Private investment commitments (hereafter, investment) in seaports in low and middle income countries has increased significantly from 2000 to 2011, peaking at $8 billion in 2007 and averaging $4.2 billion per year. Most of the growth was due to investment in greenfield seaport projects. In the last 11 years, greenfield projects accounted for 55 percent ($23.8 billion) of private investment in seaports, followed by brownfield projects at 39 percent ($17.1 billion).
This is in contrast to the previous decade (1990-1999), when brownfield projects accounted for 58 percent of investment in seaports. (Concessions as defined by the PPI databases are commonly referred to as “brownfield projects.”) In fact, by number of projects, there were still more brownfield projects (49 percent) than greenfield projects (43 percent) in the last 11 years, indicating a trend toward large greenfield seaports.
For an investor, the risk profile of a greenfield project is usually considered higher than for a brownfield project, where a revenue-generating asset already exists. A closer look at the data by region reveals underlying trends that explain how greenfield projects have become the most common form of public-private partnerships (PPPs).
Private Investment in Seaport Projects (2000-2011*) in Developing Countries, by Region and Contract Type
The majority of investment was concentrated in two regions: East Asia and Pacific (32 percent, $13.8 billion) and Latin America and the Caribbean (26 percent, $11.4 billion). In East Asia, China accounted for 70 percent of regional activity, while Brazil accounted for 38 percent in Latin America. Development of seaports was also strong in South Asia, with $8.6 billion. Approximately 63 percent ($20.5 billion) of the investment in these regions was in greenfield projects.
On a global scale, the most active countries were the emerging economies of Brazil, China, India, and Nigeria. China led with 20 percent of new projects, India with 13 percent, Nigeria with 10 percent, and Brazil with eight percent. The large amount of activity in Nigeria was due mostly to a program in which Nigeria’s Bureau of Public Enterprises (BPE) tendered 19 brownfield seaport concessions in 2005. For the other top countries, greenfield contracts were in the majority.
South-South Investment: China takes the lead
The top six sponsor countries (Brazil, China, Denmark, Philippines, Singapore, and the United Arab Emirates) had at least 15 percent of the equity in 57 percent of global seaport projects. Perhaps not surprisingly, following the number of seaport projects in China, Chinese sponsors were the most active globally with a market share of 16 percent, investing in 35 seaport projects (again, mostly in China). Hong Kong’s Hutchison Whampoa Ltd. was involved in 13 of these deals and was China’s top sponsor.
As with China, the top sponsoring countries had a single pre-eminent sponsor with the exception of Brazil, which had many strong local players. The United Arab Emirates (UAE) followed China with 24 new projects and 11 percent of global activity. The UAE’s Dubai Ports (DP) World invested in 19 of these projects, making it the second most active sponsor of the last decade. DP World’s projects during this period had investment commitments of $3.8 billion. DP World closely followed Denmark’s AP Moller Maersk, the top sponsor, with 21 of Denmark’s 22 new projects. Denmark at 10 percent was followed by the Philippines and Brazil with seven percent each, and finally by Singapore with six percent of new projects.
The goals of the private investor do not always match the goalsof the government when developing greenfield seaports.
Pacific ports in Latin America
Investment in greenfield seaports in Brazil, China, and India could perhaps be explained by their growing economies, but other countries in Latin America have also experienced increasing investment in greenfield seaports. A need by Asian exporters to bring their goods to market without passing the Panama Canal has spurred investment in ports on the Pacific coast.
Notable among such ports is the 830,000 TEU Callao South Dock Terminal in Peru. This greenfield seaport was developed by DP World and had a total investment of $439 million; it became operational in October 2010 and was financed entirely by DP World and a group of private banks. Other Pacific greenfield ports include Colombia’s TC Buenaventura, a $224 million greenfield port financed by IFC and Lazaro Cardenas in Mexico.
Plans for such ports are not without their challenges, however. In 2006, the Ecuadorian port of Manta awarded a tender for a $523 million deep water seaport with a $55 million contribution from the government. With a natural depth of 30 meters, Manta could accommodate Post-Panamax vessels, and the government intended it to become the main entry point for Asian companies. However, in February 2009, Hutchison Ports Holdings pulled out due to disagreements with the Ecuadorian government regarding investment obligations, and the project was canceled.
As this example demonstrates, the goals of the private investor do not always match the goals of the government when developing greenfield seaports. There can be synergies in PPPs, but the public and the private sectors need to have well-defined goals in order to seal an effective partnership.