Assessing political risk in infrastructure projects tends to mean parsing the small print of regulatory changes, or shifts in party manifestos in the run-up to elections.
But the fire that engulfed the Chilean headquarters of ENEL, the Italian energy company, during civilian riots in 2019 was a vivid reminder of other, less predictable risks faced by investors in Latin American infrastructure.
The Santiago protests were triggered by a three-cent rise in metro ticket prices and resulted in dozens of stations in the capital being burnt and vandalised. It turned out to be a catalyst for a wave of pent-up anger against what many Chileans saw as high-priced and poor-quality public services.
The events shocked investors because they happened in a country associated with stability and steady, long-term growth.
But emergency government spending and the promise of a new constitution have since taken the heat out of the Chilean protests and infrastructure investors have once again been drawn to the South American country — attracted by projects including green hydrogen and road building.
Henrique Martins, Brazil chief executive at Brookfield, the Canadian asset manager, insists Latin America remains “one of the best opportunities in the world” because of its enormous need for infrastructure and the limited ability of governments to finance it.
Brookfield has $30bn invested in South America, mostly in Brazil, where the company runs toll roads, ports, railways, water, and gas distribution.
However, investors in the region still have to contend with risks as well as opportunities. Latin America ranks second-worst in the world for political risk after sub-Saharan Africa, according to Fitch Ratings, but does not necessarily compensate investors with higher profits because of the small size of many markets and limited growth prospects.
“Latin America’s infrastructure markets are generally characterised by elevated risk and limited rewards, undermining the region’s overall attractiveness,” Fitch concluded in its report this year, though it noted that risk levels vary widely between countries.