In the case of Argentina, the lack of infrastructure development is one of the many variables that explain the stagnation of recent years.
Gross fixed capital formation over GDP in our country has tended to decline since 2004, reaching 14% in 2019 (latest data available). This annual investment ratio is very low compared to some peers in the region.
The average for Latin America and the Caribbean was 20% as a percentage of GDP, on average, during the period 2004 to 2019, while Chile and Brazil presented an average of 23% and 18%, respectively, as a percentage of GDP.
One of the reasons for the low level of financing in infrastructure projects is Argentina’s lack of capacity to channel private savings towards this type of investment.
Today, the main source of financing for infrastructure projects is the public sector. Until 2019 (latest data available), public sector investment represented 95% of investment in fixed capital, while the remaining 5%, equivalent to 2,270 million dollars per year, was distributed between bank financing and financing in the market of capitals.
This number is low considering that mutual funds have the equivalent of 34.7 billion dollars of assets under management, of which only 2.3% is allocated to funds for infrastructure projects.
For their part, fixed income instruments have been the main driver of market dynamics. On average, during the last 5 years, around 600 million dollars were issued per year in dollar linked notes, while during the same period an average of 1.6 billion dollars in hard dollar notes were issued.
In conclusion, private savings assigned to infrastructure projects are very low if one also takes into account that total investment in the sector already is.
Currently, Argentine companies, in all their segments, that is, telecommunications, gas, oil, electric power generation, public services and transportation, need financing from the local and foreign markets to overcome the infrastructure bottleneck and continue growing.
For institutions, it should be a priority to normalize the regulatory framework. For investors, it should be an opportunity to accompany the sector.
In the secondary market, the bonds of infrastructure companies are operating at an additional discount that corresponds to the macroeconomic environment in which they operate, but which is related to their capital structure, nor to their operating and financial profitability.
In Argentina, there is a lot of value in some companies that need financing to continue exploiting their potential.
Investors have the funds. Companies, financial needs. The solution may be to improve the macroeconomic environment, put the ends together and start growing.
AdCap Corporate Debt Strategist
Source From: Ambito
