Railroad rumblings in Central America

Latin America may see an uptick in infrastructure investment over the coming years, particularly under the public-private partnership model as governments struggle under heavier debt loads. 

Building out infrastructure is seen as a way to spur growth and, in the region, such moves could complement associated efforts to support economies by increasing intraregional and interregional trade.

In Central America, multilateral development bank Cabei is sharpening its focus on this area, particularly the rail and maritime sectors.

“We need to help countries figure out how to set up their own infrastructure for trade,” Cabei executive president Dante Mossi said during a webcast hosted by the International Trade and Forfaiting Associatio (ITFA) in collaboration with the Florida International Bankers Association.

“This is something they have come to realize in the last couple of months. We’re trying to help,” he added.

Mossi, who also said that Cabei was taking on larger projects with the support of international partners like South Korea, cited the importance of decongesting Central American highways and tapping export markets in the region and beyond.

“We need to move the mode of transport from roads to trains. In the past, trains were a totally forbidden word for Central America for some reason. Since the British left 150 years ago no one talks about trains. When Cabei started mentioning trains again people thought I was crazy, but I said ‘no, it makes sense.’ Volumes have gone up and we need to think more strategically," he said.

"Trade requires really efficient ways of moving things around in the region.”

Cabei has already advanced on the wider railway front, agreeing to provide a US$550mn loan to help Costa Rica build its planned US$1.5bn interurban light rail line. The bank is also financing a cargo ferry service between El Salvador and Costa Rica to ease trade flows, a project that will require port modifications.

In recent years, local freight rail initiatives, some with Cabei involvement, have been mulled in Costa Rica, El Salvador, Panama, Nicaragua and Honduras.

In general, infrastructure projects in Latin America will require private sector participation, Adil Marghub, Latin America head for infrastructure and energy industries at World Bank group member IFC, said in a BNamericas Intelligence Series report.

"I think in the future we need to focus again on infrastructure to focus on productivity growth," Marghub said. "That investment has to be divided, some kind of public-private partnership. That generally will be true for the region as a whole."

On the topic of trade, Gabriel Tolchinsky, former CEO of Latin American trade finance and economic integration bank Bladex, cited its importance amid weakened inflows of hard currency from tourism, remittances and commodities. 

“Any effort by countries to continue to promote trade out of the region is absolutely crucial, particularly during these really hard times,” Tolchinsky told the ITFA webcast.

He also cited the importance of spurring trade between countries in the region and the roles of both Bladex and Cabei in the areas of trade and project finance. 

Intraregional trade is “probably the biggest opportunity,” he said. 

Earlier this year, US economist Nouriel Roubini said it was vital that the US looked beyond Mexico and strengthened links with the rest of Latin America, adding that failure to do this may nudge countries into China's sphere of influence.

Mossi, meanwhile, highlighted the need to gain greater market intelligence in the region, citing the Caribbean as one potential target, which currently trades more with the US and Europe. “There is a lot of opportunity,” he said.

There is scope for Bladex and Cabei to work together, the webcast was told. “I think there's a lot of need at this time for financing,” Mossi said.