A lift for Brazil’s infrastructure
Investors are showing a surprisingly high level of interest in new concessions. The government now wants to increase the proportion of private participation in them.
by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung
After a long standstill, there is suddenly movement in Brazil’s infrastructure sector. For the first time in years, there have been lively bidding rounds in recent tenders. Among other things, they involved the connection of two important trunk roads from the agricultural regions to São Paulo and to the Atlantic ports. 14 companies and investment funds bid and drove up the premiums significantly. The companies pledged to invest around 3.6 billion euros in the expansion of the highways.
This is just the beginning. Above all, the government wants to increase private investment in roads, rail concessions and sewage systems. The government plans to auction off 35 tenders for trunk roads during its term of office until the end of 2026. There will also be five railway lines.
The great interest is surprising. After all, Brazil’s infrastructure sector developed far below its potential for almost a decade due to the Lava Jato corruption scandal. The construction companies involved at the time dropped out as investors. The pandemic and political turmoil led to a further phase of reticence on the part of private companies.
But now the framework conditions have changed: With the new tender law of 2021 (Nova Lei de Licitações e Contratos, or NLLC for short), concessions have been modernized. They are more transparent, more sustainable and the state assumes significantly higher risks than before.
In addition, the government of President Luiz Inacio Lula da Silva has hardly any funds available to finance state infrastructure projects. Financial investors now expect cuts in government spending – not further increases.
Brazil’s budget deficit has risen by around ten percentage points from 72% of gross domestic product (GDP) since Lula took office at the beginning of last year. Investors are already demanding high interest premiums to lend money to Brazil. The key interest rate is at an astronomical 10.75 percent – not good conditions for long-term investments.
At the same time, Brazil is investing less than half of what would be necessary just to maintain the existing infrastructure. Instead of 4-5 percent of GDP, less than 2 percent flows into the sector, according to experts from the consulting firm InterB.
In order to close the investment gap, the government is now relying primarily on private capital. The state development bank BNDES wants to increase the proportion of private concessionaires in tenders to 75% through financing. This year, the proportion of private investment in infrastructure has exceeded that of the public sector for the first time.
It can be assumed that new foreign companies will soon enter the scene: The more projects in the pipeline, the easier it will be to spread the costs of expensive participation in tenders. In addition, Brazilian investment funds in particular are emerging as new players.
There are many indications that Brazil is facing a new wave of infrastructure investment. This would be a good sign for the economy as a whole: After all, transportation costs are currently the biggest cost factor for the export economy.
