 Good morning, and welcome to CSIS. I'm Johanna Nessith. I'm Senior Vice President here, and I co-direct our project on U.S. leadership and development. I want to welcome you all today. We have a great session today that's going to dive into the link between infrastructure, trade, and development. We've had underway for three years a very focused look at the role of the private sector in development at large. But what we keep coming back to is the importance of trade, investment, job creation, small, medium-sized enterprise creation, and foreign direct investment in long-term economic growth. So really delighted to be able to talk about a new publication out by Dr. Moreira from the IDB who has put together a great deal of data and explanation about what the importance is and some of the detailed numbers of why. I'd like to ask Dr. Antoni Estevedo-Ardal, if I said that correctly, to come and make a few opening remarks and welcome you all. And talk through a little bit about why IDB has looked at this issue and what its relevance is in terms of both public sector debate and as well as the private sector debate. So thank you for being here, and I'll turn it over. Thank you very much. Thank you very much, Johanna. I want to thanks first the CSIS to partner with us for this event, thanks to Scott and all his staff for all their help in putting together this event. Let me just give you a very few remarks before introducing Mauritius and his presentation. First remark is about a reminder for all of us who follow Latin America that despite the performance, the great performance that we had at least in the last 10 years in this region in the Latin American and the Caribbean, we have to remind ourselves that this region is still a region that is well behind the levels of global integration compared to other regions. This is a region that today in terms of trade still weights less than 10 percent of global trade, around 8 percent. This is a percentage that hasn't changed much in the last 25, 30 years. So this is still a big gap to fill in terms of our global engagement with the global markets. Asia, East Asia was their participation in global trade in the 60s and the 70s was lower than Latin America. Today's 25, 30 percent of global trade has a huge catch up in terms of their insertion into the global markets. So lots of things still for our region to catch up in terms of global integration. But there's another gap. It's a gap in our own regional integration. The levels of inter-original trade, the trade that we do among each other in our region is around 20 percent depending on how you group the countries. But this is still much, much lower than the levels in Asia, around 40 percent, or Europe, 60 percent of the trade among neighbors. So huge gap in terms of global integration, huge gap still in terms of regional integration. The question is how we can try to fill up these gaps. Of course, there are policies at the bank, of course, is working on these, like other development partners, long-term policies that have to do with policies, structural reforms that will create a better competitive environment for our economies. This means investments in education in the long term, investments in innovation. These are long-term investments that we will have to do if we want to become competitive into the global economy and competitive with respect to other partners. But there are things that can be done at the short, at the medium term. And this has to do with trying to remove trade costs, trade barriers. To dismantle some of the barriers that today impede trade to move freely among countries and among our region and the rest of the world. And this type of interventions, we at the bank try to look at it in two different types of interventions. One, what we call the soft type of interventions, things that have to do with improving the regulatory framework for trade and investment. Those are policies to facilitate trade, trade logistics, customs procedures, trade agreements, removing non-tariff barriers, standards and so on. The region has done a lot of progress here, has done a lot of progress in terms, especially on the traditional removal of tariffs. We have been probably one of the regions that have been able to remove faster tariffs from 40 percent 15, 20 years ago to less than 10 percent today. So this is a relatively good job that we have to do. We have done. But there's still lots of things that remain as part of these barriers. And the other set of interventions have to do with physical infrastructure, physical connectivity, huge gap in our region in terms of connecting better our countries in the region and our region with respect to, with the rest of the world. And this is part of what this book does. Last point on this diagnostics, these two policies, the soft side and the hard side, those are complementary policies. And this is very important. We cannot do one without the other. We can have the best infrastructure between two countries, the best roads, but if the customs doesn't function properly, it doesn't matter. Or the reverse, we could have excellent customs facilities, excellent customs procedures, but if we don't have the roads that connect the two countries, nothing is going to happen. So these are really complementary interventions that have to be done. Actually, we have estimated at the bank that the trade potential that the region has in the next few years, if we actually work in these two type of interventions, 20% or 40% of the gains, 30 to 40% of the gains will come from these interventions at the soft, at the regulatory level. 60% will come from doing these type of investments at the physical, at the physical level. Final remark, something about our work at the bank, and I'm glad here that I have some colleagues from the infrastructure department. This, this agenda for the bank is, is, is one of the key priorities. We had the capital increase a couple of years ago, the bank committed through this capital increase, having 15% of our lending to invest in those type of projects. So by 2015, around $1.8 billion of bank resources will be devoted to these type of projects, and we are working on that, especially with infrastructure colleagues at the, at the bank. And complimenting this operational work, we have a very active research agenda which is part of what we want to share with you today. A research agenda that we have been working for the last four, five years, the report that you will see today is a part of a series of reports. We have been looking at how the region has to work on removing this type of trade cost. We start looking at international trade cost in a report that we did three years ago. We focus after on a report that look at the, at the network of trade agreements, how to better enhance the functioning of this network of FTAs that we have, especially focusing on issues like rules of origin. We had a work, we had a report on the information cost, how we can access better new markets, how we can introduce new products in new markets. This was a work which actually the author is here in the audience to try to evaluate the policies on export promotion of our, of our agencies in the region, and the book that you will be hearing about today, that we are releasing today, is about the cost at the international domestic cost, the cost that takes place between the goods that comes from, from the way, where they produce to the place that they are distributed in the country. So with this I'm going to introduce Mauricio, which is our sector economic advisor. He's the coordinator of our research program at the bank, and with further view I'll pass the word to Mauricio for his presentation to follow up by the panel shared by Scott. Thank you. Good morning. Thank you all for coming. I'd like to thank the SIS for hosting this event, Scott, Joanna. You know, it's clearly a great opportunity for us to be sharing, you know, the findings of our most recent work. As you can see, I mean, the title is very much self explanatory. We were trying to look into the impact of the domestic transport costs on the region exports. Not only in the volume, but how exports are distributed along those countries. It wasn't, you know, a single venture. I