A Lull in Regional Project Investment in Latin America

Latin America Capital Projects Update

Over the past 2 years, the project landscape in South America has changed dramatically. The number of megaprojects announced or in development has dwindled as commodity prices declined. Gone are the days when higher commodity prices spurred investments in large plants and asset capacity increases. Today, rather than allocate capital toward large greenfield projects, limited capital is being authorized to execute much smaller sustaining capital projects at existing plants.

In more recent months the region’s capital projects landscape has shown at least some small signs of improvement, but economic and political turmoil linger. Brazil, seen by many as a bellwether economy for the region, for a short time looked to be recovering from a prolonged period of political instability. After the August 2016 impeachment of former Brazilian President Dilma Rousseff, it seemed as though some government and economic stability was in store under Michel Temer, who replaced Rousseff as president. The success of the 2016 Summer Olympic Games added to the sense of optimism. But as of early December, a controversial pension reform plan and allegations of campaign donation improprieties are already rattling Temer’s presidency. Meanwhile, Brazil’s economy has contracted, although at a somewhat slower rate than anticipated at the beginning of the year. Year-on-year, the GDP shrank 3.8 percent.

Likewise, other South American countries are dealing with their own political and economic difficulties. State-socialist economic policies and lower oil prices have caused the economy to collapse in Venezuela, resulting even in the short supply of many basic goods. Protectionist trade policies, lose central bank policies, and high levels of government spending have contributed to weak economic conditions in Argentina. According to the IMF’s October 2016 Regional Economic Outlook Update, depressed economic conditions throughout the entire Latin America region may be close to bottoming out. Only time will tell.

Optimizing Project Organization Structure and Staffing

But for now, during IPA’s discussions with project teams across the region, we hear that the lack of investment across the region is a pressing concern. Notably, IPA has seen a lot of project management organizations (PMOs) dismantled. Without PMOs, project teams have less support and fewer resources with which to deliver cost-effective projects. The shift in portfolios to smaller projects means project managers carry a greater number of projects at the same time. In addition, familiar team dynamics are being disrupted as project personnel are reassigned to plants or other groups in the organization. IPA has observed that some owner companies are focusing on preserving functional competencies by holding on to key project organization staff.

Owner companies in the region are turning to IPA for support in understanding the needs and functional weaknesses of their organizations. They want to know about team and organizational Best Practices and how organizational structures can be better aligned to deliver projects in their portfolios. With so many companies having slashed their capital expenditure budgets, they need to understand the requirements for the organization and staffing of projects that remain in the portfolio.

Finding the Right Project Work Processes

Additionally, there is a renewed sense of urgency about Best Practices for delivering capital projects. IPA has helped clients re-examine existing work processes and in some cases develop new work processes—project development, estimating, procurement, project controls—to fit the current portfolio and set the organization up for the future.

They recognize the need to revisit existing procedures and manuals as well to make sure appropriate resources are available and aligned with the needs of business units.

Across Latin America, companies are trying to find ways to deliver more efficient projects. To find out how your company can improve the capital effectiveness of projects planned, developed, and executed in this region please contact Astor Luft, Regional Director, Latin America.

* Flesch formally served as IPA’s Regional Director for Latin America