Is South America’s infrastructure finally coming together?

The port of Chancay in Peru could become a key driver for the development of cross-border infrastructure. Chinese investment is playing an important role in this.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

When trucks travel westward from Brazil’s major cities to the Pacific cities of Peru or Chile, the journey takes a long time. There are only two or three overland routes via highways, each about 3,500 kilometers long. One southern route goes through Argentina to Mendoza and over the Andes to the Chilean port of Valparaíso. Further north, a road connection runs through Bolivia to the Peruvian ports. The pure driving time is, at best, 45 to 50 hours.

Along the way, vehicles must cross mountain passes over 4,000 meters high or take routes through the Amazon region, which are impassable for several months each year during the rainy season. If the border crossing in the Andes just past Mendoza is snowed in, the 1,300 trucks that cross the pass daily may have to wait several days until the snow is cleared. Accidents can also significantly increase travel time on the Bolivian route. The alternative, longer route that directly connects Brazil and Peru is rarely used. Additionally, some border crossings are closed at night.

The Andes and the Amazon region still divide the continent into two halves and pose nearly insurmountable obstacles. But that could now change for the first time. Brazil is currently working intensively on five “bi-oceanic corridors” between countries. These are large-scale road, river, and rail projects in various stages of planning and implementation.

With the initiative “Rotas da Integração Sul-Americana,” launched at the end of 2023, Brazil aims to connect its western agricultural region to the Pacific.

The most promising project currently is the “Amazonas Route.” It plans to use existing river routes to Peru and Colombia. In those countries, soybeans would then be transported by truck to Pacific ports. Two other routes aim to connect the agricultural and industrial regions of southern and southeastern Brazil to the ports of Chile and Peru.

These plans have existed for a long time. However, endless hurdles, high financing costs, and differing regulations among the involved Brazilian states and national governments have so far prevented the implementation of these ambitious projects.

What’s new are the sharply increased trade flows between South America and the Far East. Today, South America trades significantly more with Asia than with Europe or the USA. Chinese companies and South American farmers would therefore like to speed up and simplify the transport of agricultural goods between South America and Asia.

Currently, a container ship from the Brazilian port of Santos takes at best 35 days to reach China. The route goes around the Cape of Good Hope past Africa. The route through the Panama Canal is more expensive.

A new boost could now come from the recently opened port of Chancay, north of the Peruvian capital Lima. The Chinese investors and operators of the port aim to connect it with all countries via rail, river, and road—across the Andes and through the rainforest.

The more goods the operator Cosco ships through the port, the faster the $3.5 billion investment pays off. After all, the competition isn’t sleeping. Other Pacific ports in Chile (San Antonio, Valparaíso), Colombia (Buenaventura), Peru (Callao), and Ecuador (Guayaquil) are also investing to meet the demand for Asia-bound transport.

But behind Chancay stands China, a financially strong investor. The port and other Chinese infrastructure projects in Pacific countries are financed from Beijing through the Belt and Road Initiative (BRI). Colombia has now also joined China’s Silk Road initiative. Among the major Latin American countries, only Brazil and Mexico are not yet part of the Chinese infrastructure initiative.

However, this hasn’t stopped Brazilian President Luiz Inácio Lula da Silva from recently discussing the financing of a railway through the Amazon to Brazil’s agricultural regions during a visit to Beijing.

For South America’s economy, better integration would bring a significant productivity boost. The reason: In 2022, the share of intra-regional trade in Latin America and the Caribbean was only about 15 percent. By comparison, intra-regional trade shares in Europe and Asia are significantly higher, at 69 and 56 percent, respectively.