Ecuador’s construction sector has been boosted by strong domestic and foreign investment in the last few years with large new infrastructure and housing projects popping up across the country. As a result, the sector has developed intensely, showing a sustained level of growth over the past 10 years that culminated in a 6.7% growth rate in 2010. Prospects for the future are bright, with the sector entering the decade on a high. In the first three months of 2011, the construction industry in Ecuador grew by 17.5%, the highest rate since 2002, representing 11% of overall industrial activity, and contributing 27.6% to GDP growth, according to the Coordinating Ministry of Economic Policy.
The development of the construction sector in Ecuador has boosted industrial activity and increased the number of companies, both national and international, entering the industry. According to the Ecuador Superintendent of Companies, the number of companies in the construction sector has been increasing steadily over the past 25 years. In 1987 there were only 358 construction companies active in Ecuador, but now there are over 1,600. This highlights the importance of the construction sector in the government’s strategy to reduce unemployment. By mid-2011, the sector employed 7% of the workforce in the country’s urban areas.
The increasing involvement of international companies in the Ecuadorean construction sector and the rapid growth of local enterprises, have both contributed to the sector’s growing role in GDP, which by the end of 2010 was 9.4% of total GDP, up from the 8.8% of 2006, contributing $2.34 billion to the economy.
Several factors have driven the growth of the sector over the last few years, such as extensive government housing programs, the facilitation of access to credit, and the growing purchasing power of the Ecuadorean population. Housing development projects are one of the greatest opportunities the Ecuadorean construction sector currently offers. Sergio R. Torassa, CEO of Pronobis, explained to TBY that the dollarization of the economy has served as a great catalyst for both supply and demand in the real estate sector. Pronobis, one of the most active companies in the industry, is envisaging an investment budget of $70 million for 2012 alone. Its portfolio includes major projects in Guayaquil, Manta, Quito, and Machala. “Lower inflation and interest rates as well as greater credit availability to finance medium- and long-term housing generated a favorable situation for the construction sector,” explained Torassa of Pronobis. “Buyers with growing purchasing power and higher demand are becoming more common.”
Public infrastructure projects are also a major boost for the sector. The government of Ecuador is investing $1.1 billion a year until 2016 to develop road and highway projects throughout the country. The Ministry of Transport and Public Works (MTOP) is currently managing 115 projects for road maintenance, 3,400 operating routes, and 78 new road projects and has budgeted $387 million for 71 bridges, $220 million for airports, and $344 million for port infrastructure. The bridges on the rivers Babahoyo and Daule, the cable-stayed bridge on the Napo River, and the highway project in Quevedo are among the largest projects. The Quevedo Ecuador highway, located on the coast, will cost $123 million and will benefit more than 250,000 people. In addition, at the beginning of 2012 the MTOP completed the reconstruction and maintenance work on the Balbanera-Pallatanga-Bucay highway in Chimborazo, which cost $63 million.
Also, there are other large infrastructure projects in strategic sectors that are expected to contribute to the future development and growth of these segments of the national economy. For example, in 2012 the government is set to start the construction of eight hydroelectric plants, an undertaking that is expected to last the next four years. Coca Codo Sinclair is the most significant among these projects. Another large project set to change the panorama is the Quito Metro line, a project in cooperation with Metro Madrid that will include 15 stations and 18 electric trains. The project is expected to come online in 2013 and has a budget of $1.4 billion, of which 50% is financed by three institutions: the Inter-American Development Bank (IDB), which provided $200 million; the Latin America Development Bank (CAF) which provided $250 million; and the European Investment Bank, which also provided $250 million. In addition, credit lines to finance infrastructure projects have become more accessible for companies, with $500 million in credit available in 2011.
MAJOR ENGINEERING COMPANIES
The presence of Chinese companies in the Ecuadorean market is growing rapidly. At least 38 Chinese companies have taken on strategic projects in construction and other sectors in Ecuador. According to the Ecuadorean-Chinese Chamber of Commerce, 15 major contractors are handling projects worth $6.27 billion. Of these 15 companies, seven have been designated to build hydroelectric projects: Sinohydro for Coca Codo Sinclair, a project of about $2 billion; International Water and Electrical Corporation (CWE) for the construction of the Toachi Pilatón Dam (242 MW); Getzhouba for Sopladora (487 MW); Harbin Electric for the San Francisco Mine (270 MW); Hidrochina for Delsitanisagua (115 MW); and China Civil Engineering Group Tiesiju LT (CREC), which has also taken over the construction of the Multi-Chone project. The presence of foreign companies is helping to leverage the capacity and skills of the Ecuadorean workforce because most of the companies sign contracts with local subcontractors, which include knowledge-transfer agreements.
This trend is also driving growth in the demand for construction materials, especially cement, concrete, ceramics, and steel. As a result, the rapid growth of the sector has driven an increase in the import of construction materials in the country over the last few years. According to the Central Bank of Ecuador, in 2010, the import of construction materials grew by 75% compared to 2009, reaching $62.4 million.
The production of raw steel in 2010 reached 368,000 tons, compared to 259,000 tons in 2009, and 128,000 tons in 2008. However, one of the most active segments in the sector is the production and commercialization of cement, in which big national and international companies are making large investments to leverage the country’s capacity. The industry is growing sustainably, at an average of 6.9% annually between 2000 and 2011, and cement commercialization in Ecuador reached 5.7 million tons in 2011, 2 million tons more than in 2005.
Holcim, which has a 63.5% market share, is the largest cement producer in the country. By end-2012, the company is set to begin an investment of $400 million to increase annual production by 2 million tons, from 3.4 to 5.4 million tons, at its Guayaquil plant. When finished, the project will allow Ecuador to meet its growing demand for cement in coming years. Also, this third expansion phase includes a third clinker production line, which will ensure the availability of raw material for cement manufacturing in order to cover periods of particularly high demand for the product. Holcim also plans to build an oven that will produce about five tons of clinker per day. Lafarge Cementos, the second largest cement producer in Ecuador, with a 22.4% market share, has a production capability of 1.6 million tons a year, and plans to increase its production between 3% and 4% every year.
Finally, Guapán and Cemento Chimborazo, which together have a 14% market share and are funded by public capital, are also boosting production. Chimborazo has implemented a plan of investment in machinery and equipment that will increase its production from 350,000 tons to 900,000 tons per year. In 2011, the company opened a pre-cast concrete factory with an investment of $15 million, which allowed it to increase its product offering. During an interview with TBY, Manuel Román, General Manager of Ecuador’s Public Cement Company, said that the two companies are set to unite and develop synergies in order to better compete in the market. They expect to surpass a 20% market share by 2013.
© The Business Year