Environmental conflicts
The region's rich biodiversity can present challenges for foreign employers, contractors and investors. Large-scale projects in Latin America frequently face opposition from environmental groups and local communities due to ecological issues, such as the degradation of ecosystems and pollution. The roots of these concerns can often be traced back to past environmental disasters or poor practices in previous projects in the region. These conflicts often result in work stoppages and increased security costs which, in turn, contribute to delays and additional cost on projects.
The Maya Train – Mexico's most recent flagship infrastructure project – is one such example where progress was impacted by frequent opposition from environmentalists and local communities, citing environmental issues such as the deforestation of the Yucatan Forest and the contamination of natural aquifers.
Social issues
Challenges also stem from social concerns, including the lack of adequate compensation for local communities adversely impacted by projects through forced relocation or alterations to their traditional way of life. Conflicts surrounding these social issues often escalate into hostile confrontations, which can substantially disrupt progress of key infrastructure projects and, in certain cases, even lead to their cancellation.
Unstable political landscape and legal uncertainty
Political instability in the region can trigger frequent changes in government, each with differing priorities. New political administrations often enact legislative and permitting changes, introducing legal uncertainty and institutional decision-making stagnation. As a result, infrastructure projects experience disruptions, causing delays, cost overruns, and financial losses.
In addition, high levels of corruption in the region create uncertainty for foreign players and can significantly increase project costs. Studies indicate that contract renegotiations involving bribes lead to substantially higher expenses: a 2021 study on the Odebrecht case indicated that renegotiations in projects involving bribery experienced an 18.9% cost increase, compared to just a 4.1% increase for projects without allegations of bribery.
ESG reporting and compliance gaps
The environmental, social and political challenges set out above also make it difficult for foreign companies to comply with both their own ESG requirements as well as those imposed by lenders.
Notably, a significant proportion of Latin American companies do not have formal sustainability policies, with only 46% reportedly having such frameworks in place. The lack of standardised ESG reporting frameworks creates complications for foreign firms seeking to do business with Latin American counterparties, while also meeting international compliance standards. Moreover, an estimated 60–75% of construction workers in Latin America work under informal conditions, with limited access to social protections. This widespread informality further increases compliance and liability risks for international players.
Financial pressures
Under-pricing is another recurring issue in Latin American construction projects. Contractors often underestimate the true costs of a project and submit unrealistically low bids to secure the project at any cost. One common cause of bid underestimation is a failure to adequately account for regional infrastructure deficiencies within the bid proposal, which can significantly stall project development and increase operational costs further down the line. By the time the project's true complexity becomes apparent, cost overruns have already become unavoidable.
For projects already in operation, uncertainty regarding applicable tariff rates can also impact the financials of a project. As an example, in recent years Colombian authorities have repeatedly frozen the tariff adjustment of toll roads, adversely affecting international concession holders.
Business continuity
From both a reputational and regulatory perspective, it is perhaps most important that any migration does not impact a bank's ability to continue to provide its products reliably and securely to its customers.
