Pre-Investment in Infrastructure in Latin America and the Caribbean: case studies from Chile, Mexico, Peru, and Uruguay

Produced by: 
Inter-American Development Bank
Available from: 
January 2015
Paper author(s): 
Juan Alberti
Topic: 
Infraestructure - Transport - Water
Year: 
2015

There is evidence that suggests that an “infrastructure gap” vis-à-vis other industrial and developing regions opened up in Latin America and the Caribbean (LAC) over the past two decades. In this context, the Inter-American Development Bank (IDB) conducted a public consultation process in 2013 during which several participating stakeholders from the public and private sectors analyzed the current situation. They indicated a particular need to improve the pre-investment phase of the infrastructure project cycle in LAC. Therefore, this report studies why the region is having a problem with the pre-investment phase and what the consequences are. It uses a multiple-case-study design to confirm that the countries’ institutional strategy for pre-investment is failing because: it has not been adapted to address new problems; the strategy does not always consider political acceptability issues; there are undesired interactions between the different institutions participating in the process; and there is a lack of sufficient resources to implement the strategy correctly. In order to analyze the consequences of the current strategy, this paper develops a benchmark using previous findings and other smart practices. LAC institutionalism and this benchmark are then used as two possible alternatives to draw a policy analysis. Outcomes are estimated for the two alternatives in terms of transactional hazards, using the new transaction cost regulation body of knowledge, and the alternatives are compared in terms of cost-effectiveness, considering that these hazards are responsible for potential cost overruns and delays. The analysis concludes that a flawed pre-investment process in LAC is probably contributing to cost overruns and delays. Specific institutional recommendations are put forth to mitigate these consequences, including institutionalizing stakeholders’ participation when generating a vision and goals for future infrastructure investments; increasing governmental capacity, particularly in terms of human resources, to develop specific types of pre-investment studies; and institutionalizing the participation of self-described “interested parties” when a project is first accepted, and before project implementation starts. The paper concludes that there is room for feasible policy improvements in the pre-investment phase in LAC that would enhance infrastructure delivery, boost growth, and promote development in the region.

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