BMI View: Ecuador's infrastructure development will slow considerably over the next five years as the country faces the widest budget deficit in decades, mainly due to the sustained low oil price. We notably expect strong contraction sin the industry for 2016 and 2017. The government's push for Public Private Partnerships ( PPPs ) will be critical to maintaining growth in the construction industry, particularly in the transport sector where there is a siz e able project pipeline.
Forecasts and Latest Updates
This quarter, we have further downgraded Ecuador's construction industry growth outlook over the coming two years as a result of our Country Risk team forecasting an economic contraction over 2016 and 2017. We now expect Ecuador's construction industry will contract significantly over 2016 (-9.3%), after a contraction of 1.8% in 2015 and a stark contrast d to the 8.5% average growth rate between 2011 and 2015. As Ecuador is highly dependent upon oil revenue for infrastructure investment, our modest forecasts are in line with our Oil & Gas team's expectation for the price of oil going forward.
High urbanisation rates have increased demand for infrastructure in Ecuador - particularly transport and utilities infrastructure, as well as housing. However, weaknesses in the country's business environment will continue to present risks and cap growth. Chief among these will be financing.
Strong government support for Public-Private Partnerships (PPPs) in the transport infrastructure segment has seen several projects launch in 2016, notably in the port sector, with financial support from multilateral organisations. We expect this will be followed by a number of road PPP projects, ensuring an important project pipeline in the transport sector for the years to come. The Quito metro project will also provide a key boost to sector growth over the next three to four years.
We hold a moderate view on Ecuador's energy and utilities infrastructure outlook, given the current low oil price environment a minimum of large scale projects aside from hydropower projects. While there is significant demand to expand and upgrade power and water infrastructure, the government's capacity to finance projects has been considerably reduced and the country will remain highly dependent on external financing, particularly from China.
The residential building sector will contract considerably in 2016 and 2017 as negative GDP growth rates and weak consumer sentiment will limit demand for big-ticket purchases, undermining the housing market. While new construction permits were up slightly in 2015, these are still in a general downturn: in 2015, 28,379 construction permits were issued, up 4.3% on 2014. Nevertheless, this is still much below peak levels of 42,052 permits issued in 2011. That said, demand for social housing will remain strong.
|e/f = BMI estimate/forecast. Source: Banco Central del Ecuador (BCE), BMI|
|Construction industry value, USDbn||10.72||9.90||10.13||10.67||11.24||11.84||12.47||13.12||13.82||14.54||15.31|
|Construction Industry Value, Real Growth, % y-o-y||-1.75||-9.30||0.31||2.84||1.92||1.61||1.40||1.28||1.27||1.26||1.25|
|Construction Industry Value, % of GDP||10.7||10.1||10.2||10.3||10.3||10.2||10.2||10.1||10.0||9.9||9.7|
Ecuador's business environment continues to pose significant risks to investors as reflected in the country' performance in our Risk/Reward Index for Latin America, where it ranks 10th out of 15 countries.
The score for Industry Rewards has declined considerably this quarter on the back of our downgraded forecasts for 2016 and 2017. The country now scores 40.0, slightly above the regional average of 36.4. This decrease is reflected in the sector growth component of our ratings, given expected contraction over 2016 and 2017 and minimal growth in the years thereafter. The recession is largely on the back of weakening oil prices and the negative effect this has the country's economic growth and the government's spending capacity.
Lack of transparency in the tendering process, widespread corruption and a precedent for nationalisations are some of the key factors impacting Ecuador's Risks scores.
|Risk/Reward Index||Rewards||Industry Rewards||Country Rewards||Risks||Industry Risks||Country Risks|
|Scores out of 100, lower score=higher risk. Source: BMI|
The Ecuador Infrastructure Report features BMI Research's market assessment and forecasts covering public procurement and spending on all major infrastructure and construction projects, including transportation and logistics by land, sea and air; power plants and utilities, and commercial construction and property development. The report analyses the impact of regulatory changes and the macroeconomic outlook and features competitive intelligence on contractors and suppliers.
BMI's Ecuador Infrastructure Report provides industry professionals and strategists, sector analysts, investors, trade associations and regulatory bodies with independent forecasts and competitive intelligence on the Ecuadorian infrastructure and construction industry.
- Benchmark BMI's independent infrastructure industry forecasts for Ecuador to test other views - a key input for successful budgetary and planning in the Ecuadorian infrastructure market.
- Target business opportunities and risks in the Ecuadorian infrastructure sector through our reviews of latest industry trends, regulatory changes and major deals, projects and investments in Ecuador.
- Assess the activities, strategy and market position of your competitors, partners and clients via our Company Profiles (inc. SWOTs, KPIs and latest activity).
BMI Industry View
Summary of BMI’s key industry forecasts, views and trend analysis covering infrastructure and construction, regulatory changes, major investments and projects and significant national and multinational company developments. These are broken down into construction (social, commercial and residential), transport (roads, railways, ports, airports, etc), and energy & utilities (powerplants, pipelines and so on).
Industry SWOT Analysis
Analysis of the major strengths, weaknesses, opportunities and threats within the infrastructure and construction sectors and within the broader political, economic and business environment.
BMI Industry Forecasts
Historic data series (up to 2012) and forecasts to end-2024 for all key industry indicators, supported by explicit assumptions, plus analysis of key developments in the market and risks to the main forecasts. Indicators include:
Construction: Industry value (USDbn); contribution to GDP (%); total capital investment (USDbn); real growth (%).
Construction industry real growth forecasts (%) and industry value (USDbn) forecasts for industry sectors are split into Residential and Non-residential and Infrastructure sectors. Where the data is available for particular countries the infrastructure is further broken down into indicators for the transport subsectors of roads, railways, airports and ports and the energy and utilities sub-sectors of power plants and transmission grids, oil & gas pipelines and water infrastructure. This dataset is unique to the market.
The reports also include analysis of latest projects across the infrastructure sectors (transport, utilities, commercial construction).
BMI’s Infrastructure Risk Reward Index
BMI’s Risk Reward Index provides investors (construction companies, suppliers and partners) looking for opportunities in the region with a clear country-comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points. These provide indices of highest to lowest appeal to investors, with each position explained.
An assessment of the competitive landscape and key challenges to entering the market. Details of the largest companies active in the sector across the sub-segments of the industry, including the key financial figures from some of the largest players in the sector.
Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI’s industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape to generate company SWOT analyses. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.
The Infrastructure reports draw on an extensive network of primary sources, such as multilateral organisations, government departments, industry associations, chambers and company reports.
*Company profiles are not available for every country. Those reports instead contain information on the current activities of prominent companies operating in the market.