mean, it was a joint work. I mean, one blind Christian Vope and Daniel came Molina and they were key partners of this work. And I'd like to begin by explaining why we did this. I mean, just in case you guys are wondering why, you know, trade economists will be putting so much focus on infrastructure issues. And I'll give you at least two, how do we move that? No, not this one. How do we move this thing? Yeah. Yeah. Is there a pointer here? So the first motivation has to do with this big shift in the relative trade costs. I mean, by trade costs, we mean all the costs that incurred by firms when they engage in international trade. So it is very clear to us that, you know, we can keep doing trade policy the way we did in the 80s and the 90s. I mean, we are in a totally different world. And why? Because, you know, we were very successful in bringing the traditional trade costs down. I mean, we went through very successful liberalizations across the region. I mean, we signed a lot of trade agreements. Of course, there are still a few holdouts. I'll include my country, Brazil, for instance, among those that have still a lot of job to do in terms of bringing those costs down. But the fact of the matter that we don't have that situation where, you know, tariffs were 80% or prohibit. And they were clearly the elephant in the room. So tariffs were clearly went down. And at the same time, we had this huge increase in importance of transfer costs for a number of reasons. First of all, because of this, you know, I would say, you know, secular underinvestment in infrastructure. Of course, you know, we did we made some progress, but clearly not enough to address all our needs. So clearly, we have been underinvestment. The debt crisis of the 80s made that thing even worse. And, you know, it's just when you had the commodity bones in the 90s, in the 2000s, you know, the bottlenecks became even more clear. We also had this huge increase in the fragmentation of world production. You know, the fact that you were, you know, spreading the production of goods across the globe, which put a very high premium on having a good logistics, which is, you know, if you want to really participate in the global value chains, you need to have good ports, good airports, good roads, and so on and so forth. And finally, you have this Asian emergency. I mean, the fact that China came along into the 2000s, not only China, but India and all the big Asian countries. And this has put a lot of pressure in the region to specialize in what we call transport-intensive goods, which are not only commodities. You know, the freight is a huge part of the final price, which makes transport costs even more important to us, but not just commodities. And we can think also of, you know, transport-intensive manufacturing goods. A good example is the case of Mexico. The fact that Mexico is recovering some market share in the US market has to do with those type of goods that are very heavy when it costs a lot to transport. You know, this huge TV plasma cars and things like that. So there's no doubt that, you know, where tariffs and traditional costs went down, transport costs had a huge increase in terms of relevance for the region. And we made a first attempt to address this issue in this work we published a couple of years ago, where we showed, we focused on international freight. Now, we wanted to show that, you know, if you look at international freight and you calculate those freight as a share of the final price of exports, they are much higher than any tariffs that those counters could face. This is the case of the US. You know, the blue bars, the freight costs add valour in compared to the tariffs. You know, you can go anywhere in the country. And it's not just the US market. If you go to the Latin America market, you see the same kind of issue. The money, so to speak, it's on bringing those costs down and not exactly on bringing tariffs down. That was the main, the first. But one thing about this work is that we left a lot of things out of the equation. And particularly, we didn't cover the internal costs. You know, the cost factory to the port, which I think it's a huge part of the problem. So we wanted to cover this gap in this second word. Another important motivation that came exactly at the time when we started to look in behind the border, you know, in the first work we were looking beyond border. When we started looking behind the border, it was clear to us that the high transport cost of the region phase has a lot to do with this very uneven trade gains that you see across the region. I mean, exports are very much concentrated in a few cities, in a few municipalities. And our hunch was that this has a lot to do with the fact that the infrastructure is very much concentrated in the coastal areas, you know, in the main cities. You're talking about Sao Paulo. You talk about Lima, Bogotá, so on and so forth. So we wanted to show that, you know, if you can improve, reduce those costs, perhaps you can spread those gains and improve the political economy of trade in the region as well. So with these motivations in mind, we set out to, you know, do this work, which the objectives are very simple and clear. You know, we wanted to provide a more detailed description on how exports are distributed across the counters in the region to show how concentrated they are. And I'll talk a little bit later on. It sounds very simple, but in practice it's very complicated. Then we want to estimate how much it costs to ship those goods from municipalities to the ports, to the customs of exit. And finally we want to assess the impact of those costs in both the volume and the diversification of export. The idea is to give policymakers a sense of how much the country would gain if they really address those infrastructure issues. To achieve those objectives, we had to face a number of challenges, which in hindsight is clearly seeming insane, but I'm glad in the end we did it, which was first to build the data because there wasn't data available part of the contribution we make is clearly there isn't hard data about infrastructure in the region. So we need to build this data, first identifying where the exports came from, which is not so simple because firms usually report the export from their headquarters. So if you really wanted to know where they come from, you need to do a lot of data mining to make sure you get the right origin of those exports. A good example of that is the CVRD, this mining company in Brazil, that report all the iron ore exports from Rio de Janeiro, even though Rio de Janeiro doesn't have any iron ore exports. Second, we need to know where, how much it would cost to ship those goods from those origins to the ports. Another huge task since there's no transport surveys of rates in the region, we end up following a methodology which take advantage of a few transport services surveys in the region. With those services we managed to build the costs, the operational costs of trucks, of shipping goods, including both distance and time costs. The usual few tires, the maintenance, wages and so on and so forth. So we used these two datas, the origin, the transport costs, and to identify the routes. We had the information where the exports were coming from and which port they were leaving. This is the case, for instance, for Brazil. Leaving Rodonopolis, exports of soy. Leaving Rodonopolis, going to road to Matagross and then by rail to the port of Santos. So we had this route identified with the data of the transport survey. We could calculate the operational costs of trucks along those routes. And then we finally calculate the advaluating transport costs. I mean, we just divided the shipping costs along the whole route by the value of exports because we wanted to have differentiation across routes. I mean, just looking at the value, the cost per ton along the route, we wouldn't know how much it impacts different goods. I mean, transporting soy is not the same thing as transporting, you know, cars or ships or so on and so forth. So with that, we had a better view of how much the importance of transport costs varies across goods. So the overall database is Chile, Colombia, Peru, Brazil, and