Infrastructure defines the future: Chapter 2 of “A Perfect Storm in the Amazon”

The Merriam-Webster dictionary defines infrastructure as the ‘underlying structure’ of a country – specifically, the physical installations needed to ensure that its economy functions for the benefit of society. Modern infrastructure is made of steel and concrete and is ubiquitous in an advanced economy; typically, it is taken for granted by the people who depend upon it for their livelihoods. People living in emerging economies and developing countries do not suffer from this underappreciation of the value of infrastructure and, typically, are strong proponents of investing in it.

Conspicuous infrastructure assets include roads, bridges, railways, airports, ports, dams, power plants, energy grids, information networks, and water and sewer systems. Equally important are the physical assets that support key social services, such as schools, clinics, hospitals and recreational facilities. Most are built by the state, although some may be operated by private companies granted concessions by governments; quite a few are privately owned. Infrastructure assets are a perfect example of a long-term investment: they require a large initial investment in financial capital and pay dividends in the form of revenues and increased economic activity over decades or even centuries.

Most infrastructure assets in the Pan Amazon are the product of long-term investment strategies formulated by governments at five-to-ten-year intervals. Regardless of the periodic shifts reflecting societal consensus and electoral cycles that have occurred over the last several decades, two themes have featured prominently in all the plans, programmes and projects: economic development and regional integration.

In Brazil, the modern era of infrastructure investment began in the 1970s with the Programa de Integração Nacional (PIN) that kicked off the construction of the highway network that has transformed the Southern Amazon. This was followed in the 1990s by the federal government diversifying its investment portfolio to include hydropower, waterways and railroads within priority geographies known as Eixos Nacionais de Integração e Desenvolvimento (ENID). In the 2000s, infrastructure investments were at the core of the Programa de Aceleração do Crescimento (Growth Acceleration Program; PAC), which focused on the energy sector and included several mega-scale hydropower projects in the Amazon (see below).

All of the Andean republics organized similar programmes that made highway systems a national priority, but some of their most important investments were in pipelines essential for the exploitation of hydrocarbon reserves that had been discovered in their Amazonian provinces.

Historical aspirations and a shared cultural heritage motivated these nations’ governments to create the Comunidad Andina de Naciones (CAN), a trading block that included within its founding principles investment in trans-frontier infrastructure assets. One of the ambitious early proposals was the Carretera Marginal de la Selva, a highway similar to the Pan Amazonian highway that would integrate their Amazonian provinces.

This concept was operationalized and expanded in the early 2000s when all the nations of South America came together to create the Iniciativa para la Integración de la Infraestructura Regional Suramericana (IIRSA). Multilateral financial institutions, such as the World Bank, IDB and CAF have played an essential role in financing the infrastructure that has transformed the human-modified landscapes of the Amazon.

Although the resources they have deployed are limited by their pool of available capital, their participation has motivated governments to allocate greater capital to infrastructure and, more importantly, established a framework to leverage public resources with private capital. In addition, multilateral agencies finance – and influence the content of – strategy documents that guide long-term infrastructure investment; consequently, they share responsibility for both positive and negative outcomes associated with the infrastructure systems that have transformed the Pan Amazon.

Starting in about 2005, financial institutions from China began to play an important role in infrastructure development, typically by subsidizing Chinese companies in the construction sector and, more recently, as underwriters for the acquisition of assets auctioned off by governments and corporations following the corruption scandals of the mid-2010s. Financial support is now organized under the banner of China’s global policy initiative known as the Road and Belt Initiative.

The other major players in the field of infrastructure finance were the national development banks, semi-autonomous entities that leverage state resources with private capital to promote the participation of corporate actors and facilitate investment by sub-national jurisdictions. The most prominent of these is the Banco Nacional de Desarrollo de Brazil (BNDES), which has a long history of financing domestic infrastructure investments but expanded its activities to subsidize the operations of Brazilian construction companies competing for contracts tendered by the Andean republics. Investment in infrastructure reached a historical peak during the commodity export boom between 2005 and 2015, a period that provided the Pan Amazonian nations with unprecedented financial resources.

Infrastructure in the Pan Amazon has a bad reputation. The largest projects have led to massive deforestation and hydrological degradation; many – if not most – have been beset by accusations of corruption. Nonetheless, investment in infrastructure has benefited millions of Amazonian citizens, particularly in urban areas that now house more than fifty per cent of the region’s population. The region is set to begin another cycle of investment and development, in part because governments are once again seeking to expand the reach of conventional economic activities into the region but also because external events, particularly the COVID pandemic, are creating momentum within financial agencies to stimulate infrastructure investments as a means of restoring economic growth following the recession of 2020.

“A Perfect Storm in the Amazon” is a book by Timothy Killeen and contains the author’s viewpoints and analysis. The second edition was published by The White Horse in 2021, under the terms of a Creative Commons license (CC BY 4.0 license). See this excerpt in Spanish here and in Portuguese here.

Read the other excerpted portions of chapter 2 below: