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Brazil Infrastructure Report Q1 2012
Business Monitor International, Nov 2011, Pages: 107
Business Monitor International's 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.
BMI View: Our long-held view that Brazil’s construction sector will underperform compared to its potential is proving true based on initial 2011 data. We have long anticipated a relative slowdown compared to the boom seen in 2010, underlined by the absence of base effects but also bureaucracy, tight access to finance and difficulty in attracting the private sector. This quarter we have further downgraded our estimate for 2011 to 5%, which, although still strong, is a sharp slowdown from the 11.7% growth seen in 2010. While growth is expected to pick up from 2012, we believe these factors will continue to weigh down on Brazil’s growth potential over the medium term.
Despite intrinsic and fundamental obstacles to Brazil’s growth potential over the medium-term, we do anticipate robust growth beyond 2012 (6% for 2012) as factors align, which will practically ensure a base level of construction activity. Growth is expected to peak in 2013 (7.7%) and 2014 (7.6%) as last minute preparations for the 2014 World Cup take place.
Positives for growth include:
- Brazil is set to host high-profile sporting tournaments (2014 FIFA World Cup and 2016 Olympics), which will see tens of billions invested in sporting facilities and stadia, as well as hotels and transport infrastructure. However, concerns over the readiness of Brazil for the tournament have been raised, with local media reports suggesting that significant additional capital will need to be diverted to the preparations in order to get stadia and infrastructure completed on time.
- PAC II: BRL955bn (US$534bn) is to be invested in construction projects between 2011 and 2014, with 81.6% of this to come from the public sector. A further BRL631.6bn (US$351.9bn) is to be invested beyond 2014. President Dilma Rousseff claims to have ring-fenced this section of the budget. However, budget cuts in February saw the ‘Minha Casa, Minha Vida’ programme – which is part of the PAC – take a funding hit, putting other programmes at risk.
- Mining investments: Brazil is experiencing a huge influx of capital into its mining sector, especially iron ore. This is driving infrastructure investments, with ports, railroads and power plants all benefitting from increased demand. Vale and other private sector companies are leading much of this investment, meaning private capital is beginning to return to Brazil’s infrastructure sector. However, with demand and prices for iron ore having fallen over the past quarter, we could see some short-term risk to these investments
As these factors illustrate, concerns about Brazil’s infrastructure sector are typically focused on logistical and procurement issues, as opposed to demand (with mining being the major exception). The procurement of infrastructure is often constrained by bureaucracy and financing, as opposed to the demand for infrastructure or the government’s support for investment. Indeed, significant public sector capital has been earmarked for the sector, both directly from fiscal accounts, but also via the Brazilian development bank (BNDES). Whilst this has provided much needed capital for the sector, the inefficiencies related to relying on public procurement of infrastructure mean that the country is struggling to live up to its potential.
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