Mexico. This was mainly because, you know, we couldn't find enough data elsewhere in the region to do this kind of exercise, but clearly this is 80% of the region exports. So I think we got a good representative sample. So just to give you some of the main descriptive results, I mean, this is the median and the variance of the shipping costs to exports across those countries. You know, this is the median, this line across the box. As you can see, it's pretty low. It's 2%, even lower than 2% in Peru and you might be thinking, why, but it's that too low. Why these guys are worrying about that? I mean, there's no problem there. But the fact that it's too low, it's not a good thing. And it just reflects the fact that since the infrastructure is so concentrated, you know, in Sao Paulo, in Bogota, and it's so lousy elsewhere in those countries, the firms end up clustering around those cities and you end up missing all the opportunities that could be elsewhere in the country. So it's not a, you know, instead of signaling a good sign, it's a bad sign. So we use this data also to look at the distributional exports across the country. This is sort of a 3D map. I'm sorry you guys don't have those glasses here, but it's the idea is to look at the correlation between transport costs and the distribution of exports in a way that you don't have to put that classic graph. And I think it's more illustrative when you see it that way. So in the case of Brazil, you see this huge bump around Sao Paulo, around the South East with more than 25% of all exports. And you see this lighter color in the rest of the country. So this huge concentration in the South East. And in the other map, you have, you know, the advaluating transport costs to export. And as you can see, there's this asymmetry between the two, the areas that export more are the areas that have the lower transport costs to export. And you'll see the same story when you go around the region, you know, you look at the other countries. This is Peru, you know, the area in Lima, you know, which concentrate most of the exports. When you go to the Sierra or the Selva, you don't see much of exports going on. And when you look at those, the advaluating, the transport costs to exports, now it's clearly a mural. Now, so you have the Selva and the Sierra with the higher transport costs. So there's a clear correlation, an inverse correlation between the two. This is Mexico, as you probably know, this huge concentration, this huge peak in Mexico City and along the border and the South, you know, you can even say that, you know, Chiapas don't even know what NAFTA is because, you know, they practically don't export at all. And the same thing, if you look at, you know, how transport costs measure across the regions, the South has one of the highest transport costs in the region. Colombia, the story's about Medellin Bogota, and just, you know, just 25% of the municipalities or districts exports, which is just 11% of the territory, which is, you know, a huge concentration. And then in the same story, when you look at, you know, how the transport costs distributed across the country. Chile is the story about, you know, Santiago and the copper in the North, you know, and you have, you know, the South with little exports to talk about in a huge transport cost to export. So, please don't run away, I just want to explain how exactly it got to those numbers. It's a pretty simple framework, we're just trying to understand, you know, these are exports from municipality I to the port J of product P at time T. Anyone know how those exports are affected by transport costs? So, our, you know, variable liters, coefficient of liters is this one, which it gives us, you know, the payoff of a reduction in transport costs. So, these are the results, and as, I mean, we can, Colombia clearly, you know, these are basically elastics, in other words, if you reduce transport costs by, if you increase transport costs by 1%, and you reduce, in the case of Colombia, exports by 8%, you can reduce all the way around, and if you reduce transport costs by 1%, you increase agriculture by 8%, manufacturing by less than 8%, and Colombia is huge, the other countries too, I mean, these are pretty impressive numbers. Of course, these are, you know, a first approximation of what the impact could be. We could spend the whole morning here discussing, you know, the technicalities behind those numbers. We did a lot of robustness tests, but it clearly showed there's a lot to gain just by, you know, addressing some of the issues, and these are just average across municipalities. There are municipalities that tend to gain much more, and this was gonna be clear in those simulations. So, with those results, we wanted to bring those results and those regressions closer to the reality of policymakers. Maybe if you come to them with a regression, I don't think we would have some much of impact. So, we wanted to use those results and apply those results to the two real world projects. So, we went to Brazil, for instance, and got all the projects that are in the portfolio of the National Logistic Plan, and then we tried to simulate what would be the impact on exports if those projects were executed, particularly what would be the regional impact of those exports. Those projects are the consensuals projects in Brazil, you know, basically the railways across the country and some of the waterways. I give you a sense of what would be the impact. So, on the left-hand side is the impact on the volume of exports. As you can see, I mean, most of the impact is exactly on the areas where, in the areas where the exports is pretty low. You see impacts between 20% to 100%. Not much going on in Sao Paulo and the southeast. And the right-hand side is the impact of the number of products those units export. The idea that, you know, loyalties for costs can improve diversification as well. And again, you know, the most important impacts are exactly in the center west, in the northeast and the north of the country, which are the areas, which are the, not only the areas that export less, but also the poorer, the more poorer areas of the country. I'm not gonna show all the countries. I'm gonna just give you two examples. This is the example of Peru. We did a similar thing with Peru. We get all the roads that are being, they are projected by the Peruvian government. Mainly, you know, the most important areas are the inter-oceanic highways and the north and the middle of the country, and in the south. And you wanted to see the impacts across the country. And it's pretty clear that, you know, again, the ones that benefit the most, or you can put in another way, it shows pretty clear that the ones that lose the most with the state of the shape of the infrastructure in the region are clearly the poorer areas that have stuff to export. They clearly have opportunities, natural resources in the Selva, you know, in the Sierra, but because of the infrastructure is so bad, they end up exporting very little. So they impact both on the volume of exports and the number of products exported are clearly on those municipalities that are among the poorest and more isolated in the country. So just to conclude, I mean, I think it's pretty obvious with those results that, you know, trade policy has to go beyond the traditional tariff and on-tariff barriers. We, you know, governments tend to gain a lot if they bring the issues of transport costs of logistics into the equation. And it's important to realize that what is at stake is not just how much the whole country is gonna export, but also how those export gains are distributed across the country. We wanna bring those Chiapas that so far haven't benefited yet from the trade boom. And a good way of doing that is clearly bringing a transport cost down. So, and then just to conclude, I mean, it's this sort of a, you know, puzzle that, you know, it's pretty clear. And a lot of people say to me, well, what are you guys doing? It's pretty obvious. We all know that, you know, the infrastructure in the region is bad, that we need to do something about it. But why don't we do something about it? I mean, I think by putting figures, hard figures on those