Brazil to invest US$66 billion in roads, railways

Friday, August 17, 2012

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BRASILIA, Brazil - BRAZILIAN President Dilma Rousseff announced a nearly US$66-billion ($5.9 trillion) investment package on Wednesday to beef up the nation's ailing road and rail systems, part of efforts to solve serious transportation bottlenecks and spur a sputtering economy.

The investment includes laying 10,000 kilometres (6,200 miles) of train tracks and building or widening 7,500 kilometres (4,660 miles) of federal highways. Rousseff said the government would soon announce other packages aimed at airports, ports and transportation on waterways, other areas where serious deficiencies are seen as hobbling the South American giant's growth.

"We're starting an initial stage from which Brazil will emerge richer and stronger," Rousseff said at a ceremony announcing the package, which comes as Brazil gears up to step into the world spotlight as the host of the 2014 soccer World Cup as well as the 2016 Olympics. "Brazil will finally have an infrastructure that's compatible with its size."

Brazil's economy has performed well during the last decade, but that strong growth dropped off last year and the government forecasts growth this year at 2.5 per cent. Private economists surveyed weekly by the Central Bank now expect growth around 1.8 per cent. Despite that, the nation has yet to widely feel the brunt of the crises that have hit Europe and the US since 2008 — Brazil's unemployment remains at record lows.

But experts say that transportation bottlenecks must be solved to assure long-term growth. The hurdles have long made it difficult to move Brazil's massive amounts of commodities from far-flung fields and mines to foreign markets, stifling the potential of important export sectors. Brazil ranks far behind other big nations when it comes to infrastructure, with a recent global competitiveness report from the World Economic Forum ranking the country number 104 out of 142 nations on the issue.

"Brazil still suffers from weaknesses that hinder its capacity to fulfil its tremendous competitive potential," the report stated, adding that the "lagging quality of its overall infrastructure" is an area of "increasing concern".

Under the terms of the new programme, the government will award private companies concessions for construction, maintenance and operation of the projects through a competitive bidding process — an approach that was widely hailed by the business sector here. Officials said calls for offers would go out in the coming months, with projects awarded the lowest bidder.

Clesio Andrade, head of the industry group the National Transport Confederation, praised Rousseff's left-leaning administration for opening the investments up to the private sector.

"It's important that after more than 20 years, the government has left behind ideology and opened the projects to participation by private enterprise," Andrade said. "That gives a lot of strength to the projects and will help generate more jobs."

Andrade added that his group had called for at least US$200 billion in new infrastructure funding.

"With these investments and those we're expecting for ports and airports, we'll approach that goal," Andrade said, while forecasting Rousseff would soon announce US$125 billion for other transport areas.

Many observers cast the investments announced Wednesday as an alternative to the government's strategy of trying to promote growth by fanning consumption, particularly by the tens of millions of people who have emerged from poverty and into the lower middle class during the past decade. With those consumers increasingly mired in debt, the government is looking to major public works projects instead, they said.

Analyst Steven Bipes, a Rio-based senior advisor at the Albright Stonebridge Group consultancy firm, also welcomed Rousseff's announcement, which he said meets "the top-level area of dire need for investment -- logistics and transportation".

"The stimulus spending, because that's what it is, is excellent, especially when complemented with medium- and long-term measures to address the underlying challenges," including, he said, Brazil's onerous tax regime and its expensive pension system. "It's overall very positive because it takes an integrated approach to these issues, instead of dealing with them in an ad hoc fashion," as Brazil has been wont to do in the past, he said.

Still, some analysts cast doubt over whether the stimulus package would bear fruit in the short term.

London-based consultancy Capital Economics called the measures "good news" in a research note, but added that "any impact will be felt over a period of years rather than months. We remain of the view that growth in the near-term is likely to disappoint."

Brazil's richest man, billionaire Eike Batista who has direct interests in the infrastructure improvements with his commodity businesses, lavished praise on the project, which he dubbed a "kit for happiness".

O Globo newspaper quoted the steel, mining and energy magnate as saying the "mega-package is spectacular for Brazil."




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