In the middle of a huge coastal plain, covered by palm trees and abandoned pastures, a bridge heads towards the sea. Seen from above, the 2.9 kilometer concrete and iron structure seems lost in the middle of nowhere. There, in a remote point in the city of Sao Joao da Barra, on the northern coast of Rio de Janeiro, the Açu super port, a work by LLX, logistics branch of billionaire Eike Batista's business group, is being constructed. The project, budgeted at 3 billion reais, is just the tip of an undertaking that could be much bigger. If Eike's plans come true, two steel mills, two mining companies, a metalomechanical center and even an auto industry will be installed around the port. Together, these companies will demand investments of 40 billion reais. "Açu is the backyard of the Campos Basin," says Otávio Lazcano, president of LLX. "Besides the possibility of exporting oil, we are creating a new route to ship iron ore from Minas Gerais abroad." It is estimated that the complex can generate 50,000 jobs in the region of Sao Joao da Barra - which, according to a company projection, will demand construction of a new city next to the port to house 200,000 inhabitants. |
The most auspicious scenario in the present and, mainly, the expectation for much better days in the future, is the conclusion of a series of studies conducted by specialists in the area. An exclusive survey by EXAME Infrastructure Yearbook 2009-2010 identified 1,200 works underway or in project design and budgeted at 332 billion reais. Several dozen undertakings exceed 1 billion reais in investments - the biggest, expansion of the Sao Paulo subway, will consume 23 billion. According to the Brazilian Association of Infrastructure and Base Industries (Abdib), public and private investments in the sector more than doubled from 2003 to 2009, from 31 billion to 64 billion dollars. Still less than the 100 billion pointed out by the association as the minimum needed for the country, the drive seems to be showing results. A study by the World Bank in 155 countries with more than 1000 international logistics operators showed that Brazil's infrastructure jumped from 61st to 41st from 2007 to 2009, one of the biggest advances ever recorded in the ranking. The Deloitte consulting firm estimates that this year the country should already invest 100 billion dollars in infrastructure and 140 billion in 2012. These numbers are in line with the needs pointed out by the Standard & Poor's risk classification agency that estimates investment volume in infrastructure over the next five years at around 500 billion dollars, including expenses on sports installations and other improvements for the 2014 World Cup and 2016 Olympics Games. If confirmed, the country shall advance in the international front. Today, Brazil is ranked tenth in total investments, taking into account not only infrastructure works, but also the industrial and civil construction sectors. The LCA consulting firm estimates investments will exceed the current 261 billion dollars, reaching 1 trillion in 2020. The country could then be the fourth largest job site in the world - in line with the perspectives of becoming the fifth global power.
In the past, Brazil has alread flirted at times with sustained growth, but it systematically let the opportunities slip through its fingers. But, advances in the economic system over the past two decades seem to indicate the current moment is on a more solid foundation. In recent years, except for 2009, marked by global retraction, Brazil again began to record growth at a pace greater than 5%. That is fundamental, because there is a direct correlation between a stockier economy and more investments in infrastructure. Strong growth perspectives instill trust in investors, without which there is no investment in works that take years, if not decades, to generate returns. It is not surprising that a large part of Brazil's road and energy base was constructed in the 1970s, precisely when the country began to grow at the pace of China. At the time, rates were recorded for years of more than 20% of GDP invested in the so-called formation of gross fixed capital, a term that summarizes expenses on machines, equipment and construction. Since the 1980s, this rate varies with the economy's mood. In 2009, the formation of gross fixed capital fell below 17% of PIB, but this year the country is projected to invest nearly 20% again, which has not happened since 1994. According to LCA, starting in 2012, the country will have investment rates of more than 20% of GDP. It is exactly what is about to happen that characterizes the moment as a cycle capable of influencing the country's economic performance. According to the EXAME Infrastructure Yearbook, nearly 40 billion reais will be spent on concluding 515 works until the end of 2010. This year, another 300 works will be initiated, which together shall move more than 52 billion reais. "Brazil has never been so close to taking flight in an area marked by despondency for so long," says Anand Hemnani, vice-president at the American consulting firm CG-LA. Recently, the National Bank of Economic and Social Development (BNDES), the country's main funder of works, mapped out investments until 2013 and identified 274 billion reais destined for electric power, telecommunications, sanitation and logistics.