issues, I think we helped to make this thing, this obvious more, you know, intolerable. But we also wanted to know why, you know, why don't we move faster to address those issues? And here, just a couple of thoughts about that. I think budget constraint is clearly an issue. I mean, there's not enough resources for all the projects that we need. But that's, I think, particularly lately, it's not the whole story. You know, the fiscal situation in the region has improved a lot in the last decade. But still, I think the governments haven't been making the right choices, not giving enough priorities to this kind of projects. Brazil, for instance, I think it's one clear example, has spending a lot of money in industrial policy issues, subsidizing manufacturing, whereas you could use this money to fund and finance a lot of those very high return projects. And so there's an issue of public spending priority, but also there's a huge issue in terms of the weakness of the institutional framework in the region. I mean, if you look at the transport cost, the transport, I mean, sorry, the transport ministries in the region, the people that work there, I mean, they really are not prepared enough to either plan or to execute those projects. So it really impairs the ability of the government, of the state to execute. Even if they have a good diagnostic, they just can execute. You just have to look at some of the logistic plans that Mexico and Brazil have, that they're supposed, for instance, Brazil was supposed to finish the first logistic phase of logistic projects by now in 2013 and just managed to conclude 50% of the projects. And a lot of that has to do with the fact that they don't have the people to execute, to plan and execute those projects. And this also affects the ability of bringing in the private sector. Because if you don't have good people in the government, if you don't have skilled civil servants, you can design a good regulatory framework and it can give private sector a good business environment to attract them to invest in infrastructure. So I have no doubt that we won't be able to address these obvious issues if we don't find a way of keeping, attracting and training people in the state in the Ministry of Transportation and Discountries. Thank you very much for your attention. Thank you Mauricio. Let me add my compliments to the very fascinating high quality study. And thank you to the audience. It was wonderful to see that equation hit the PowerPoint slide and you didn't head for the exit. So thanks for staying with us. My name is Scott Miller. I'm the Shoal Chair in International Business here at CSIS and let me add my welcome to CSIS for this morning's event. Mauricio will take your questions after we have a couple of expert commenters talk about the research that he's presented here. And I'm delighted to welcome to CSIS two genuine experts in Latin American development and trade and investment. Barbara Kotswar is a research fellow for the Peterson Institute for International Economics. She's been with the Peterson Institute since 2007 and is a respected voice on Latin America trade, investment, and regional economics. Prior to the Peterson Institute, Barbara was Chief of Foreign Trade Information System at the Organization for American States and she's been a long time advisor to Latin American and Caribbean governments. After Barbara makes a few comments, we'll hear from Ambassador David Nelson. David is Senior Manager, Global Government Affairs and Policy for the Americas for the General Electric Company. David came to General Electric in 2011, works in the region, but he came from the region. In a way, he was at a career with the State Department including his terminal job at the State Department was the Ambassador to Uruguay. But he spent a long time in the region and is an expert. Dave has expertise in the Latin American region but also General Electric is a very important infrastructure company, including building locomotive engines as transport infrastructure. So we look forward to hearing from both panelists. Let me turn to Barbara first for her comments. Well, thank you so much, Scott and thanks to you and to CSIS for allowing me to be part of this unveiling of this new study by the IDB. I wanna congratulate the authors of this study and of the set of studies that the IDB has done on this important public good and regional public good. Before talking about the substance, I wanna mention something that sometimes gets overlooked and that's the readability. Both this and the previous study on unclogging the arteries are surprisingly readable and I've done quite a bit of reading on trade-related transport infrastructure and most of it is very interesting and tells you some important stuff and this one actually keeps you turning the pages. So they tell this as though it's a story and make you really want to know what's going to happen. And so I'm looking forward to the next story where you tell us what to do about all of this. But I actually, I really look forward to these studies maybe as much as the next John Grisham novel. So I really wanna congratulate Tony and his team for writing important substantive work that is accessible to a wider audience and I really hope that policy makers take note. So this report which addresses some of, actually some of the key policy issues confronting Latin America in addition to transportation infrastructure is a very timely work as Latin American governments are implementing transportation projects and are confronting a number of other issues. The report builds upon the bank's earlier seminal infrastructure publication unclogging the arteries which I think has one of the best titles ever for an academic work and it shows us, which showed us clearly how important the issue of transportation infrastructure was. That book emphasized the infrastructure gap in Latin America both in terms of hard and soft infrastructure which is really important for a region that hasn't quite reached its full growth potential. So in that book it emphasized the differential in infrastructure quality in Latin America versus other regions. We know that there's, it's been estimated that differences in the quality of infrastructure account for about a quarter of the growth differential between Latin America and Asia. So this is a compelling policy issue. It also helps to explain some of the region's competitiveness challenges. So why it costs about more than three and a half times more to export a 20 foot container from Colombia and Brazil than it does from Indonesia or Korea. And I think this is another compelling issue for firms and policy makers in the region. So this report takes up some of the most important issues raised by unclogging the arteries and leads us into even more important policy issues. It delves into the depths of some of the core issues of concern for Latin American policy makers and society. This book uses an immense database and I'm not even sure how these guys managed to get. I mean the heat maps that you see there and the numbers that they associate with are the result of what I can only imagine are years of work and you somehow condense that I think into months of work. So that's a really big contribution to the literature and to policy makers tools. What they've done is looked at the infrastructure gap and seen how delving within countries this adds to another pressing issue which is income inequality and the unequal distribution of opportunities among individuals and firms in Latin America. And I think that uncovering this is a remarkable contribution. Latin American countries still suffer from being among the most unequal in the world despite a decade of significant improvement and so this is something that needs to be looked at seriously. Again looking to the east for comparison we find that the average income genie in Latin America is on average eight points higher than Asia which as Tony mentioned and as has been documented while has more robust and more equitable distribution of infrastructure and I think that's an important point. It's well known that income inequality is a drag on growth so this study has some very serious policy implications and this makes the vehicles driving