2014-01-23 16:16:36 - Recently published research from Business Monitor International, "Venezuela Infrastructure Report 2014", is now available at Fast Market Research
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).
Full Report Details at
- www.fastmr.com/prod/760721_venezuela_infrastructure_report_2014. ..
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.
* The Great Housing Mission (GMVV) is expected to continue despite higher costs and government fiscal constraints. Launched in May 2011, the GMVV hopes to build three million houses by 2019. Momentum seems to have continued over 2013, with the secondary target of 500,000 homes in 32 months met. Maduro has illustrated a continued commitment to the GMVV as an important policy, and whilst the elections are behind him, we believe it will remain a priority of government spending. Indeed, although we anticipate that fiscal consolidation will be necessary as government revenues becoming increasingly constrained, we think it likely that high profile social spending programmes such as the GMVV will be ring fenced.
* The government's Railway Development Plan is seeing billions of dollars invested into new railway projects. However, many of these projects are drawing to a close, and no new projects have been awarded in the last 12 months. Consequently, we do not expect major infrastructure projects to sustain construction activity over the medium term. The largest rail project is the US$7.5bn project being built by China Railway Engineering. The 468km rail line will link Anaco, in Anzoategui and Tinaco in Cojedes. Also under construction is the EUR3.3bn Puerto Cabello - La Encrucijada railway line, which was 67% complete as of September 2012. The railway is being built by Impregilo and Ghella, and is due to be completed in 2014. The consortium is also building two new lines between the cities of San Juan de Los Morros and San Fernando de Apure, and the cities of Chaguaramas and Cabruta.
* We see a similar picture with power investments, with few new major projects in the pipeline. However, we do expect a steadier stream of lower cost investments, especially in the T&D sector, to continue, given the frequency of power cuts over the past 12 months. The largest project under construction is the US$6.6bn Tocoma hydropower project (also known as Manuel Piar), which will have a capacity of 2,160MW.
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