A core element for those who bet on a new investment phase in the country is the perspective of more money being available. The government alone does not have the needed funds. The State also seems incapable of managing projects and executing large works - despite all the advertising involved. There are also recurrent claims of corruption involving public works, which results in their being - correctly - stopped. According to government data, just 40% of the Growth Acceleration Plan (PAC) works, launched in 2007, have been concluded thus far. The independent site, Contas Abertas, gives another number: 11%. Nevertheless, a second edition of PAC was recently announced with the fanfare typical of election years. At present, according to an EXAME study, there are 731 large works already initiated, totalling 149 billion reais. The public sector itself responds for 8% of that total. The remaining 92% is divided into works executed exclusively by private companies or in the form of concessions and partnerships with the public sector.
Fortunately, in the world today, there is a large stock of money managed by professionals who are beginning to see opportunities in the needy Brazilian infrastructure. These funds have a vocation for a predictable and long-term return on investments - characteristic of well organized projects in this sector. The sovereign wealth funds constituted by governments of countries that accumulated reserves with exports, such as the Arab nations and China, are one of these sources. The Chinese sovereign wealth funds alone total 2.5 trillion dollars - most of which is invested in American securities. Since the profitability of these securities is very low today, managers are considering diversifying their investments. "If 1% of this Chinese capital came to Brazil, that would be 25 billion dollars, a huge sum. But we think more will come," says Amorim. Besides that big pot, there are another 2 trillion in sovereign wealth funds from countries in Asia and the Middle East. In March, Previ, the pension fund for Banco do Brasil employees, signed an understanding with Qatar's sovereign wealth fund, whose assets total 50 billion dollars. The Previ Board also met with representatives from a Chinese sovereign wealth fund, which owns 300 billion dollars. "The objective is to exchange information concerning possible business here and abroad. But the focus will be on our infrastructure," says Fabio Moser, director of investments at Previ. With or without international partners, Previ plans to invest 7 billion reais in the sector, mainly in energy projects, by 2016.
The situation created by the global crisis favors Brazil another way as well. Infrastructure has recently become the salvation for rich and large emerging nations fearful of the crisis' effects. China, United States and the European Union announced stimulus packages focused on infrastructure that total more than 1 trillion dollars. But they all decided to invest government money to carry out the large works. This move by the State has left the private sector without investments in the area. "Private investors seek opportunities in emerging markets due to a lack of options in their own countries," says Artur Simonson, director for infrastrucutre at Standard & Poor's. This movement can already be noticed. In January, the Australian bank, Macquarie, manager of 319 billion dollars in assets, created an infrastructure fund in Mexico with capital of 408 million dollars. Macquarie is apparently prospecting in Brazil. The American fund, Global Infrastructure Partners, with investments in energy, transport and sanitation, also has an eye on the country.
While foreign investors don't arrive in force, the new cycle of Brazilian infrastructure has been essentially run with national capital. In the public front, BNDES is the large provider of funds. In 2009, disbursements to the area totalled 48.6 billion reais. On the private side, private equity funds begin to emerge. "The highs and lows of investments in infrastructure in Brazil did not permit a continuous flow of projects. Without that, there was no interest on the part of investors," says Ricardo Bisordi, president of AG Angra, manager of a 700 million real fund that has already bought shares in five companies from the sanitation and logistics sectors. "In 2011, we should set up a new fund for infrastructure," affirms Bisordi. Pátria Investimentos is also reaffirming its bet on the sector as it is in the funding phase for a second fund dedicated to infrastructure. The portfolio is expected to reach 1 billion dollars - the most part from foreign investors. "Infrastructure funds are a new investment class for us," says Octavio Castello Branco, a partner at Pátria. "Five years ago, it didn't even exist in Brazil."
As with everything involving infrastrucutre, problems won't go away over night. Current and coming generations will have to pay for decades of paralysis. It is not enough for a port to be efficient in cargo movement if the railways and highways that lead to it are unable to quickly flow products that enter or leave. "It's a schizophrenic situation in Brazil. There are areas where investments in infrastructure are taking place, but their effect will be limited by those areas where there isn't any," says Richard Dubois, partner at the consulting firm PricewaterhouseCoopers. This unevenness is evident in the case of the Santos Brasil container terminal at the port of Santos, the largest in the country. Ever since it won the right to explore the terminal in 1997, the company has already invested 1.2 billion reais to accelerate loading and unloading operations. This money made container movement speed multiply, from 11 to 132 containers per hour. However, there was one problem: even after loading, ships wait for hours before sailing due to the bottlenecks to access the port. "It never ends. Just changes places," says Antonio Sepúlveda, president of Santos Brasil. This case also illustrates another notable difference: that which is in the hands of private enterprises moves quickly, whereas whatever is left to public authorities is dragged out. The good news for those who operate in Santos is that at least one old demand - which is the government's responsibility - is about to be solved. Two Chinese ships began to dredge the port in February to increase canal depth from 12 to 15 meters, which will permit entry of cargo ships capable of transporting 30% more cargo. "By 2024, we should be able to move 240 million tons, almost three times current volume," says José Roberto Serra, superintendent of the port of Santos.