at least some of that inequality which is uncovered in this study even more compelling. I think the study shows unambiguously how income inequality is driven by the current distribution of infrastructure and by uncovering this the report offers policymakers some concrete measures that they could take to uncover to address this. Admittedly addressing infrastructure challenges is difficult and not always a popular policy challenges but it can help countries who in the past decade have helped move millions of poor people into the middle class and who are now facing the challenge of helping these people maintain their position and gain a more consolidated footing on the socioeconomic ladder. Mauricio's study shows how improving infrastructure could help countries achieve these gains and they give some very concrete numbers of doing that. Now moving back to trade the results can also serve as a starting point for identifying how to allow more individuals and firms to be able to take advantage of the gains from trade and for countries to more fully utilize the possibilities that the trade policy liberalization measures that they've implemented over the last decade and a half could actually be actualized. They haven't really been able to fully exploit these measures because so many people have been cut off from the ability to participate in this. So as Tony mentioned, Latin American and Caribbean areas trade participation gaps persists both internationally and in terms of regional integration. This also has a bearing on firm participation according to the World Bank's most recent enterprise surveys nearly a quarter of Latin American firms identified transportation infrastructure as a constraint to doing business. This is even more so in some cases for the small countries and it would probably for the small countries, for the small and medium firms and it would probably be even higher if so many of those firms were not cut off from being able to export completely by this inadequate transportation infrastructure. To compare it to East Asia only 15% of firms identified transportation infrastructure as one of their main constraints. So too far to export gives concrete examples of how the distribution of this public good is preventing firms from accessing markets and gives concrete and compelling estimates of the additional gains that could be accrued by rectifying this. And so Mauricio pointed out that maybe some of these conclusions seem obvious and we know that Latin America has poor infrastructure but I really hope that some of the deeper policy issues that they have uncovered by doing this wonderful work will be taken to heart by policy makers and that some of these illustrations prompt people to push for their governments to act in a quick and proper way in order to help address these issues. So I think in summary, we look forward to hearing a lot about this. I hope that people promote this and I think that my colleague Ambassador Nelson will have some more concrete results from the private sector perspective on this. Thank you Barbara. David? Thanks Scott. I'd like to congratulate you first of all, Scott, you and CSIS for putting on this program which is an extremely important topic. I mean this is really fundamental to economic growth in the region. I'd like to congratulate Barbara and the Peterson Institute for the great studies and work that you guys are doing in this area and your good comments this morning. But especially I'd like to congratulate Mauricio and the IDB for taking on this challenge of really digging into the details of expense and costs and highlighting for governments the need to do that. It really is an important study and an extremely important topic. Now, coming last I think what I'll do is just offer some a few random thoughts and comments in general on the topic and subject. Starting with a couple of factoids on transportation costs in the U.S. where you think of the U.S. infrastructure is not great but it's better than in a lot of Latin America and yet air traffic delays in the U.S. have increased 50% in the last 20 years. From an average of 41 minutes in 1990 to almost an hour today which costs on average economic cost of $100 for every person in the United States. And you think, okay well we've got more and better airports than if you've ever been to Sao Paulo airport or some of these places it's the cost must be much higher. To put it mildly, traffic congestion, the product of overtaxed highways and road infrastructure which you think the U.S. highway system is one of the best in the world and yet over congestion the U.S. resulted in U.S. drivers spending 5.5 billion hours sitting in traffic last year. I don't think that even counts for me driving in this morning on 395 but that translates into over $800 per person in lost time of waste and fuel. So the U.S. has these challenges Latin America's challenges I think are even greater and more to overcome if you can see the costs. So in terms of infrastructure development there's a bit of a paradigm shift I think in the world in general and part of this affects the U.S. but probably affects Latin America as well. And a couple of points on this paradigm shift on infrastructure first of all is that it is more global now and the infrastructure is increasingly about connectivity. It's taking into account the increased trade agreements it's taking into account the opportunities to export. It's also more global in terms of the engagement. You've got countries want the latest technology they want to be world-class in their infrastructure. So it's global in technology, it's global in who does it it's global in the purpose. And secondly Mariso touched on this a bit is the financing is different now it's more of a challenge. Infrastructure at one point was almost all public sector financing some of it the IFI financing but that's become more challenging lately. The governments are public sectors are not capable in the U.S. or anywhere else frankly of bearing all of the costs through taxpayer funding and governments lottably are much more macro economically stable running balanced budgets things like that they're not going deeply into debt and this again puts a constraint on the availability of financing from the public sector at the same time traditional bank lending is much reduced European banks have pulled in their horns for obvious reasons U.S. banks it's harder to get bank lending as well. So increasingly the challenge of financing is looking for options that involve private sector cooperation and that's a challenge it's a challenge to get private equity in it's a challenge for governments to design public private partnerships or other mechanisms that hit that right balance between being attractive enough so they attract the private sector investment and protecting the public interest in not overcharging consumers and making sure that you have a fair price to governments and this is a challenge that governments around the world are struggling with and there's not an easy solution to it but it's the kind of thing the IDB I think can offer some help on and I know it's doing some good work in that area. One of the points that Mauricio touched on as well is and that's related to this is the role of government policy and the challenges in government policies being effective in developing the programs and in a couple of areas for the private sector to be interested in these transportation projects first of all many of them are long-term investments and when you build a railroad when you build an airport when you build a port you're talking 20, 30, 40, sometimes longer and you need to have some confidence that the policy is not gonna change the next time there's an election or another change of government in the country you need to have some confidence that there's a long-term commitment to developing this infrastructure and that's a challenge countries are working on it but that's a challenge. Secondly you need regulation that is clear and transparent and speedy. One of the challenges that we're seeing as countries develop infrastructure projects in from Peru to Columbia to Brazil to other places is the challenge of addressing the legitimate desire to ensure that you have