Brazil outlines $65bn infrastructure package
Dilma Rousseff stepped up her campaign to rescue Brazil’s flagging economy, announcing an infrastructure package worth almost R$200bn ($65bn) on Tuesday.
Brazil’s president outlined plans to sell to the private sector new concessions to build and operate nearly 7,000km of roads, as well as four large airports and a number of ports and railways. Ms Rousseff said the aim of the package was to “invest to revive economic growth”.
“A very important characteristic of most of these concessions is that they have been offered in response to very clear demand from the private sector,” she said at a ceremony in Brasília, the capital.
The plan, equivalent to about 3.5 per cent of gross domestic product, comes as Brazil’s economy lurches towards recession, with industry contracting and the construction sector reeling from a corruption scandal at state-owned oil company Petrobras, the country’s biggest corporate investor.
Anfavea, Brazil’s national carmakers association, said this week that production would fall nearly 18 per cent this year, which would be the worst downturn since 1998. Carmakers have slashed 9 per cent of their workforce over the past 12 months.
With its credit-fuelled consumption boom exhausted, economists have been calling for Brazil to raise investment, which is among the lowest of the major emerging markets.
Presenting the infrastructure package, Nelson Barbosa, Brazil’s planning minister, noted that production of grains had doubled between 2000 and 2014, airport passenger numbers grew 2.5 times and the number of vehicles on the roads nearly trebled — putting huge strain on creaking infrastructure.
Under the package, Brazil will offer concessions worth about R$66bn for roads to connect soyabean growers of the interior to ports, R$86bn for railways, R$37bn for ports and nearly R$9bn for airports, including for the cities of Salvador, Florianópolis, Fortaleza and Porto Alegre.
The package also highlighted a plan agreed previously with China to build a $40bn “bi-oceanic” railway connecting Brazil with the Pacific through Peru.
The government will also seek to cut subsidised credit by promoting schemes to encourage winners of the infrastructure concessions to issue domestic bonds.
Ricardo Arten, head of APM Terminals in Brazil, welcomed the package, which included port projects that had been announced before. But its success would depend on execution. “That’s our main concern, whether the government will be fast enough in approving projects or doing bids at the right time, because there is no lack of money in Brazil, there are many people, they do want to invest and APM Brazil is one of them,” said Mr Arten.
In the past, the government has tended to bankroll projects via its development bank in return for concession holders agreeing to suppress tariffs and returns — an arrangement that had deterred many investors.
João Augusto de Castro Neves, analyst at Eurasia Group, called the infrastructure plan a “positive step”, particularly the efforts to reduce the dependency on the development bank. “But there will be a lot of hurdles in the near-term,” he added.
João Pedro Ribeiro, economist with Nomura, praised the willingness to open up to the private sector, while noting that the plan was partly a repackaging of a programme announced in 2012. He also said it would face challenges given the fallout from the Petrobras scandal and other funding issues.
Alberto Ramos, economist at Goldman Sachs, said the government should continue to focus on its macroeconomic adjustment plan to restore balance to the budget and cut inflation. “If the adjustment is properly done, growth will follow,” Mr Ramos said.