Despite slowdowns in the economies of the United States, the European Union and certain Asian countries, latin America and the Caribbean have emerged as the news lightning rods for international infrastructure investment. The economies in countries throughout the region are bolstered by the strong international demand for their respective natural commodities and the attractiveness of a competitive labor force utilized by numerous U.S. industries following a reevaluation of a production chain previously outsourced to China.
Continued economic growth throughout the region has strained the existing infrastructure in many countries. The long-term relative stability of the region has provided international investors with safe, profitable infrastructure development opportunities as savvy political technocrats take advantage of the investment window to attract foreign investors through public/private partnership structures and outright privately-owned infrastructure projects.
Among the sectors attracting the ft attention from private investors are power, transportation, mining and natural gas. These sectors continue to provide opportunities for private equity investors, development companies, construction companies and lending institutions. One of the challenges for participants (whether investor, developer or contractor) is to understand the inherent risks of investing and operating in each particular country.
During the 1980s and 1990s, Latin America and the Caribbean had been a darling of the investment community as numerous region-specific private equity funds emerged and infrastructure development companies formed dedicated Latin American and Caribbean teams.
As competition for infrastructure development grew and profit margins declined, investors and developers looked to other markets--such as Eastern Europe, Russia, the Middle East and Asia--that were each experiencing a boom in infrastructure development and offering more profitable investment opportunities.
Additionally, investors and developers looked to the U.S. and Europe, which were also experiencing economic prosperity and an aggressive build-out of their infrastructure. With a shift in regional focus, certain private equity players and developers deemphasized their capital deployment efforts in Latin America and the Caribbean and disbanded their "LatAm" teams.
The disbandment of these specialized region-focused teams resulted in great loss of institutional knowledge for these firms and an opportunity for smaller regional developers to gain a foothold in their local markets. As large institutional players return to the region, successful firms will need to retain external advisers with a strong regional focus and a deep knowledge of the Latin American and Caribbean market in order to assess and prioritize market opportunities and investment risks in each country.
One of the catalysts for the recent interest in the Latin American and Caribbean infrastructure market has been the sharp reduction in infrastructure development opportunities in Europe and the U.S. The fiscal challenges facing certain...