environmental protection that you're addressing the concerns of indigenous peoples that you're addressing all of the factors that surround an infrastructure project and make them sometimes controversial in Latin America just as they are in the US nobody wants certain things in their own backyard but at the same time you have a greater public good in getting these products to market and expanding the opportunity for areas to have access. It's a challenge for governments to address those sort of social demands and at the same time have the project go forward and that has slowed down noticeably a number of projects that have been on tap and throughout the region. And finally a key government role is in the procurement. This issue about having people that are well trained that understand what they're doing that have the technical capacity that can write contracts that are clear and transparent and the procurement process is clear and takes into account particularly in these long-term infrastructure things the kind of life cycle costs and not just the lowest upfront costs that you have. These are challenges for procurement officials but they can be addressed but they particularly through again help from the IDB and other global institutions but these are somewhat limiting factors and finally I'd like to congratulate the IDB on focusing on both the soft and the hard infrastructure issues. It's not just the airports and the railroads and the roads and the ports. It's the policies that surround them. It's the customs facilitation. It's the part of it is regional policies between governments. I lived in Uruguay for a while and they have a great natural port in Montevideo which is a wonderful sort of distribution center to go globally and they've been growing that port but to realize it's full potential they need to use product coming down the Uruguay River and they share the Uruguay River sovereignty over that with their neighbor to the west and it's got complicated relationship in terms of getting the permits and the permissions and just simply the policy issues too especially when the port of Buenos Aires thinks it's competing with the port of Montevideo for certain things and that's just one example. You have those kind of national sort of competitive or other issues I think in a number of countries and again that's a challenge for countries in the region to overcome. And finally I would just like to put in a word for the issue of transportation of hydrocarbon products which is an important issue as Latin America becomes a growing power as it is in hydrocarbons both oil and gas transporting the hydrocarbons to market is a big challenge. Transporting hydrocarbons into certain markets is also a key challenge. If you look at the Caribbean islands for example where they're paying 35, 40 cents a kilowatt hour for electricity in part because they're burning dirty diesel fuel and fuel oil. There's an economic, an infrastructure and a technology challenge in finding ways to deliver natural gas to those islands in a efficient way that can allow them to move to new technologies that reduce their carbon emissions and also significantly would reduce their costs. So the transportation of fuel I think is a key part of transportation infrastructure that we shouldn't ignore. So with those comments again I just want to say congratulations and thank you for presenting this important study. Thank you Dave. Before we open it to questions I'd like to make one comment and give Mauricio the chance to ask a question if he has one for Barbara or David. While he's thinking of whether he wants to ask that question I'll make one comment which is make three points about what we've heard today about transport infrastructure and it's important to the trading system. First is the scale is huge. The McKinsey Global Institute looked at the amount of infrastructure investment required between now and the year 2030 globally. Just to keep up with population economic demand their calculation was $57 trillion with a T. That's even a lot of money for Bember-Nanke. Okay that is the scope of the challenge is huge. Second, public budgets are inadequate. Look we have got to find new ways of thinking and new ways of acting because I mean the United States in the 1950s and 60s built the interstate highway system. The US fiscal position is nowhere near where it was then and would be in no position to replicate the interstate highway system today. That's true of a lot of budgets where there are a lot of demands particularly when the demand for infrastructure is so large the scope is so large. The third point I'll make is this is ever more important in the world of global value chains. One of the things we were learning about global value chains as you can see by the trade and the intermediates is to be a good exporter you have to be a good importer. You have to be able to move goods across borders multiple times and at distances multiple times. So if infrastructure was important in the days of commodity exports to distant markets it's even more important if you want to capitalize on capturing value in today's global value chains and the fragmentation of production which is a point Mauricio made and didn't have time to elaborate on. So my net conclusion is this will require new thinking, new ways of thinking, new ways of acting if we're going to succeed. So with that let me turn to Mauricio and then we'll turn to the audience. Thank you Scott. Let me be brief. Just want to quick comment. I mean Ambassador Nelsa made a reference to the US and I think it's interesting when you try to compare the US with the region because that was one of the sources of my, of our inspiration with this book because I just happened to read that book by Albert Fischl on the railroads and the impact on the midwest. You know all that debate, you know the impact of the Erie Canal and things like that. And this was the 19th century and when we think about the region I think we have yet to, you know to have this kind of revolution happening. You know when you think about the center of the center west in Brazil, the Selva in Peru or the Sierra or the southeast of Colombia, you know if you really can get those kind of projects going you know you're bound to see a lot of the things you saw in the midwest happening in the west. Of course infrastructure is not enough. You know I'm not gonna, you know and Fischl is pretty clear about that. You know it was one of the factors and you need a lot of other things going on but without infrastructure I mean nothing's gonna happen. I mean that's for sure. That's a pretty clear result we can have. I mean if you don't really improve access to those regions there's no way you're gonna take advantage of the resources they have there and there's no way you're gonna improve the lives of the people that are living in those areas. My question to, I mean and I also wanted to thank the very generous comments by Barbara and Besson and Nelson. The book is not that good I'm sure you know. You know a lot of things we couldn't do. There are a lot of you know methodological problems that we couldn't solve. So we very much welcome people to you know jump on board and criticize and make the same. Moving on you know and I think it's critical to have better policy making. We need better data, better analysis and this is clearly lacking in the region particularly in this area. And finally just a question for Besson and for Barbara. Just a quick comment about how do you see how do you see infrastructure in Latin Americans? What would be the main obstacles that need to be addressed when you think about you know Latin American in general? It would be financing, it would be you know something along those lines. Well it's a combination of things. Financing is part of it. I really think that however the biggest challenge has to do with that with your final point about the capacity of governments to implement projects and the ability and it's not necessarily reflection on the abilities of specific officials. It's challenging. I mean there are, it's not easy to reconcile the competing demands for the financing but also to reconcile the competing concerns and that always arise with a big infrastructure project