CAF preparing $500m Uruguay infra fund

Corporacion Andino de Fomento’s infrastructure vehicle aims to be fully structured by middle of this year.

Recent reports indicate that the Cororacion Andino de Fomento (CAF), a South and Central American development bank, is preparing to raise a $500 million Uruguay infrastructure fund

Late last month, CAF representative director for Uruguay Gladis Genua told Bloomberg Business that the fund is expected to be fully-structured with all necessary documentation by mid-year.

According to the report, the fund will be structured as an investment trust that could raise its initial financing tranche this year through the sale of debt indexed against local currency, with Genua noting that funding depends on identifying eligible projects.

Genua had previously mentioned the plan to start a Uruguay infrastructure fund as well, noting in an interview with Espectador Negocios that the South American nation believes infrastructure will support economic growth. 

“We need a strong investment strategy if we're going to create the capacity we need internally,” she said. “Our current plan [is] to encourage investments that foster growth internally, [focusing on] strong investments in infrastructure, and quality education, to meet the new realities of production.”

According to a recent CAF presentation at an NAP event, Uruguay has experienced significant growth in the last five years. There has been a 10 percent increase in annual airline passengers; 6 percent growth in vehicle ownership; explosive growth in motorcycles with a doubling of Uruguay's fleet; 3.8 percent growth in electricity demand between 2001 and 2012; and an the increase in use of gas to 26 percent from 18 percent between 1990 and 2012.

The presentation went on to say that the regional infrastructure situation – not just that of Uruguay – is unsatisfactory with a major variance in performance, and that limited infrastructure investment has been an obstacle to growth. 

Whereas from 1980 to 1985, regional countries' public institutions invested on average 3.1 percent of GDP in infrastructure projects with 0.6 percent investment from the private sector, the five-year period between 1996 and 2001 only saw 0.8 percent public investment, with a 1.4 percent contribution from the private side. From 2002-2006 investment levels sunk even further to 0.6 percent from the public side and 0.9 percent from the private sector. The trend continued from 2007-2008, though investments rose incrementally to 0.7 percent from the public sector and 1.3 percent from private companies.

In order to close the gap between Central America and East Asia, CAF estimates that significant investments are needed in several key areas to the tune of roughly $259 million, or 7.9 percent of GDP. The bulk of needed investment, the CAF report noted, are electrical generation capacity, which would require an estimated $102.6 million to match East Asian capacity, and paved roads per capita, which calls for about $98 million in investment. 

From 2009 to 2013, CAF oversaw $51 million in infrastructure project approvals, up from $28 million between 2004 and 2008, and from $14 million between 1999 and 2003. Roughly 30 percent of those approvals were infrastructure-related. The organisation reports approving operations valued at more than $9.2 million for the execution of 65 projects, with total investment of $27 million.