Abdib indicates an increase in investment in 2022, but the volume falls far short of what is needed
11/21/2022
The infrastructure sector could generate R$173.1 billion in new private-sector investments by 2027. Projects auctioned since 2019 account for R$96.2 billion of that. The remaining R$76.9 billion would come from auctions to be held in the coming years, according to data compiled by the Brazilian Association of Infrastructure and Base Industries (Abdib) in an annual publication that includes all federal, state, and major city projects in the country.
Despite the substantial volume, the amount is still far short of what is needed to reduce Brazil’s logistical hurdles. The association calculates that it would be necessary to invest R$374 billion per year in infrastructure over the next decade, including public and private-sector funds.
The auctions held in the last four years have already had a positive impact. By 2022, there should be a 10% annual increase in investments in the sector, to R$163 billion, considering public and private-sector disbursements, compared with R$148 billion in 2021. However, the gap between the construction works required and those effectively carried out will continue to be wide, at R$211 billion this year.
Even with the perspective of new private-sector investments in the next years, Abdib’s projections indicate that the total amount will not even reach the peak seen in 2014, of R$207.5 billion (figure adjusted to 2021 prices).
Brazil must increase public investment substantially for numbers to recover, said Abdib’s head Venilton Tadini.
“The concessions program will remain in place, both the federal ones and those put in place by states. This is irreversible. However, the significant increase in private-sector investment is not enough to compensate for the big drop we have seen in public investment. There is a limit to make cuts in a budget,” said Mr. Tadini.
For him, the transportation and logistics sector – roads, railroads, ports, airports, and urban mobility – is likely to be the main focus of the next administrations.
First, because it is still largely under the responsibility of governments. “Segments such as power and telecommunications are already in the hands of private-sector groups. But in transportation and logistics, there are limitations for that to happen, due to scale and returns, which are not always attractive,” said Mr. Tadini.
In addition, this is the segment with the biggest investment gap in the country. In 2021, R$30.1 billion were allocated to the sector. Abdib calculates that the industry needs R$196.2 billion of construction works per year.
The volume of investments is expected to see a great leap in the coming years given the new projects signed recently and those expected to be auctioned in the short term. Abdib estimates that this amount will reach R$47.6 billion in 2023 and R$60.3 billion in 2024. Still, however, the gap will persist.
“We have improved a lot with the advance of private-sector participation, but we will not solve the logistical hurdles without public funds,” the association said.
Abdib advocates the revision of the spending cap, the rule that limits growth in public spending to the previous year’s inflation, and its replacement by a fiscal rule that allows the resumption of public investments, plus reforms to reduce the government’s current expenses. “Brazil has made, over the last few years, the worst fiscal adjustment possible, because it is compromising its physical capital,” he said.
Furthermore, Roberto Guimarães, Abdib’s director of planning and economy, said it is possible to use public funds to draw private capital through public-private partnerships as well. “When the federal government puts R$10 billion into a project in which the private sector will invest another R$10 billion, there is a multiplier effect.”
As for infrastructure auctions, which have advanced substantially in recent years, Mr. Tadini sees no risk of discontinuity.
Altogether, considering initiatives of the federal government, the states and the main cities of the country, Abdib mapped 432 projects, which would total R$543.5 billion in investments.
In a shorter-term scenario, until 2027, the association identified a prospect of investments of R$173.1 billion, considering contracts auctioned since 2019 (whose initial works are underway) and those scheduled for the coming years. The account includes the transport and logistics, sanitation, and administrative and social infrastructure sectors.
In this calculation, the highway sector is the one likely to generate more construction works between 2023 and 2027, followed by railroads and basic sanitation.
The results of the runoff vote were well received by the infrastructure sector. According to a survey conducted by Abdib and EY right after the conclusion of the election (between October 31 and November 9), there was an improvement in the market’s perception regarding future concessions, said Mr. Guimarães.
*By Taís Hirata — São Paulo
Source: Valor International