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Global Data: Peru’s construction industry outlook remains robust

Published by , Deputy Editor
World Cement,

Growth in the Peruvian construction industry is set to expand by 4.5% in 2019, in real terms, which is down from 5.4% in 2018. Over the remainder of the forecast period (2020 – 2023), growth is expected to pick up to an annual average of 5.2%, according to GlobalData.

However, growing uncertainty surrounding the legislative elections in January, in addition to rising global trade tensions, a slow implementation of public works affected by corruption scandals, and ongoing opposition by local communities to some mining projects, present downside risks to the industry outlook.

Dariana Tani, Economist at GlobalData, comments: “While public investment continues to recover, private investment - especially in infrastructure and mining projects - is expected to be the main driver of growth in the next few years. Among the major projects that will support the sector’s growth are the US$6.5 billion Lima and Callao Metro Line 2 and the US$5.3 billion Quellaveco Mine, the latter of which is now 34% complete and scheduled to be operational by 2022.”

In May 2019, the Ministry of Economy and Finance announced that Peru’s Private Investment Promotion Agency (Proinversión) expanded its portfolio of private investment projects to US$10 billion for the next three years compared to the estimated US$7.6 billion in 2018, accelerating a programme of public private partnerships (PPPs) that has been impacted by corruption scandals and project delays.

To further promote its portfolio of projects and encourage more public and private investment, Peru’s government launched its National Infrastructure Plan on July 25th, comprising of 52 projects that will cost around PEN100 billion (US$30 billion). The projects are scheduled to be completed by 2025, and include major works in segments such as sanitation, transport, energy and communications.

Increasing investment in the residential construction segment is also expected to support growth, given significant expansion of mortgage loans and the continuity of initiatives such as Fondo Mivivienda, Techo Propio and Bono Mi Alquiler.

Tani adds: “Moreover, the PEN25.7 billion (US$7.7 billion) ‘Reconstruction with Changes’ programme, which was launched by the Peruvian Government in 2017 to rebuild and repair areas affected by the Coastal El Niño flooding, has been making progress this year, boosting construction growth especially in regions such as La Libertad, Piura, Ancash and Tumbes.

“Although Peru’s president’s call for legislative elections in January 2020 and the creation of a new legislature (that would last less than two years) could restrain activity, the implementation of recent policies by the government to promote the recovery of private investment along with efforts to complete unfinished works across the country, should support construction growth in the coming years.”

On 16 October 2019, Peru’s Ministry of Transportation and Communications announced that it would inject an additional PER2.7 billion (US$800 million) for public works as a result of government savings in project tenders and arbitration cases. The announcement came a week after President Martín Vizcarra reaffirmed his commitment to the construction industry, and stated that his administration is working to develop the country’s infrastructure more efficiently.

The president also announced he will issue an emergency decree, based on a bill proposed by the Comptroller General of the Republic to Congress last March, which will allow public entities to take control of several paralysed works and reactivate them. Between 2017 and 2018, many infrastructure projects across the country were either postponed or cancelled, after Odebrecht, a Brazilian construction company, admitted to bribing officials to award public works.

Vizcarra said that several public works that were started by previous administrations are still paralysed as many elected mayors are reluctant to continue with the works left by their predecessors, amid fears of being accused of any irregularities committed before they took office.

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