Sector is expected to receive injection of 1.95% of GDP this year, consultancy says
Claudio Frischtak — Foto: Leo Pinheiro/Valor
In a scenario that combines expensive credit and signs of a direction change in the energy and basic sanitation policies, the country’s infrastructure is expected to receive R$204.6 billion in investments this year, a nominal increase of 11.1% compared to 2022. Of the total funds, 65% will come from the private sector.
This is what shows the recently completed Carta de Infraestrutura 2023, prepared by Inter.B Consultoria Internacional de Negócios. The investments in electricity, transport, and basic sanitation could represent 1.95% of the GDP if the Ministry of Transportation fulfills its plan, says Inter.B. In 2022, investments in infrastructure added up to the equivalent of 1.86% of GDP. The consultancy’s calculations are based on a GDP projection of R$10.5 trillion, according to the March fiscal monitoring report of the Independent Fiscal Institution (IFI).
Telecommunications, the only segment to show a decline in the year-on-year comparison, is expected to receive a more substantial injection of capital starting in 2024, with the advancement of 5G implementation in Brazil. According to the survey, investments in the segment are expected to reach R$26.5 billion in 2023, a decrease of 2.2% in one year.
In electricity, investments are expected to grow 15.5% in nominal terms compared to last year; in basic sanitation, by 12.4%; and in transportation by 11.2%. “It’s not spectacular [a total increase in contributions], but it is progress,” said Cláudio Frischtak, president of Inter.B.
The uncertainties caused by regulatory unpredictability (such as the episode of the presidential decrees that change the sanitation framework, overturned by the Chamber of Deputies) and expensive credit are not strong enough factors to cause a “very significant” change in the commitments already made by the private sector, he said.
“Most of the funds that will be invested in 2023 are already available or contracted,” he said. In its survey, Inter.B looks at what is in capex and not the announcements of intentions to invest. These are commitments that do not change overnight.
However, less mature projects may be delayed. If they are still in the process of negotiating credit or hiring service providers, for example, they may move more slowly if interest rates remain high for longer, industry experts say.
Mr. Frischtak emphasizes that the country is not in a situation that will lead to a “dramatic change” or remapping of business companies already in operation.
“The logic in infrastructure is to contract investment commitments over time. There is no obligation to invest every year,” said Fernando Camargo, managing partner at LCA Consultores. So, companies can postpone the investment program assumed from one year to another if necessary – this is true for concessions and permits, he said.
Credit is not expensive now. But as infrastructure negotiations take longer due to the large volume of funds required, there may be a certain lag in understanding the impact of the more expensive credit scenario since last year on sectorial contributions.
“There are always projects that have a natural difficulty in mobilizing the necessary funds. Even if a cautious reduction [in interest rates] is expected in the coming months, the current level is causing difficulties that have been dragging on for a few months, and may start to emerge now,” said Eric Brasil, a partner at Tendências Consultoria.
The government’s signaling to resume spaces in infrastructure is a point of attention to observe as well as the interest rate level. “If history is any guide, the private sector has propped up investment in infrastructure in the country. I don’t see a scenario in which government contribution was enough to overcome any difficulty in the private sector.”
According to Inter.B, R$132 billion of the total investment planned for 2023 will come from the private sector. Government contribution, concentrated in transportation and sanitation, is projected at almost R$73 billion.
The so-called Transition PEC (proposal to amend the Constitution) has opened up fiscal space for federal government investments, most of which are expected to be spent on highways. The transportation sector is expected to receive an injection of R$67.5 billion this year. “The question, however, is the execution capacity of the DNIT [National Department of Transportation Infrastructure],” Mr. Frischtak said.
It is about the ability to “adequately manage funds, plan, contract and evaluate the quality and integrity of investments carried out by third parties” – an old bottleneck in the country.
Inter.B projects a 1.5% growth of the Brazilian economy in 2023, slightly above that estimated by other agents, and Mr. Frischtak evaluates that the demand from companies and families could encourage some segments.
In transportation, for example, there is a growing need for logistics services in railroads, highways, or waterways, motivated mainly by the demand for agribusiness. According to the National Supply Company (Conab), the country will need to transport and store 314 million tonnes of the 2022/23 harvest, which exceeds the previous one by 15%.
“This is direct demand,” Mr. Frishtack said. Another example is the improvement in the population’s income, which can have a positive effect on other segments, such as air transport.
However, in 2023, as in recent years, electricity will still be the flagship of investments. The sector will receive just over R$86 billion – almost R$77 billion from the private sector. The funds are directed mainly to generation due to the expansion of renewable energies, especially solar, which is growing fast. According to Inter.B, renewable sources will account for more than 92% of the energy supply in 2022.
A point of attention because it could halt some investments in the coming years, recalls Mr. Camargo, of LCA, is the definition of rules by the federal government for the renewal of concessions by distributors. At least 20 contracts will expire by 2031, including those of companies such as CPFL, Energisa, and Enel. This is also the case of Light, which is in a court-supervised reorganization.
The legislation allowing the full opening of the free power market, which is stalled in the National Congress, is also an agenda that needs to move forward to encourage future investments.
In basic sanitation, the investments estimated at R$24.4 billion result from the effect of the new legal framework of the sector approved in 2020, says the document. According to Inter.B, the new legislation “imposes a rapid expansion of investments by concessionaires” so that the proposed targets are achieved by 2033.
The goal is for 99% of the population to have access to drinking water and 90% to sewage collection and treatment. According to a study published in March by Trata Brasil Institute, nearly 35 million Brazilians do not have access to drinking water, and approximately 100 million Brazilians do not have access to sewage collection.
The federal government, however, presented decrees this year that were barred by the Chamber of Deputies. The sanitation framework sets a deadline for companies to demonstrate their investment capacity or face the loss of automatic contract renewals.
According to LCA Consultores, some of the projects of companies studying new concessions could be halted as a result. “Companies managed by the states haven’t been able to meet their investment commitments for some time and the regulatory agency doesn’t exert pressure because it has no mechanisms to force the company to invest,” Mr. Camargo said.
Por Érica Polo — São Paulo
Source: Valor International