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.