BUILDING UP STEAM

Ecuador 2013 | REAL ESTATE & CONSTRUCTION | REVIEW: CONSTRUCTION

Extensive public investment, population growth, and rising purchasing power have fuelled the infrastructure sector in Ecuador.

President Correa's administration continues to plough resources into rejuvenating Ecuador's energy mix, transforming it into a commercial hub, while improving the conditions of its citizens and maximizing its tourism offering. Public housing schemes are also springing up, while the middle class is purchasing more homes on credit. Underpinning all of this is a growth in infrastructure projects, which has been a major shot in the arm for the construction sector. Celso Malimpensa, Country Geographical Leader of PwC Ecuador, observed that, “this segment of the economy has seen the highest growth over the past two years on a 15.6% average, signifying 10% of the GDP."

PUBLIC KNOWLEDGE

Floated on the momentum of Ecuador's infrastructural development, according to the Guayaquil Chamber of Commerce the construction sector is set to expand 5.6% in 2013. Public sector-investment rose sevenfold between 2006 and 2012, from $1.9 billion to $11 billion. According to the National Secretary of Planning and Development (SENPLADES), Ecuador had the highest public investment index in the region in 2012. In that year alone, government investment reached $6.3 billion, marking a national record.

POWER TO THE PEOPLE

Ecuador's energy sector is adapting to tomorrow's world, and has relied strongly on Chinese know-how and financing. Hydro energy giant Sinohydro is working on Ecuador's landmark Coca Codo Sinclair hydroelectric plant. Cai Runguo, the President of Sinohydro Ecuador, explained the project by highlighting its “…having strengthened cultural ties… and created jobs for 4,000 Ecuadorean, and 1,000 Chinese workers." The plant, with a $2 billion cost, will transform Ecuador from an electricity importer to an exporter, generating 1,500 MW of energy. Elsewhere, the initial phase of the Pacific Refinery, Ecuador's mega-facility requiring an investment of $12 billion, is over 20% built. The refinery is expected to produce 300,000 bbl/d and reduce Ecuador's petroleum expenditure when online within the next five years.

LARGE UNDERGROUND MOVEMENT

Another significant project is the Quito Metro Line One Project (PLMQ), an investment estimated at $1.5 billion. The line will be 23 kilometers long with 15 fully accessible stations, six with integrated access to the Metrobus-Q network, and will initially be capable of carrying 23,000 people an hour in each direction. Quito Metro Line One will link the principal points of departure and arrival of transit passengers in Quito, and will bring a convenient transportation option to an area containing 760,000 jobs. The project will cut travel times and operating costs of the transportation network and improve the connectivity, safety, and convenience of the existing system.

NURTURING TOMORROW'S BUILDERS

Other initiatives bolstering the construction sector include a recent agreement signed between the Development Bank of Latin America (CAF) and Ecuador's Azuay provincial government that launched a two-year Ecosystem Innovation Program supporting that region's construction industry. The resulting Research and Development and Innovation Center will assist companies in becoming competitive at both national and international levels. By training over 2,000 people the scheme will provide skilled additions to the construction sector's value chain.

GROWTH FACTORS

Much of the Ecuadorean economy has been overhauled since the paralyzing crisis that led to dollarization back in 2000, not least of all the banking system. Today, while more Ecuadorean's enjoy the benefits of government housing schemes, the middle classes have greater access to bank credit for home purchases. Economic stability means lower interest rates, the key to the growth of credit availability. Ecuador's burgeoning professional class has come to expect high quality when purchasing a home. And now that credit is a workable option for many citizens, residential construction is brisk. “We are completing our largest project in Quito; San Martín, comprising 18 towers with 500 apartments, and housing our own headquarters", José Miguel Coo, the President of Prinansa, told TBY.

CEMENTING THE DEAL

Data from the Ecuadorean Institute of Cement and Concrete (INECYC) reveals that in the first half of 2013, total cement sales rose by 12.7% to 3.1 million tons from 2.8 million tons in the equivalent period of 2012. Ecuador was one of only three nations on the continent to experience increased cement consumption during the period. Cement imports in 2012 were at 33 million tons, compared to 32 million tons in 2011. Ecuador's cement industry, with an installed capacity of 4.1Mt/yr, has three producers that each have one integrated plant: Switzerland-based Holcim (3.5Mt/yr), Industrias Guapan (0.35Mt/yr), and Cemento Chimborazo (0.23Mt/yr). Holcim, which entered the Ecuadorean market in 1976, also operates a 0.5Mt/yr cement grinding plant at Latacunga. It dominates Ecuador in terms of cement capacity and supply. Meanwhile, Holcim's integrated plant, located in Guayaquil, is currently undergoing expansion to 5.4Mt/yr at a cost of $400 million. The expansion process, which began in late 2012, is set for completion in 2015. Holcim is primarily expanding to tap into from future demand arising from Ecuador's continued program of infrastructure and housing projects.

ABSOLUTE STEEL

Ecuador is an importer of steel products, with the main countries of origin being the US, China, and Brazil. The chief products purchased are wire rod, billets, hot and cold coils, plates, and profiles. There are two general categories of steel consumed: long and flat products. Long products in which the raw material is billet include construction rebar, angles, plates, and tees. The other family of products feature coil or hot rolled coil. Flat steel products are imported in much greater volume as local production focuses on long products. Until 2008, local steel plants had depended almost exclusively on imports of the main input, billets. Yet since 2009, many local producers have invested in their own electric arc furnaces to melt scrap and produce their own billets. Consequently, imported billet declined by more than half (400,000 tons in 2007 and 2008 to less than 200,000) by 2011.

Demand for construction materials is on the rise, driven in particular by the development of megaprojects such as the Coca Codo Sinclair hydroelectric plant and the Pacific Refinery. According to the Chamber of Commerce of Quito, prices for construction materials and construction equipment rose by 137% from 2000 to 2012. Wire rod prices increased 5.16% in 2011, compared to the previous year, while cement increased by close to 3% year on year, according to data from INEC. A quintal from Holcim costs $7.36 today, and from Selva Alegre costs $7.32.

FOREIGN INVESTMENT

According to the World Bank Doing Business report in 2013, among 185 economies across the globe, Ecuador ranks 139th, marking a nine-place rise on the 2012 edition. This ranking system is a practical indication of what the foreign investor may expect in terms of the ease of doing business in a country, and its likelihood of success.

There are currently 38 Chinese companies active in Ecuador, including construction outfits. According to the Ecuadorean Chinese Chamber, the main 15 companies hold contracts valued at $6.2 billion. Among them, seven have engaged in the construction of hydroelectric projects: Sinohydro for Coca Codo Sinclair, 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 assumed the construction of the Multi-Chone project. China is also a major source of Ecuador's foreign financing of its essential infrastructure projects. And while the predominance of one nation has raised some eyebrows, there is little doubt that foreign companies have helped to leverage the capacity and skills of the Ecuadorean workforce. The majority of companies sign contracts with local subcontractors that include knowledge-transfer agreements, which are in themselves an investment for the future.