The infrastructure hurdles Uruguay's next government must clear

When Uruguayans elect a new president on Sunday, no radical changes are expected and the country's economy will remain one of the region's most stable, although the next government will have to solve severe infrastructure problems.

The next administration will have to ensure development of the rail network continues and that clean water remains available.

Polls suggest a tight race between the former mayor of Canelones, Yamandú Orsi, running for leftist opposition alliance Frente Amplio, and the former secretary of the presidency, Álvaro Delgado, who represents the ruling center-right Partido Nacional.

To learn more about the infrastructure challenges of the next administration and the current state of the industry, BNamericas talks with Alejandro Ruibal, president of the construction chamber (CCU) and executive director of local company Saceem.

BNamericas: What is the state of the construction sector in Uruguay?

Ruibal: Despite the pandemic setback, the construction industry has maintained a good level of activity and employment. Currently, there are about 55,000 workers formally employed, which is good considering that Uruguay is a small country.

It is expected that 57,000 will be employed when the government's term ends. And indirectly there are about 120,000 more jobs, and if we count other jobs related to the industry, the figure reaches 200,000 people, or 16% of the economically active population.

Although large investment projects such as UPM's second cellulose plant and the central railroad, which were very demanding in terms of labor, have been completed, activity has remained strong thanks to the construction of housing due to the housing promotion law that gives benefits to private investors such as tax exemptions and seeks to boost the renewal of stock. And also due to the government's road investment plan, which has led to 40% of the country's infrastructure investment being concentrated in the road segment.

BNamericas: What are the main infrastructure challenges Uruguay is facing?

Ruibal: Uruguay has a good road network, with almost 9,000km in a relatively small country. The port of Montevideo is undergoing modernization and there are river ports. Railroads are starting to be revived, and with the completion of the central railroad, old lines will also be reactivated, including those that connect with Brazil and Argentina, which would also benefit Paraguayan cargo.

The challenge for the next generation of infrastructure investments is the metropolitan issue. There is a huge debt in Montevideo, where it is necessary to invest in new transport systems, street layouts and public spaces. In my opinion, some US$1bn needs to be invested in the infrastructure of Montevideo and its periphery over the next three or four years.

Montevideo has endemic problems with its flood defence infrastructure. We know what needs to be done, but the work has been left behind.

BNamericas: What should the next government prioritize in this regard?

Ruibal: We have raised the same concerns with the candidates that I mentioned earlier: investment in metropolitan areas and the development of the rail network.

I mentioned earlier that we have a very good primary road network, but we need to make progress in the penetration of roads to producers in the interior.

We also proposed to the campaigns the creation of an infrastructure agency so that every time a new government comes in, it does not have to create an infrastructure plan from scratch.

This is done in countries such as Canada, Australia and New Zealand. These agencies plan and design large projects necessary for the development of the country, which are placed in a project bank.

In Uruguay, this could apply to the need to invest in drinking water, especially after last year's crisis.

BNamericas: What advantages and disadvantages does Uruguay have as a destination for infrastructure investments?

Ruibal: Uruguay has several tools for the private sector to invest in infrastructure, such as the concessions law or the law for public-private partnerships, rehabilitation and maintenance contracts [CREMA], and there is the option of mixed modalities or subsidies.

These tools have been successful in attracting foreign investment.

Another advantage is Uruguay's stability.

In terms of disadvantages, there are costs. Uruguay is one of the most expensive countries in Latin America, if not the most expensive. We have a dollarized economy, with a small population, significant state spending and a relatively high tax burden.

BNamericas: The current government decided to no longer use PPPs for new road projects and instead resort to CREMA contracts. Could the current PPP framework see a return for highways or should changes be made?

Ruibal: The current government, despite not using PPPs for roads, did use the framework to build prisons and awarded the tenders under this mechanism that were pending from the previous administration.

The PPP law still has room to be used because it has a cap on the total of firm and contingent liabilities arising from contracts of this type, which cannot exceed 9% of the GDP of the immediately preceding year. Currently, we have only reached 6%, and these limits can also be modified later.

PPPs can be corrected or improved, but they are a very valid tool for creative financing and attracting private investment for public infrastructure. They also help governments to reduce accounting burdens and transfer risks to the private sector.