July 19, 2016

Infrastructure Investment in Brazil continues to lag other Countries

Brazil has a long history of underinvesting in infrastructure and logistics resulting in what is referred to as the "Brazil costs." These are the cost incurred by business due to a lack of railroads, a poor highway system, congested ports, high taxes, onerous labor regulations, multilayered bureauceries, etc.

This infrastructure deficiency was highlighted on a recent study conducted by the National Confederation of Industry (CNI). According to CNI, over the past twenty years, Brazil has invested slight more than 2% of their GDP on infrastructure improvements. From 2001 to 2014 the average investment was R$ 967 billion per year or the equivalent of 2.18% of GDP. CNI feels that the minimum should be 3% and if Brazil wants to keep pace up with other emerging countries, it should be 4% or 5% of GDP.

In a recent ranking of public work projects in 189 countries conducted by the World Bank, Brazil ranked 169th, while neighboring Chile and Peru ranked 24th and 48th respectively.

According to economist Claudio Frischtak from CNI, it is indisputable that Brazil invests little in infrastructure and what is invested is done poorly. Frischtak contends that there is a lack of commitment on the part of the federal government to focus on infrastructure. Additionally, the bureauceryies in Brazil and the various regulatory agencies seem to be more interested in assisting local politicians than in the overall infrastructure improvements.

Pubic work projects take an extraordinarily long period of time to be completed in Brazil. Many projects start-and-stop depending of funding from Brasilia. These delays are impediments for private investors because they delay the potential return on investment.

Going forward, CNI envisions less infrastructure projects being done by the government and more being done by private companies with public funding. The study indicated that in 2014, 54% of the projects in infrastructure were done by private companies with money guaranteed by public banks through subsidies from the federal government. Of the total funding, 83% of the loans for public work projects come from the federal treasury.