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Carlos Antonio Rocca — Foto: Silvia Zamboni/Valor
The surge in Brazil’s investment rate between 2016 and 2021, to 19.2% from 15.5% of the GDP, is due entirely to the increase in the private sector’s slice, whose rate rose to 17.5% from 13.6% of the GDP in the period, while public investments shrunk to 1.64% from 1.93%, the same level as the previous two years. The estimates for 2020 and 2021 are from the Center for Capital Market Studies at the Economic Research Institute Foundation (Cemec-Fipe), based on data from the Applied Economics Research Institute (IPEA), the National Accounts of the Brazilian Institute of Geography and Statistics (IBGE) and the National Treasury.
Cemec recalls that, since 2018, investment rates reflect the impacts of oil rig accounting criteria, in addition to changes in relative prices of gross fixed capital formation (GFCF) and the GDP in the period. “Cleaning up” the data from these effects, based also on a paper by economist Gilberto Borça published in Valor, Cemec estimates that the private investment rate, in relation to GDP, rose 2.9 percentage points between 2016 and 2021, above the 2.7 points growth of the total rate.
Three-quarters of this increase occurred between 2019 and 2021, when the private investment rate, with adjustment, advanced two percentage points of the GDP. At that time, Cemec notes, the growth rate of the GFCF index reached 8% per year, almost double of what was seen in the entire period from 2016 to 2021 (4.5% per year), despite a sharp drop in 2020. “My interpretation is that this is an investment recovery cycle that began after the recession started in 2014, in 2016-2017, was interrupted by the pandemic shock in 2020, but then recovered strongly,” Cemec’s coordinator Carlos Antonio Rocca said.
The study suggests that the increase in private investment has been concentrated in agribusiness and the construction industry. In the period from 2016 to 2021, the physical production of agricultural capital goods and their parts grew 3.9% and 7.3% per year, respectively, only below the capital goods for the construction industry, whose production advanced 11% per year.
This performance was strengthened in the 2019 to 2021 period, rising to more than 18% per year in the case of agricultural capital goods and parts, and to 16.6% among construction capital goods. The housing industry was favored recently by household spending on renovation and maintenance in the pandemic and, mainly, by falling interest rates and the drop in financing costs for construction and selling of residential properties. The production and investments in agriculture had a strong incentive from the increases in prices of agricultural commodities and the exchange rate, says Cemec.
Mr. Rocca – who, at Cemec, closely follows public companies in Brazil – also notes that since 2018 the rate of return on total capital invested by these companies was very close to the weighted average cost of capital, but in 2021, this rate of return has improved a lot. “The relevance of these data is that one of the important elements for making the decision to invest is to knowing how the return on this invested capital will be,” explains Mr. Rocca.
Given the financial constraints on public investment, there has indeed been an effort by the government to adopt a privatization and concessions agenda as an alternative, said Manoel Pires, coordinator of the Fiscal Policy Observatory at Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV). But there are also, he says, some statistical and/or temporary effects that help explain the recent boost in private investment.
Besides the internalization of the oil rigs, which do not present new investments, Mr. Pires notes that the inflation of investment goods was higher than that of the GDP. “When you take the value of investment and divide it by the GDP, the investment rate goes up, but the price effect is not exactly new investment,” he says.
Looking ahead, Mr. Pires says that with the rise in interest rates, the trend is that construction, for example, will no longer be such a strong factor in the growth of private investment. Another element that may have helped explain the higher rates, according to him, is that many businesses needed to invest to adapt to the pandemic and continue producing, what could tend to create a temporary effect of increased investment. “We will have to wait a bit to better evaluate the trend, but these questions serve to say that it is difficult to see we are living a new cycle of investments with the information we have now, that can raise the growth of the economy,” he ponders.
In a recent report, Inter B. Consultoria, headed by economist Claudio Frischtak, said that Brazil still invests little in infrastructure specifically. “In recent years, less than 2% of the GDP – and we have not gone beyond 1.73% in 2021,” he said, projecting 1.71% for 2022. Inter B. sees room for more public investment in infrastructure – which is expected to decline to 0.57% of the GDP in 2022 from 0.59% of GDP in 2021, the consulting firm estimated – provided it is based on a government reform that creates fiscal space for a responsible expansion of resources, with “a new governance, with better planning, and less discretion.”
Source: Valor International