest the state should aim at an investment matrix made up by about 60% in public works, 25% in PPPs and another 15% in self-sustainable unsolicited proposals.

Overall, the Peruvian state has got fiscal solvency and a good macroeconomic management led by its central bank. Besides, it has saved resources for more than 15% of GDP.

Q: The infrastructure sector came to an abrupt halt as the local chapter of the Odebrecht scandal came to light. What is the current situation? Is the private sector showing renewed interest for projects in Peru?

A: We have got to an inflection point. On the one hand, the global prices of the commodity that Peru exports have been improving, something that will shore up growth in 2018. On the other hand, facing up to and addressing corruption is not an alternative to infrastructure investment: we have to keep investing and growing while the fight against corruption unfolds. The private sector needs a clear time horizon to keep investing.

Q: Peru has been addressing its infrastructure gap for years, with little result. What does it still need to be successful?

A: An infrastructure gap has always been there. What’s new is that the gap has been estimated, and there is awareness in the country about the need to close this gap. Now the government should launch the national infrastructure plan it has been working on – a three-year plan to start with. The plan is important to attract high-profile investors to the country. At the same time, ProInversión needs to continue the gradual upgrade of its processes, adjusting to international standards according to the institutional capacities of the country.

Q: How can you minimise those risks that have caused delays in the past, such as the risk of changes to the terms of contract, or the risk of delays in the delivery of land needed for the project?

A: It is impossible to avoid changes to PPP contracts with a long time horizon. These changes will always be needed, but can be minimised with deeper studies, standard contracts, competition factors able to unveil bold offers in public tenders, as well as having expropriations and permits ready in order to make it possible for the work to start after the signing of the contract and the financial closing, and then continue without major hiccups. It is better to spend earlier to prepare the projects than spend later to make up for delays and changes to the execution budgets.