Paraguayan construction industry building towards a comeback in 2022

Both this year and last have been turbulent for public works in Paraguay. This sector was initially expected to be the main driver of the nation's economic recovery, and last year the public works ministry (MOPC) made a record investment of some US$1bn.

However, the recession has meant that the state's investment has been limited in 2021 and now the government is betting on public-private partnerships and turnkey contracts to continue to develop large-scale projects.

In this context, BNamericas spoke with Daniel Díaz, president of the Paraguayan construction chamber (CAPACO), about how the sector has responded to a two-year pandemic and its expectations for 2022.

BNamericas: What have been the effects of the pandemic on the construction sector in Paraguay?

Díaz: The pandemic took the whole world by surprise, revealing both strengths and weaknesses in all areas.

In construction in particular, I can mention the main positive effects first as the speed to adapt to the new protocols, since that fits well into our work scenario; that is, we basically work outdoors or in open places, and second, taking into account the previous point, It also helped to be considered as an essential sector, since we're talking about homes, hospitals, which people can't do without.

Regarding the negatives, we have found certain shortcomings in work contracts that don't budget readjustments, for example, as well as the rescheduling of works as a result of certain external events that are inappropriate for our activities, among others.

BNamericas: Although this year there has been a rebound in the economies after the drop in 2020, a slowdown is expected in 2022. How do you expect this to affect construction firms?

Díaz: According to our recent studies, the Paraguay's monthly economic activity indicator [IMAEP] increased by 4.2% year-on-year, so the cumulative increase as of August was 5.2%.

This isn't a minor figure, since economic activity has shown an increase for the sixth consecutive month, mainly driven by three areas, one of them construction, again demonstrating the importance of this sector.

Also, this year the expectation is that the sector will represent 7.7% of GDP, that is, almost one percentage point more than the previous year, when it was 7.0% of GDP, growth that has generated more than 300,000 jobs directly.

I should also mention that after the pandemic, with the budget cuts in the public sector for new works, they have been rescheduled for future periods.

By 2022, the government is planning an investment of close to US$1.3bn for infrastructure, which would again give an important boost to the economy.

BNamericas: Do you expect the sector to return to pre-pandemic levels in the short term?

Days: So far this year it's already been tough for the public sector, due to what I already mentioned regarding the cut in the budget by the government. But the private sector is already being reactivated, especially after the rescheduling of several works, as well as the start of new ones.

BNamericas: MOPC has an important portfolio of public-private partnership and turnkey projects. Do you think there are opportunities for local firms to participate in these projects or do you think they will end up being developed entirely by foreign firms?

Díaz: No, generally all foreign companies subcontract to Paraguayan companies, which is a win-win, since they can enter with competitive prices and we learn from all the new innovations they bring.

But, going beyond that, in Paraguay the companies have a lot of limitations on carrying out large-scale projects, unless they're pioneering projects that haven't yet been carried out here and therefore there's no specific experience in that.

BNamericas: Has there been government support for the construction sector? Do you think more could be done?

Díaz: Our chamber is a link between the partners and various related entities or organizations, including the government and, as such, we've constantly worked and insisted for the works not to be halted, which we've achieved.

We believe that more can always be done. However, we're still limited by the current situation but we're already projecting new goals.

BNamericas: What are the main problems that the construction chamber faces in addition to the effects of the pandemic?

Díaz: I can point to three aspects: first we need better financing for works, for the public sector in terms of reducing collection periods and the private sector for the construction of homes aimed at the middle class where we still have a deficit.

The second is to definitively change the law on opening the market for cement and steel, since having few suppliers tends to mean prices are independent of the market situation and/or the existence of raw materials for production.

Finally, we need a law that requires that the link for hiring a construction company must be guaranteed by a contract. This is very beneficial for both parties, since various aspects can be protected that are currently only resolved in case of certain unforeseen events.