you're moving earth, you're displacing people, you're interrupting, you're putting somebody in a worse situation than they were before and they will protest. And you know in the view of you know the goal is the greater good but there's always gonna be somebody who's ox is Gordon so to speak and that's a challenge for democratic governments around the world including in Latin America. So I think that that sort of the implementation piece of it is in my view the single biggest hurdle although the other pieces of it the technology in some cases the cost are also hurdles. No I think that Ambassador Nelson hit the nail on the head so the top of the initial reaction would be access to financing because you do see a huge financing gap when it comes to infrastructure projects and you see it even in projects that seem sort of on the face of it to be very lucrative and we've seen some of those in some of the large countries in Latin America recently where you think oh this is great they're putting out this big project for concession and then nobody really bids. So I think that one of the issues that was mentioned the inability to write contracts in a way that satisfies both the private sector or provides incentives to the private sector and addresses public sector or public goods is important and I think the inability to come up with vehicles that address these issues and so obviously moving people and moving around the environment is very very important but there should be ways that governments may be working with regional bodies and with each other and the working with each other is a really big sticking point in this region where projects of this scope and this duration really need very often transporter cooperation particularly if they're infrastructure projects that are geared towards integrating more with the rest of the world. We should be able to figure out how to structure vehicles such that the losers are compensated, the damage is mitigated and you manage to come up with some sort of a compromise of building infrastructure while not doing too much harm. So that can be your next book. Thank you. Let me open the floor to questions. Before we start, there are three rules to follow. First, if you have a question, wait to be called on, wait for the microphone. This program is being webcast live and the people who are watching this online won't be able to hear your question if you don't wait for the microphone. Second, start off by introducing yourself and identifying your organization. And the third, which I always use in a Washington audience is what I call the Alex Trebek rule which is make sure your question is in the form of a question. No statements please. So with that, let me open the floor to questions. Yes, sir. Good morning. My name is Landon Loomis. I'm with the Department of Commerce. Thank you very much for your presentation. I think it was very interesting that you talked about that a lot of the trade is concentrated where the costs are lowest now. So presumably the benefits would be from moving existing trade elsewhere or generating new trade by lowering the costs outside of the traditional areas. So my question is, to what extent do you think that the current export centers, the incumbents, would see infrastructure investments as a challenge to their dominance of the trade routes and in terms of getting these projects through a political process, do you see any possible obstructions there? We can get a couple more questions while we're here and then go around. So sorry for being unclear about that. There's one here and one over the other side. My name is Sushil Kumar. I'm representing SAE Towers, which is a subsidiary of an Indian company. We have got factories in Mexico and Brazil and we export a lot of our products in Latin America and Caribbean as well as in America. I could not stop myself from comparing Latin America with Africa where I have a lot of experience. And when I compare Africa, I must say that Africa seems to be pretty much diversified. I mean, you look at Africa continent out of 54 countries, nearly 30 countries speak French. And so there is a clear Anglophone and the Francophone countries in Africa. So, I mean, they still have a similar problem of transportation. The cost of importing a car from Tokyo to Kenya and Nairobi is approximately the same if you've transferred the same car from Nairobi to Senegal in Dakar and the Western coast. And this is exorbitant. So, but Africa has come over the solution. I mean, they developed regional economic communities based on political similarities, political affiliations. So you have Eastern African community in East Africa. You have Southern economic community in Africa. You have West African economic community in Africa. My question is that, and these African community countries, they use the same port and there is no trade barrier within the countries falling into the trade economic community. So my question to you is that, are there economic communities in Latin America as well which are grouped together and which encourage international trade within the continent? Thank you. Thank you. We'll take one more question over here and then we'll come back for more. Hello, Matt Halase with ACOM and I've worked on quite a few different infrastructure projects in Latin America. Thank you very much for the research and just looking at the analysis you've done, it does seem that the region with the biggest challenge in South America is the Northwest of Brazil and everything to the East of the Andes in Peru and Columbia. And I guess that's hardly surprising. Your analysis seemed a little bit focused though on national access to export markets. Obviously, I mean you work for IDB and IDB was a supporter of the IASA project across the Andes. To what extent do you see a regional integration through infrastructure and reduction of tariff barriers to provide access to the Pacific ports for the Amazon region as being a key driver of growth there as opposed to access to Atlantic ports within Brazil? Thank you very much for the questions. Yeah, I mean the first question about the sort of the political economy of that, I think there's no doubt that there's, I think the tendency of all those counters is of the political pressure is so big that they end up putting more resources and trying to solve the congestions in the big cities in the federal district, Mexico City in Sao Paulo and so on and so forth. So there's no doubt there is a challenge in there to try to move those resources elsewhere. And this trade-off between addressing congestion in the center of trying to solve the problem in the more remote regions, of course it gets worse if you just don't give enough priority for those projects. But I don't think there is a common interest even in the people in Sao Paulo or Lima or somewhere else of having better access to the other regions. First of all, because there's a lot of opportunities out there. It's not just, you know, it's not just regions that don't have anything that you can use. I mean, they have, in some cases, they have a lot of labor. When I think about the Northeast in Brazil, for instance, with all this pressure that the Sao Paulo manufacturing manufacturers are facing from China, why they haven't moved faster to the Northeast, for instance, which labor is one third cheaper than Sao Paulo, but they just don't do it because the infrastructure is terrible. There's a lot of logistic issues out there. You can think the same thing about the south of Mexico. Labor is much cheaper there, but it's not just labor. The center rest is huge agriculture resources out there. So I don't think that those people, the entrepreneurs in those big centers also see those opportunities there. You know, a way of take advantage not only of the natural resources, but also a way of trying to keep competing with, especially manufacturing with Asia, you know, with China and other countries in Asia, which, you know, you can underestimate this kind of challenge. With regard, I think that the question, the example of Africa and the issue that you raised about the answer, I think the questions, both questions, those two questions are related. And clearly, I think, it's sort of an answer to those