It is worth examining lessons from the past in this new phase of Brazilian infrastrucutre. Countless works in their final phases today are projects that had been stopped in the middle, perhaps the worst display of disrespect for the taxpayer. The Tucuruí locks are a perfect example. Like ship elevators, these locks should be inaugurated in 2010, almost 26 years after the hydroelectric plant by the same name started operations in Pará. The works will permit commercial navigation again on the Tocantins Rivers, interrupted since inauguration of the plant. Another work taken out of limbo is the Trans-Northeastern railway. The line was so degraded it stopped operating the past ten years, disconnecting the states in the northeast from the rest of the country's railway grid. "Nothing came below Recife by train," says Tufik Daher, president of the New Trans-Northeastern concessionaire controlled by CSN. A new route was designed four years ago, but the money to resume works only began to be released recently.
At the same time the stock of unfinished works is being cleared, projects conceived for Brazil in coming decades are beginning to get started. There is no lack of opportunities, from subways and trains to major cities to roads and railways to every corner of the country. Works such as the high-speed train to connect Sao Paulo to Rio de Janeiro or the East-West railway, which will bring soy bean from the west of Bahia to the port of Ilhéus, are ready to begin their tenders. They may need to go through the same calvary as other works in the country before becoming reality. Just take a look at the mess involving the auction to build a new hydroelectric plant on the Belo Monte waterfalls on the Xingu River in Pará. This controversial plant - if realized, will be the third largest in the world in generation capacity - suffers from governmental errors, stemming from the hurry to incorporate the work to election campaign advertising, and with questioning from the Attorney General's office, environmentalists and Indians and river peoples who will be affected. Actually, the environmental knot may be the biggest obstacle for the works good progress. The country still needs to decide what can be done, where and how - and from that point on, allow that which is permitted by law to happen.
There are at least two other obstacles to the success of this decade of infrastructure. One is the bias in relation to private capital, and even more so if it is foreign. Less ideology and more pragmatism in relation to how to take advantage of money from those who only want to do good business is not only desirable, but indispensable. Furthermore, the country must quickly define clear and stable rules for all sectors. It is no wonder that the infrastructure areas that progressed most in recent years were those where the government simultaneously elaborated regulations and admitted greater participation of private capital, whether through concessions or partnerships. Analysts are unanimous in affirming that the country's biggest infrastructure bottleneck is in the airport sector. "There is a world of things to do at Brazilian airports. The situation at Guarulhos is absurd," says Giovanni Fiorentino, partner at the consulting firm, Bain. The sector's biggest problem? Precisely the maintenance of a state-owned monopoly, Infraero, a company that accumulates suspicions of misue of public monies and sits back watching the over-crowded airport lobbies. Likewise, sanitation, despite the general law approved three years ago, still depends on eliminating government restraints, from the federal to the municipal, and because of them, private companies have been able to penetrate very little into the supply of services. The sector has only invested one fifth of the needs estimated at 10 billion reais per year. In a survey conducted by EXAME with consultants about six sectors of infrastructure, only energy received a green light as to the level of investments underway. Highways, railways and ports were considered to be in reasonable conditions. Airports and sanitation, obviously, received failing grades.
Infrastructure is not exactly the most charming area of the economy. Besides engineers, most prefer not to spend their time discussing the perspectives of the pig iron market or the problems in supplying heavy iron bars. But few things could be more important to a country. Over recent days, Brazilians were shocked by the sequence of horrors caused by the floods that devastated Rio de Janeiro. Besides the material damage, problems for the every day lives of citizens and impediments for company activities, there was something worse: a list of 250 human lives that were lost. No nation is free from suffering from natural cataclysms - recently, the eastern United States was also hit hard by floods. But the amount of damage resulting from these episodes varies directly with how prepared the countries are in dealing with them in diverse aspects, from social organization to their stage of infrastructure development. The earthquake that rocked Haiti made more than 200,000 victims and brought an already devastated economy to its knees. A short time later, Chile has hit with similar intensity. Fewer than 700 people died. Brazil is not Haiti. Pieces of it, like the Morro do Bumba in Niteroi, the mile long lines at airports, lack of roads, absence of sanitation, inefficient ports, are. Development depends on eradicating that face of the country. The time may have at last arrived.