Infrastructure on Rousseff’s Agenda

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Brazil, Infrastructure, Dilma Rousseff, Programa de Investimentos em Logística (PIL), 2016 Olympics, BNDES

An aerial view of the Rio 2016 Olympic Games athletes village, which is under construction in Rio de Janeiro February 26, 2015. Rio de Janeiro must keep up the pace of delivery if it is to complete venues before scheduled Olympic test events as it enters “the most intense period of preparations,” the IOC said on Wednesday (Ricardo Moraes/Reuters).

This is a guest post by Emilie Sweigart, an intern here at the Council on Foreign Relations who works with me in the Latin America Studies program.

Even as Brazil pushes forward austerity measures and entitlement reductions, the administration of President Dilma Rousseff is hoping to increase infrastructure investment. The recently announced Programa de Investimentos em Logística (PIL) would launch nearly R$200 billion (USD$64 billion) in concessions for rail (R$86.4 billion), roads (R$66.1 billion), ports (R$37.4 billion), and airports (R$8.5 billion). Roughly a third would be completed by 2018, when Rousseff will leave office.

There is no question about the need. The World Economic Forum ranked Brazil’s infrastructure 120th out of 144 countries, alongside Mongolia (119th) and Zimbabwe (121st). With few railroads, coffee, sugar, soybeans, cotton, and other export bound commodities travel on run-down roads from the interior to the coast. Once there, trucks can line up for days at the port. Of the tens of billions spent for the 2014 World Cup and now the 2016 Olympics, much has gone to stadiums and sports venues, less to long-term transportation infrastructure. Airport terminal renovations in São Paulo and Curitiba and Rio’s promised subway extension and port expansion remain unfinished.

Previous efforts to boost infrastructure spending haven’t turned out particularly well. Rousseff managed to invest just a fifth of the announced R$210 billion in the first phase of the PIL that was launched in 2012. Auctions for 14 railways and over 160 port terminals attracted no bidders, and the vaunted R$35 billion high-speed train linking São Paulo and Rio de Janeiro was shelved indefinitely.

This time around, the government promises less regulation and less involvement from the national development bank, the BNDES, opening up more space for private capital. The Chinese in particular sound interested. During a May visit, Chinese premier Li Keqiang promised a joint 50 billion dollar infrastructure fund between Chinese and Brazilian banks for just such opportunities. And the Chinese have already signed onto the single biggest project in the PIL, a R$40 billion railway from Brazil’s Atlantic coast to Peru’s Pacific coast.

Still, the political and business climate is difficult. Rousseff’s approval ratings continue to fall, now at just 10 percent. The construction industry remains under the Petrobras scandal cloud, and the recent arrests of Marcelo Odebrecht of Odebrecht SA and Otávio Azevedo of Andrade Gutierrez, the CEOs of Brazil’s largest construction firms, may scare potential international partners. Brazil’s lagging economy, stubbornly high inflation, and significant public debt levels combined with U.S. tapering expectations later in 2015 suggest the government can’t fund much of this ambitious project on its own.

Against this backdrop, Rousseff arrives in New York on June 29 to woo the financial crowd before heading to Washington, DC, to meet with President Obama the next day. Most investors believe in her finance minister, Joaquim Levy. Rousseff’s challenge is to convince them about her support for a more market directed and friendly path for Brazil.

Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.