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Brazil Infrastructure Report Q3 2010
Business Monitor International, June 2010, Pages: 123
The Brazil Infrastructure Report provides industry professionals and strategists, corporate analysts, infrastructure associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Brazil's infrastructure industry.
Brazil's construction industry real growth for 2009 was worse than BMI had initially anticipated, construction industry value contracted by 6.26% year-on-year (y-o-y) to reach BRL137.4bn (US$68.83bn) compared to our estimate of -1.5%.
Brazil's construction industry is a dichotomy. There is substantial potential for real growth in value to take off rapidly over coming years, as the country is due to host two of the most high profile sporting events over the next decade – the 2014 World Cup and the 2018 Olympics. However, there are fundamental structural risks which have thwarted investment, and could continue to stymie industry value growth.
Opportunities for growth in Brazil have led BMI to be optimistic for potential industry growth, which we believe will average 6.7% per year between 2010 and 2014, with 7.65% growth forecast for 2010. Over the course of 2009, BMI warned of the impact of private investment drying up in Brazil's construction industry, as it has historically accounted for a high portion of infrastructure investment. It appears government attempts to cushion the blow have been less successful than originally indicated. This can be traced to the underperformance of the PAC (growth acceleration programme). Planned to funnel BRL642bn (US$353bn) into the construction industry. The government had repeatedly expressed commitment to the plan, and had indicated all was going smoothly.
However, data from the Federal government, cited by the Financial Times (FT), show that by the end of 2009 (and 75% of the way through the PAC), just BRL257bn (US$141bn) worth of projects had been completed, or 11% of the 13,330 individual projects listed. This indicates that the plan will fall short of expectations. The PAC not only envisaged public funding, but also a large portion of private investment. The absence of this has also hit investment plans hard.
The failure of the PAC to live up to expectations can be attributed in part to the financial crisis, which rocked Brazil's export led economy, but also to fundamental constraints in the country's business environment. High levels of bureaucracy have slowed the flow of funding and project tenders. A shortage of skilled labour has hindered the progress of projects. Further, a tax structure in need of reform has stymied investment. There is also more the government could do to promote private investment in infrastructure. Since the first public private partnership (PPP) in 2006, Brazil has moved forward at a less rapid rate with privatising infrastructure than some of its regional counterparts – like Chile – and in turn its regulations and legislation has suffered.
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