kind of economies of scale and economies of scope you can have around the region. Of course, you can take advantage of that, of the proximity, try to concentrate some of the flows and some of the parts, and try to connect better those countries. And the bank has been supporting years as much as it could, but I'm a little bit skeptical that we would be able to move on this regional front without addressing, you know, the weaknesses, the deficiencies that we have at the national level. You know, the national bureaucracies have so many problems that they can even address, you know, the national, the local projects, let alone when you get into, you know, binational, trilateral kind of projects. So I think the idea is great, but I think we move perhaps too fast on that direction. And it's no surprise that, you know, we haven't moved in terms of IRSA. IRSA is this, for those that don't know, is this initiative for regional infrastructure in South America. There it is to have regional projects funded by countries in the region. And so we haven't moved fast enough because we don't have the bureaucracy to support those projects. So they cannot even deal with the law. So if we don't manage to strengthen these bureaucracies, this institutional framework that we have at the national level, I don't think we can be ambitious enough to think in terms of regional projects. And of course there are opportunities there. There's a Brazil access to the Pacific. And in some of it, it's already a reality. This inter-oceanic roads that were built in Peru, in the south, in the north, it clearly goes in that direction. But they take you to nothing in the Brazil side. I mean, the railroad didn't get there yet. So you need to, you know, it's clearly if the local thing doesn't work, you're not gonna have the regional side of it working. Yes, the political economy of the incumbents is not unique to Latin America. The drama in five acts at the Windsor-Detroit Bridge is an interesting case study where you have an incumbent owner of the Ambassador Bridge and I think seven separate political jurisdictions, all trying to build a bridge between Windsor, Ontario and Detroit, Michigan. So it's, the entertainment always continues. Yes, there was a question in the back, ma'am. Hello, yes, Sophie DeSource. Thank you for your panel. I'm following up in the PPI question that we had earlier. Did IDB by any chance try to look at creative ways, not only legally, but also financially? We talked about concessions. This is more of an antiquated PPP form of model, but have nations within Latin America and the Kirby and started looking at creative ways legally to provide for PPPs. And if so, what were the progress or the failures in this particular arena? Well, I think this is a very good question, but this is a question for our colleagues in the infrastructure department. It's not something that trade economists like me. I mean, I'm sure they are working on that, but I wouldn't know how to give you a good answer to that. There's a question here. Yes, sir. Take that one, this one and one across the aisle. Thank you. My name is Juan Penaireira from the GIC group. I want to connect it also to the panelists and to Maurice for his excellent work. And my question is, what are your assessments about Ecuador in the infrastructure? He has made some progress and what is your assessment about Ecuador? That's my question for trade. Thank you. Well, I would love to have an assessment about Ecuador, but we couldn't just get the data to, you know, to include Ecuador in the study. Well, just say that, I mean, it seems to me that, you know, it has the same kind of challenges that other Indian countries have. I mean, the geography, it's the challenge. It's, you know, Ambassador mentioned the hydrocarbon exports, which I think it's key for Ecuador. So I have no doubt that it's a very strategic issue for the country as it is for Peru, for Colombia. And, you know, and I would love to, at some point, have better data from Ecuador to give you a more precise question. But I have no doubt that, you know, it seems to be as important to Ecuador as to Peru or Colombia. So two more that we'll recognize here before we go. One right here, Pam. Yes. And then here. So wherever the microphones get. Hello, my name is Salamis Aliashvili. Ms. Katra, I had a question. You mentioned that certain contracts do not receive bids. Do you think it's due to the contract language or due to lack of confidence in the governments to uphold the contracts or corruption? And if it's a ladder, do you think there needs to be a PR shift from the government side? Thank you. So I think that's a very good question. Obviously there are many factors for why contracts, why projects might not get bids. In some cases, the language of the contract or the contract doesn't include sufficient safeguards from the government side. In some cases, the specifications aren't such. The timeframe and some of the specifications for the private sector don't give enough incentives for them to be able to participate. Obviously, government stability, I think it was Scott who mentioned the ability to know that the government that comes in next is going to carry out the same policies and that weighs heavily on investors' decisions. When we're talking about investments of 30 to 40 to 50 years, companies want to know that their rate of return is going to be reasonable for their investment. Corruption countries that are more corrupt obviously require a higher rate of return in order to invest and that has a cost for the project and that's a very important element to that. So I mean, all of the things that you point out, plus things like environmental considerations, the state of the workforce, the existing infrastructure and how that's going to play into the contract have an impact. And so just thinking about different aspects of existing infrastructure factors. I think how these are structured and I think that goes towards the creative thinking question that a lot of work is being done both in the private sector. I think the World Bank has some papers on this and are doing some thinking on this. But so how these projects are structured is an element and is something that obviously is beyond the scope of this paper. But you bring up some important points that I didn't mention in my remarks. Yes ma'am. Thank you. My name is Isabel Sapulvid. I'm with the US Trade and Development Agency. We've been talking today a lot about regional disparities within countries and the lack of institutional capacity of government officials both in the planning, implementation and procurement phases for infrastructure works. And so my question goes to what is your view on executing infrastructure development and planning and trade integration at the state level or municipal level rather than at the national level? My agency has done a lot of work at the state level, particularly in Brazil and in Mexico and we've seen more success just working with the governments at a lower level rather than at the federal level. And understandably all of the pieces have to link together but I'm curious if you have any thoughts on which level of the government you've been able to find more success with. I mean I think there's a lot of a heterogeneity across the levels of government and across municipalities and cities. And if you go to Lima, if you go to Sao Paulo you're gonna see capable public officials there. Not capable as we would like but in relative terms. But if you go to the more remote areas of the country, of the countries, it's clearly a disaster. I mean Peru has this exercise of decentralizing the infrastructure decisions and clearly the municipalities don't have the capability of designing, executing, implementing the projects. So yeah, I mean it's not enough to address the problem of the central government but it really needs to go at the lowest level of government to really get those projects going. Unfortunately we've run out of time before we've run out of questions but I think that speaks to the quality of the presentation and the interest in the topic. I wanna thank all of you for coming here today for your interest and your support of CSIS. Please join me in thanking the panelists.