Over the past few years, boosting local infrastructure has become an important focus area for several Latin American countries, which look eager to find new trade opportunities and ride the wave of China and the US’s trade tensions.
While some countries are trying to achieve this purpose individually – like in the case of Chile’s recent ‘Chile on Rails’ strategy – others are instead joining forces to grab the attention of Asian, European and American investors to boost their economic prospects.
The much-discussed Central Bi-Oceanic Railway Corridor is a prominent example of this sentiment. A proposed 3,750km of tracks running from the continent’s western side all the way to the east – therefore connecting the Pacific and Atlantic Oceans – the project involves Peru, Bolivia and Brazil, with Paraguay also considering participating.
The ‘Panama of the 21st Century’, as it’s often being called due to the trade potential it could unlock, is a mammoth operation that has already attracted interest from international investors across China, Spain, Germany and Italy.
The Chinese and Bolivian presidents first created the idea of a multinational rail network between the two oceans in 2013. Since then, a number of steps have been made with the last dating back to October 2019, when Latin American development bank CAF signed a $3m agreement to fund pre-investment studies for Bolivia’s section of the corridor.
But there have also been a number of setbacks, including the region’s internal political tensions, as well as the fact that after seven years, the project is currently looking nowhere near starting, let alone coming into force.
Updates on the corridor have been quiet ever since October’s announcement, begging the question: what’s happening with the project, and will it ever come to life?
What we know so far
The truth is, we don’t know much about the project at all, and officials involved in it have been relatively reticent on the matter.
Over the past few years, a number of design and feasibility studies have been carried to establish the best route, costs and more, though an official design is yet to be agreed upon.
What’s publicly available is that the corridor would stretch along some 3,750km of tracks moving from Puerto Santo in Brazil through to the Andes mountain range and the Bolivian Amazon Rain Forest and eventually terminating in Peru’s Port of Ilo.
Currently estimated to cost between $10bn-$15bn, it aims to increase freight transport capacity to ten million tonnes per year, running at a speed of 100km/h. On the passenger end, the ridership could double to six million users, with trains travelling at 170km/h.
Works will be shared among the three participating countries, which all need to expand and modernise their sections. As per previous reports, Brazil will look into rehabilitating some 1,900km of tracks, while Peru will build 340km of railroad between the Port of Ilo and Bolivia’s La Paz. However, most of the action will take place in Bolivia, where about 1,500km of tracks need to be built or upgraded.
What’s up for grabs in Brazil, Peru and Bolivia?
The three participating countries have different levels of interest in the project.
According to John Ashbourne, senior emerging markets economist at Capital Economics, Peru is currently the best economically placed among the trio, as “growth is strengthening and we should see copper prices rise this year, which will boost the economy”.
The same cannot be said of Brazil and Bolivia, whose financial misfortunes are reflected in the 2019 World Economic Forum’s Global Competitiveness Report, which ranked the former 71st and the latter 107th out of a total 141 countries.
“We’re very sceptical about Brazil,” says Ashbourne, “the economy there has been struggling for some time and we think it will continue to do so. So in terms of growth, what we are expecting it to be quite a bit weaker than is the sort of consensus expectation.”
Meanwhile, Bolivia is lagging even further behind, mainly due to political uncertainty – with a new general election scheduled for May – as well as its geographical position, in-between Peru and Brazil.
“For Bolivia, I think there is probably going to be a huge benefit because it’s a landlocked country,” continues Ashbourne, “any connection it gets to neighbours that eases trade would be a very big deal for them.”
The country’s need to boost connections and local integration was behind CAF’s decision to finance pre-investment and logistics studies for the development of the corridor. As CAP president Luis Carranza said in a press release, “this financial assistance by CAF will not only enable Bolivia to complete its internal railway interconnection network, thereby improving logistics of domestic exports, but will also help develop the integration project that will turn Bolivia into a hub between the two oceans”.
Uncertainty continues to loom large
However, there still seems to be still a considerable level of uncertainty surrounding when the project will be delivered, as it will largely depend on cooperation between the three countries.
Yet this may not be entirely guaranteed due to Bolivia’s unstable political situation, which plunged into chaos in October 2019. At the time, former President Evo Morales was forced to flee the country after his bid to run for a fourth mandate was rejected on grounds of electoral fraud in previous elections. This resulted in weeks of protests that were eventually resolved with the help of armed forces and the establishment of an interim government before May’s election.
Adding to that, in October last year, Brazil’s commitment to the project came under the radar when the country’s ambassador to Bolivia said the corridor is not a priority for President Jair Bolsonaro. Although the comment was quickly dismissed by Bolivian Foreign Trade Vice Minister Benjamín Blanco, it did shed light on Brazil’s interest in the project.
“If you look at the economic advantages of the project,” explains Ashbourne, “there is not a lot of trade happening between these countries now.” According to Capital Economics figures, about 1% of the Brazilian exports go to Peru, with an even smaller percentage, 0.7%, heading west to Bolivia.
“So, if you move those goods more efficiently, that wouldn’t have that big effect on the economy as a whole,” he continues, “as there is not an important trading partner. And indeed, most of what Brazil exports is iron, petroleum and soybeans, which there isn’t a huge demand for in Peru, so a lot of it goes to China and Europe.”
China’s role could reinvigorate interest
As minor as Brazil’s benefits may be compared to those of its western neighbour, they may still be driven by China’s interest in funding the project, which is estimated will help cut journey time between Brazil and Asia to 25 days.
“China is Brazil’s biggest export partner,” says Ashbourne. The country was also among the first to pay attention to the project in 2013, when President Xi Jinping visited Latin American and the idea of the network was first conceived.
According to research by the International Labour Organisation, between 2000 and 2017, Chinese companies and investors have contributed to 69 infrastructure projects in Latin America, jointly valued at $56bn.
“If you’re looking at infrastructure projects of that kind of scale, China is often the only game in town,” Ashbourne continues. “China has a lot of expertise in rail projects and the government in Beijing is very keen on them both for economic and political reasons.”
In addition, Beijing is now thought to be Latin America’s second-biggest trading partner, pushing for cooperation through its Belt and Road Initiative (which Peru recently joined).
As such, with China and many other European rail leaders like Germany, Switzerland and Spain proving eager to participate, hopes are high that the corridor will eventually come to fruition.
But as yet another year starts with no new announcements, the words of Brazil’s ambassador to Bolivia will sound, once again, as concerning as they were in October: “This initiative is going to come out, but you do not know when.
“Our position is that the project is important. It will be implemented in some time, but there is no date yet.”