Brazil Infrastructure Report Q1 2013
- ID: 2313628
- November 2012
- Region: Brazil
- 96 pages
- Business Monitor International
BMI View: Brazil's construction industry growth continues to disappoint, and consequently this quarter we have further downgraded our 2012 real growth outlook, to 2.2% y-o-y. However, fundamentally the opportunities remain significant. Further, the need for improved infrastructure is desperate, and has eroded growth historically. With Brazil's economy on shaky ground, we expect that the government's explicit goal of boosting growth could be the catalyst to finally address the significant institutional and bureaucratic obstacles to efficient project procurement, or in the least, bypass them over the short term.
Consequently, with a significant amount at stake, including high profile sporting events, elections in 2014 and economic growth pressures, we anticipate activity will pick up in 2013 and 2014 as the Brazilian government ensures what needs to be done, gets done.
Brazil's construction sector continues to underperform its significant potential. Following a poor growth performance in 2011, the industry has unexpectedly remained in a slump, leading us to downgrade growth for 2012 twice (the latest from 4.2% to 2.2%). High costs due to prohibitive local content requirements,
high tariffs, as well as complex permitting, tax, HR, legal and capital structures are weighing on profitability and access into heavy industry sectors. Projects are not progressing efficiently, poor project planning or opaque tendering is resulting in many being re-tendered due, or suspended part way through. Ineffective institutions have thus prevented government funding for infrastructure projects
(accounting for 80% of the PAC II) from filtering through to actual projects whilst a poor business environment is deterring the private sector.
Deadline To Prompt Action
With the 2014 World Cup colliding with the presidential election and the final year of the PAC II, we expect a boost to growth similar to that seen in 2010 (without the base effects from 2009's recession).
This will be driven by an expected improvement in disbursement of funding and the awarding of contracts. Indeed, already in H2 2012 we are seeing a raft of new concessions, tenders and projects hitting the market, as the government ups the ante. With infrastructure crucial in supporting potential in the oil and gas, agribusiness, and mining sectors, as well as general economic growth, the higher echelons in the Brazilian government will likely push through projects crucial to catalysing this growth potential. With President Dilma Rousseff showing that growth above all else is guiding policy, we believe this should translate into movement on the infrastructure side.
The impact will be notable from 2013, when base effects from weaker than anticipated 2012 growth,
boosted by government stimulus measures, including sharp cuts to interest rates (positive for homebuilding) and cuts in tariffs filter through to the wider economy, and the construction sector specifically. This coupled with a push for World Cup related projects should drive growth to a more robust level of 5.8%. This growth level will accelerate in 2014 (6.3%), as PAC projects are pushed through ahead of the election, and late running World Cup projects are completed.
Beyond 2014, a modest slowdown is expected, with growth remaining around 5-6%, a more sustainable level for an industry the size of Brazil's (BRL205bn in 2011). Projects for the 2016 Olympics will have only a marginal impact on growth, and therefore much more will depend on a continuation of government infrastructure spending plans, which will be heavily impacted by the outcome of the 2014 presidential election.
Risks If Improvements Not Made
Despite this generally positive outlook for the near term, we highlight that significant risks are present.
The prospect that the government is not able to push projects through is very real. If current inertia and project delays continue, and cost and capacity issues are not addressed, only the bare minimum will be completed ahead of the World Cup, and the country's overall infrastructure quality will not improve to the level required to support growth.
Over the longer term, the risk that obstacles are glossed over to meet deadlines provides a risk that fundamental shortcomings in the industry as a whole are not addressed. Regulatory improvements,
institutional efficiency and addressing the overreliance on government and development bank funding will be necessary in order to exceed our current moderate growth outlook. SHOW LESS READ MORE >
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Market Overview 9
Table: EQS Data 11
Special Focus: Brazil’s Growth Acceleration Plans (PAC I & II) 12
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Cement Forecasts 20
Table: Cement Production and Consumption Data, 2010 – 2016 20
Table: Cement Production and Consumption Long Term Forecasts, 2015 – 2021 20
Industry Forecast Scenario 21
Table: Construction And Infrastructure Industry Data, 2009 – 2016 21
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Construction and Infrastructure Forecast Scenario 24
Transport Infrastructure 28
Table: Transport Infrastructure Industry Data, 2009 – 2016 28
Table: Transport Infrastructure Long Term Forecast, 2014 – 2021 30
Table: Brazil Airport Auctions 34
Table: Major Projects -- Transport 36
Energy and Utilities Infrastructure 45
Table: Energy and Utilities Infrastructure Industry Data, 2009 – 2016 45
Table: Energy and Utilities Infrastructure Long Term Forecasts, 2014 – 2021 47
Energy and Utilities Infrastructure Outlook and Overview 49
Table: Major Projects – Energy And Utilities 51
Residential/Non-Residential Construction and Social Infrastructure 57
Table: Residential and Non-residential Building Industry Data, 2009 – 2016 57
Table: Residential and Non-residential Building Industry Data, 2014 – 2021 57
Residential/Non-Residential Building Outlook and Overview 58
Table: Major Projects – Residential/ Non-Residential Construction and Social Infrastructure 63
Risk/Reward Ratings 64
Brazil Risk/Reward Ratings 64
Table: Americas Infrastructure Risk Reward Ratings 71
Company Monitor 72
Grupo Camargo Corrêa 72
Centrais Eletricas Brasileiras SA (Eletrobrás) 80
Global Overview 83
Construction Industry 91
Data Methodology 91
New Infrastructure Data Sub-sectors 91
Capital Investment 93
Construction Sector Employment 94
Table: Infrastructure Business Environment Indicators 95