Brazil’s infrastructure 2.0: Can Rousseff rouse the private sector?

Brazil’s infrastructure 2.0: Can Rousseff rouse the private sector?

Dilma Rousseff recently visited the US to attract private sector financing for her new infrastructure investment proposal. She made similar plans in 2012. Will investors bite this time? And will this help turn around the lagging Brazilian economy?

On Tuesday, June 30, Brazilian president, Dilma Rousseff, met with 400 US and Brazilian investors in New York with the purpose of boosting investment in Brazil’s infrastructure as part of a large public concessions project, announced in the early days of June.

The project estimates that BRL 198.4 billion (USD 64 billion) will be invested by the private sector in four main areas: roads and motorways (BRL 66 billion), railways (BRL 86.4 billion), ports (BRL 37.4 billion), and airports (BRL 8.5 billion). Investments are scheduled from 2015 to 2019, with the first motorway auctions occurring in the second half of 2015.

Financing Brazilian infrastructure 

The Brazilian economy depends on a well-functioning network of roadways, and with almost 62% of every product produced in the country transported on roads, they provide an attractive opportunity for investors.

Five of sixteen roadway concessions are expected to take place in 2015, totaling a range of 4,400km. The majority of this infrastructure is being purposely built to transport soy and grain products, which will drive production and exports to accessible northern ports rather than the larger, more congested ports in southeast.

Although the public concessions project is touted for investors, Rousseff must prove that the government is willing to make the concessions work. In 2012, the government launched a similar infrastructure program, which was expected to make concessions for 14 roads, totaling 7,000 km. However, since then, only 6 contracts have been signed because of long delays in the auction process and cumbersome state bureaucracy systems.

Investors may also find opportunities in four of the airport concessions planned for the cities of Fortaleza, Porto Alegre, Salvador and Florianopolis. The first rounds of concessions in 2012, which included the São Paulo (Guarulhos) and the Rio de Janeiro (Galeão) airports, was considered a success.

The government’s proposed investment of BRL 37 billion earmarked for shipping ports also appears positive for investors. Many approved concessions are already in construction and Rousseff’s recent announcement may accelerate more auctions, marking a positive direction for the sector.

However, railroad concessions pose a major Achilles’ heel to Rousseff’s proposal. Many of the plans announced represent either existing projects or projects with remote chances of success.

For example, the “bi-oceanic railway connection” between Peru and Brazil has been planned for construction through Chinese financing. However, the project has been mired in technical and financial feasibility studies and is unlikely to come to fruition.

Can investment turn Brazil’s economy around?

The infrastructure investment package marks a large combination of projects already under implementation with a very limited number of new project in the works. However, the package has been an attempt by Rousseff to combat the economic downturn Brazil has been facing in recent years amid dropping commodity prices.

In 2015, the economy is expected to shrink by 2% and consumer spending is expected to decline, with unemployment increasing to 6.4% in April. The current administration is hoping that the new infrastructure package will attract investment, helping to support local industry and compensate for any fall in consumption.

After documents were released by Edward Snowden in 2013 that showed the U.S. National Security Agency (NSA) had monitored her private communications, Rousseff called off her state visit to the United States. Now, a contracting Brazilian economy and mounting corruption scandals make her recent trip imperative; her visit to the United States is only the beginning in a search for new investors in Brazilian infrastructure projects.

Rousseff’s infrastructure investment proposal demonstrates a willingness to reengage the private sector in Brazil and offer support to country’s current economic situation. The burden of responsibility now lies in the hands of the administration, which will need to keep its promises and solve the problems that hampered the 2012 proposal.

About Author

Priscilla Negreiros

Priscilla Negreiros is a Master of International Public Management at SciencesPo Paris and she is a Bachelor in Political Science at SciecesPo Paris and International Affairs from the Pontifical Catholic University of São Paulo. She worked in international organizations, such as UNESCO, and has experience in Latin American studies and international trade. She currently works as International Business Analyst in Brasília.