Colombia’s building sector poised for growth

Plans to grow infrastructure should offer sector a big boost.

If all goes well, Colombia’s antiquated system of pot-holed roads and highways will be supplemented by a modern network of superhighways and roads built over the next few years.

“The next six months will be the key to infrastructure companies in Colombia,” said Jose Fernando Restrepo, chief analyst at InterBolsa SA in Medellín.

Colombians and foreigners have long complained about the poor roads and deteriorating infrastructure in Colombia. 

Apparently the government has finally heard that message.

“For 30 years, Colombia has not paid attention to the infrastructure. 

We paid attention to education, health care and pensions and the war. 

Now we are getting back to building the infrastructure,” Finance Minister Juan Carlos Echeverry said in an interview.

Prosperity highway

The first major project to be built is the so-called Prosperity Highway. 

Infrastructure companies have already lined up to form bidding consortiums on the estimated $8 billion project.

“Highway” is a misnomer. 

The Prosperity Highway is actually a network of highways designed to link Colombia’s interior state of Antioquia with ports on the Pacific Coast on the West and the Caribbean in the North, as well as major cities in Colombia and beyond.

It will carry trucks full of raw materials nickel and gold, coffee and palm oil to ports that connect Colombia with its traditional partners in Europe and the United States and emerging partners like China and Brazil. 

And it will take Colombians and tourists to places that were previously hard to reach.

At this point, the Ministry of Mines and Energy has called for the project to be split into four phases, each of which will be bid on separately.

At least four major Colombian public companies are expected to submit bids. 

They are Grupo Odinsa CO:ODINSA 0.00%  , Construcciones El Condor CO:ELCONDOR -0.86%  , ConstructoraConconcreto CO:CONCONCRET -1.89%   and InterconexionElectrica CO:ISA -2.21%  , known as ISA. 

But they will also compete with several closely held companies in Colombia and with several foreign companies from Brazil, Italy, Spain, Canada and others.

It’s hard to say which companies will end up with contracts. 

ISA has the upper hand, having designed the plan at an estimated cost of more than $20 million. But ISA is an electric company at heart, and only a year ago formed a road construction unit to bid on projects.

Bidding process

Forming the right consortiums will be key to winning bids. 

The public and the press are keeping a close eye on the bidding process. 

Colombia is well-known for corruption, and recent changes to make the court system more effective and less prone to bribes will be a test for the administration of President Juan Manuel Santos and of the Colombian congress.

The Prosperity Highway is just one of many infrastructure projects that the government has said it wants to build over the next 10 years. 

Finance Minister Echeverry has said the Colombian government wants to spend $100 billion over the next 10 years. 

For many of those projects, the government will need congress’s approval and given the time it has taken to win approval for the Prosperity Highway, approval for many of those projects could take two years or more, with construction adding even more time.

Nonetheless, at this point, most Colombians agree on the need for spending money on infrastructure. 

The growth of the Colombian economy has helped create a window, which could close at any time.

An estimated 28 projects are scheduled to be auctioned over the next month, all aimed at maintaining Colombia’s existing roads, bridges and dams. 

Many of those will be bid on by Colombian companies. 

For example, El Condor is being considered on a major project in Medellín to build the proposed Ituango hydroelectric plant. 

A decision on that should be made soon.

The projects will benefit infrastructure companies and others as well. 

The projects will need financing, and BanColombia CO:BCOLOMBIA -0.74%   could be one source that infrastructure companies reach out to. 

For suppliers, cement companies will be among the major beneficiaries. 

Cementos Argos CO:CEMARGOS 0.00%  is likely one of those.

It’s no wonder that Cementos Argos decided to split off its infrastructure company into Inversiones Argos CO:INVERARGOS -0.58%  last month. 

With the potential of winning bids in the future, Inversiones Argos stands better-positioned to bid on its own than as part of a conglomerate, while Cementos Argos gains as a supplier.

Foreign direct investment in Colombia has been growing at a brisk pace, up 25% in the first four months of 2.012 over the same period a year ago. 

Oil and energy still make up a large portion of that, but infrastructure projects could lift that even higher over the next six months.

As the war with the guerrillas is winding down, and with fewer kidnappings, and an economy expected to maintain strong growth, Colombia stands to benefit from higher foreign direct investment.

Overall, analysts say, the future looks promising for infrastructure companies in Colombia.