Having a strong infrastructure is key to help any steel sector to advance, especially in Latin America, said panelists at the region’s major steel gathering this week.
“All that infrastructure in Latin America, generally speaking, isn’t good. We’re not doing well in infrastructure,” said Jefferson de Paula, president of Alacero, the region’s steel association.
Another panelist, Arlindo Eira Filho, partner at the McKinsey & Company, argued Latin America invests about 2.4 percent its GDP in infrastructure, as compared to 9 percent in China, the world’s largest investor in the segment. India comes after with a 5 percent investment when compared to its GDP.
“If we assume that we’re a still emerging region, we can say that we’re underinvesting in infrastructure,” he said.
“Because we invest less than we should, our infrastructure quality is poorer. As a result of the low investment, most of the Latin American countries are classified with worse infrastructure development than expected,” he noted, adding “there’s no rich country with bad infrastructure and vice-versa.”
“It’s essentially a straight line,” he said.
Eira Filho said that in order to close what he called as Latin America’s “infrastructure gap” by 2023, the region would have to increase its investment by about 50 percent.
Citing a case from within the Mckinsey Company, which advised a BRL 7 billion infrastructure project in Brazil, Eira Filho said the return on investment (ROI) for that specific project was 3 to 5 times the initial amount of money invested, showing participants that investing in infrastructure pays off.
“I think we’re at least moving in the right direction,” he said, while referring to Brazil.
“The new government is unleashing investment projects, so the rate of investments will improve,” he noted.
One example of a delayed infrastructure project within the steel sector in Brazil is Companhia Siderurgica Nacional’s (CSN) Transnordestina railway, which was expected to be completed in 2010.
Recently, the Brazilian government admitted it has been skeptical over CSN’s investments at its Transnordestina railway. The railway runs for nearly 1,728 km (1,073 miles).