Much of the $400 billion investment needed in infrastructure in Brazil over the next four years should come from the private sector, Luciano Coutinho, president of the Brazilian national development bank (BNDES) has said.
“The idea is that the private sector contributes to two thirds of that amount,” he told Emerging Markets.
Infrastructure spending will be part of an investment push launched by the new Brazilian government to try to remove bottlenecks that limit economic growth, after the forced slowdown to tackle overheating earlier this year.
The government intends to boost the investment rate, which currently stands below 20% of GDP even after last year’s rebound, to 23% of GDP in 2014 and 25-26% two years later.
The timeline takes Brazil to the end of president Dilma Rousseff’s first term of office, the football World Cup to be held in Brazil in mid 2014, and the summer Olympic Games in Rio de Janeiro in 2016. Both international sporting events represent an additional challenge to the weak Brazilian infrastructure.
Previous governments have also mobilized resources to ensure that infrastructure constraints do not hamper economic growth, but these have largely failed.
“This is the great challenge for president Dilma Rousseff,” Coutinho said. Apart from social investment, which is a key feature of Rouseff’s government since she succeeded president Luiz Inacio Lula da Silva at the beginning of the year, she has given priority for investment in lstics, which suffers from some of the most serious deficiencies.
Airport concessions, which Rousseff recently said she will launch in the coming weeks, will be a test case to attract private sector investors, as airports need both modernization and expansion to cope with growing demands.
“We aim at a substantial improvement of the supply in order to make the economy more efficient,” Coutinho said.
State-owned BNDES last year released a record high $102 billion for investment in the country and intends to lend as much as $80 billion in 2011 at below market rates.
The Treasury has injected some $100 billion into BNDES to boost its funding in 2009 and 2010 after the global financial crisis, and the government recently announced that a further $30 billion will be put in this year.
At the same time, the government has tried to reengage the private sector to attract investment in key areas, such as transport and energy. It recently announced a set of reforms to boost the capital markets and long term financing by private bank, including tax incentives for long term infrastructure bonds.
Nevertheless, private sector banks have remained critical of BNDES, which has long been the almost unique source of long term financing in Brazil, mainly because of the high level of interest rates.
Murilo Portugal, president of the Brazilian federation of banks, said recently: “The BNDES has an important role to play in long term operations, but it is still hampering the presence of the private sector.”