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2011-01-06

Brazil overcoming historical lack of infrastructure investment

By Nelza Oliveira for Infosurhoy.com— 06/01/2011

Highway, railway and air transport have the greatest deficits in infrastructure.

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Ten of Brazil’s 20 largest airports already are operating over capacity, and six are close to the limit, according to Carlos Campos, coordinator of Economic Infrastructure at the Institute for Applied Economic Research (IPEA). At Guarulhos Airport, in São Paulo, long lines of passengers could be seen on Dec. 23. (Fernando Donasci/Reuters)

Ten of Brazil’s 20 largest airports already are operating over capacity, and six are close to the limit, according to Carlos Campos, coordinator of Economic Infrastructure at the Institute for Applied Economic Research (IPEA). At Guarulhos Airport, in São Paulo, long lines of passengers could be seen on Dec. 23. (Fernando Donasci/Reuters)

RIO DE JANEIRO, Brazil – At least 20 years without investment in infrastructure.

Damaged roads.

Ports with the same size they had during the 1980s.

Fewer kilometers of railways in 2010 than during the 1960s.

This is the state of Brazil, says Carlos Campos, coordinator of Economic Infrastructure at the Institute for Applied Economic Research (IPEA), a branch of the Strategic Affairs Secretariat of the Presidency of the Republic.

Campos, along with associate Bolívar Pêgo, conducted the study “Economic Infrastructure in Brazil: diagnosis and perspectives for 2025”, presented at the Infrastructure Investment Brazil Summit, held from Nov. 29 to Dec. 1 in Rio de Janeiro.

“If the economy keeps growing around 5% per year, we may have enormous difficulties within three years to give flow to all international trade,” Campos says.

While the world watches Brazil in its preparation to host the 2014 World Cup and the 2016 Olympic Games, Campos said the country’s problems extend beyond getting ready to host two international sporting events.

“[The World Cup and the Olympic Games] are situations that will last a month,” he said. “But the bottlenecks, the deficiencies – we’re living [with these problems] today.”

Campos says the transportation industry is the sector that’s suffered the most from the lack of public and private investment.

About 60% of the country’s cargo is transported via highways, which need more than R$180 billion (US$108.43 billion) in construction and upgrades so they can handle the flow of traffic, according to the study.

The situation could be even worse if the government hadn’t transferred ownership of 858 kilometers (536.25 miles) of highways to the private sector, which turned them into toll roads, during the second half of the 1990s, according to the study.

Since then, more than 14,852 km (9,282.5 miles) of highways have been privatized – almost 9% of the 170,000 kilometers (106,250 miles) of paved roads nationwide. The worldwide average is 2%, according to the Brazilian Association of Cargo Transport.

Ten of the 20 largest airports over capacity

Air transportation is another sector that needs to be addressed, Campos said. Ten of the country’s 20 largest airports already are operating over capacity, and six others are close to the limit.

“Economic growth has incorporated into the air sector thousands of Brazilians who hadn’t used that kind of transport before,” said Ricardo Yogui, a consultant who developed the agenda for Rio’s summit. “The ideal solution would be a structure that could meet this demand and not try to restrain it.”

The Growth Acceleration Program (PAC), launched in January 2007 by the federal government, is Brazil’s main strategy to restart public investment and encourage private investment in infrastructure.

PAC’s first goal was allocating R$657.4 billion (US$396 billion) from 2007 to 2010.

The government achieved 94.1% of the goal, making investments of R$619 billion (US$373 billion) through Dec. 31, according to the most recent PAC report, released on Dec. 9.

The government also announced having concluded work on 6,377 kilometers of highways (4,000 miles) and 909 kilometers (568 miles) of railways, but the numbers didn’t come close to reaching the government’s 2007 projection of fixing 45,000 kilometers (28,125 miles) of roads and 2,518 kilometers (1,573 miles) of railways by the end of 2010.

The PAC also includes expanding and improving the capacity of 12 ports and 20 airports. In eight airports, projects are still in the planning stage. But in states considered of crucial importance for Brazil’s air traffic, such as São Paulo and Rio de Janeiro, work is under way.

“As to the air issue, there are no provisions yet for the private sector to take part [in investing],” Campos says. “There’s a lot of pressure, and it seems that the government is going to open the capital of Infraero [the state-owned company linked to the Ministry of Defense responsible for Brazilian airport administration] in order to raise funds in the private market.”

To ensure the PAC’s continuity during the next few years, the government launched PAC2 in March. Investments could reach R$958.9 billion (US$577.65 billion) by 2014, with an additional R$631.6 billion (US$380.5 billion) to be allocated beginning in 2015.

“We did something that Brazilian society hadn’t seen since 1975,” former President Luiz Inácio Lula da Silva said when the government announced PAC1. he added.

PAC is not enough

“The PAC still isn’t enough to remedy the deficiencies,” Yogui says. “In addition to the sporting events, we have the pre-salt exploration [the recent discovery of large oil reserves offshore, beneath the salt layer].”

Private investment was key to preventing total collapse in some areas, Campos said. In 1997, Brazil allocated nearly the entire railway system to the private sector.

“From 1997 to now, railway cargo transport rose from 15% to 25%,” he said. “Ten percentage points are quite significant.”

Ports are another concern

Eighty percent of all trading between Brazil and the international market in 2008 used the port sector. But the sector needs R$20.46 billion (US$12.32 billion) to cover its deficits and improve ground access.

“The administration of ports is public, but their operation is basically a responsibility of the private sector, which has invested heavily to modernize passenger terminals. So much so that, between 2003 and 2010, Brazilian international trade tripled,” Campos said.

The National Bank of Economic and Social Development (BNDES) estimates the country needs investments totaling R$1.6 trillion (US$936 billion) from 2011 to 2014 – about R$600 billion (US$361.44 billion) more than the amount invested between 2006 and 2009.

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