In the last few years, Latin America has seen a significant uptick in the number of large-scale infrastructure projects, although these rates are still below the 4% to 5% investment that the World Bank estimates is necessary to support expectations of growth in the region.
Notwithstanding these ambitious growth projections, the region has a critical challenge in infrastructure development, caused by a variety of underlying factors. For example, advances in commodity production that occurred in the 1990s have generated a large gap between production systems and increased demand. This disparity is up against an inefficient logistics flow and deficits in energy production—struggling to meet growing industrial activity. Many Latin American governments are aware of the problem and realize that, without significant infrastructure development, their nations will fail to meet internal and external growth expectations. Among others, key areas to address include road transportation networks; hydroelectric and thermoelectric power plants; port modernizations; amplification of railway; increased depth, length, and width of navigable waterways; sporting venues; water sanitation and filtration; petrochemical plants; and oil and gas exploration, production, and refining.
Bridging the Infrastructure Gap
The following represent a small sample of the countless projects currently being undertaken in Latin America to help bridge the infrastructure gap:
- Chile is building a water conveyance system called Aquatacama
- Mexico is constructing the Bicentennial Refinery
- Brazil plans to build a high-speed rail system
- Colombia is undertaking a massive transportation project called Highways for Prosperity
- Argentina is constructing the Truncado transmission power line
- Uruguay is building the Punta Sayago Liquefied Natural Gas Plant
- The Dominican Republic is building a corridor to Santo Domingo
- Ecuador is developing the Dodo Sinclair Hydroelectric plant
- Panama is developing a major metro line
- Costa Rica is constructing the Reventazon Hydroelectric project
- Jamaica is expanding its Kingston port
The increase in infrastructure projects in Latin America will likely bring a broad array of social and economic benefits to the region and support sustainable growth. However, the planning and execution of these projects carry a number of concerns for investors, private companies and government partners operating in the segment. While many organizations have experience working in Latin America, dealing with cultural barriers and geography-specific risks remains a challenge. Armed militant groups, social resistance, crime, legal uncertainty, political interference, logistics, lack of skilled labor and complex tax codes make up a small portion of the litany of risk scenarios that infrastructure investors and developers will have to address.
In order to properly conduct business in high-risk jurisdictions or unfamiliar environments that pose threats to companies or involved counterparties, it is necessary for investors, construction, engineerIng & infrastructure managers, and related organizations to have structured mechanisms to identify, quantify and mitigate risks. Such a risk-review function should constantly provide data, reports and indices to relevant personnel and help guide the planning and execution of work. In the bidding phase, for example, companies should capture all elements in a proposal to make sure they are technically sound and competitive in price. While developing bids, companies should have a thorough understanding of major competitors, personnel, logistics, equipment suppliers, third-party vendors, raw material costs and technical training as well as regulatory risks, crime rates, the presence of armed groups and other pertinent challenges that could thwart a winning strategy.
In the execution phase of a project, companies need to be sure that its employees and assets are protected; constantly monitor economist Intelligence unit report card americas regional analysIs the progress of any construction sites involved in the operation; establish strict internal controls; develop contingency plans; and conduct field intelligence and deploy countermeasures to mitigate risk. Kroll’s experience with projects of this nature have revealed notable issues related to fraud and compliance breaches that can generate large losses for all parties involved. Geography and gaps in 24 hour-a-day monitoring of controls contribute significantly to the perpetration of ethics violations. This issue is highlighted by the survey findings. For example, in Brazil, 74% of companies have been affected by at least one fraud in the past year that has generated an average loss of 1.7% of total annual revenue. In Mexico, the survey demonstrated a year-over-year increase of 19% to 30% of companies reporting an occurrence of asset theft. In Colombia, 90% of respondents said that their companies’ exposure to fraud increased against the prior year.
Kroll has an extensive history of supporting risk management needs in large infrastructure projects. Our collective work in infrastructure, coupled with our investigative expertise, has provided us with deep insight into the segment. In one recent case, we helped an energy consortium obtain information related to internal factions that aimed to delay the delivery of work. Our fieldwork revealed that a core group of employees was responsible for organizing strikes and delays that would impact compliance with the project’s scheduled timeline. In another assignment with an infrastructure client, Kroll conducted a comprehensive risk assessment for a large-scale project that was located in a hostile geographic environment. The study included reality-based risk scenarios touching on topics such as the safe transportation of employees, materials, and equipment to be used in construction as well as the implementation of internal control measures, access policies, and contingency plans related to managing risk and loss.