Infrastructure and the private sector: infra penny, infra pound.

A big hurrah has gone up for Dilma Rousseff and her decision to expand spending and get the private sector involved in Brazilian infrastructure. The news is heartening and the figures impressive with R$140bn (nearly $67bn) being talked about.

But it’s way too early to tell whether the initiative will be the gilded opportunity that some private investors seem to hope. An infrastructure push in itself hardly a novelty. Former president Lula launched two Growth Acceleration Programme (PAC) dominated by infrastructure. Both have floundered on inefficiencies and the dominance of the public sector. This new package, with its specific call to muster the private sector, looks different. The question is whether it will really be attractive to private and especially non-Brazilian companies.

In general, infrastructure is dominated by a coterie of mostly Brazilian companies (think Odebrecht; Camargo Correa; Queiroz Galvão etc). Brazilian idiosyncratic red tape and multiple levels of bureaucracy together with the need to know the right people make these projects very difficult for outsiders to undertake. Only through very substantial discounting have non-Brazilian firms broken in. Spanish companies won highway concessions in São Paulo state but only with bids predicated on highly optimistic traffic forecasts. Financing continues to depend almost exclusively on the development bank, the BNDES.

Moreover, the government has a tendency to squeeze the pips out of any concessions with an insistence on raising the maximum revenue (or minimum government spend). The recent airport privatizations show this unhealhy obsession with immediate revenue at the cost of future investment. Only in less glamorous areas (think sewage and water) have canny investors seen more juicy profits.

The final obstacle is the huge execution difficulty in Brazil thanks to licensing issues, red tape and bureaucracy. There are no signs that these are being properly tackled.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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