Brazil may be the high-profile “B” in the “BRIC” bloc of emerging nations, but South America’s largest country still ranks far lower than other nations — 104th out of 142 — in the World Economic Forum’s latest infrastructure rankings.
Despite its vast wealth of natural resources, Brazil’s prospects for becoming a truly rich, industrialized nation have long been hampered by its deficient roads, railroads and ports. “Brazil still suffers from weaknesses that hinder its capacity to fulfill its tremendous competitive potential,” the WEF said in a recent report. “Lagging quality of its overall infrastructure” is an area of “increasing concern.”
But after decades of hearing about its dilapidated infrastructure, Brazil finally appears to be listening — and getting serious about addressing the weaknesses. That can only be good for global shippers, carriers and logistics providers.
Brazilian President Dilma Rousseff’s government in August announced plans to spend $15 billion to boost capacity at the country’s seaports, and another $66 billion to improve the country’s road network and expand its railway over the next several years. Other programs to improve Brazil’s ports, roads and railroads are expected to be announced in coming weeks, involving massive investments from the public and private sectors.
Geography and politics have long combined to frustrate efforts to make significant improvements. However, Brazil’s two major rivers — the Amazon and the Parana — are remote from the country’s major geographical centers on the Atlantic coast. The country has no equivalent of the Mississippi in the U.S. or the Rhine River in Germany, which connect their major inland population centers with major ocean ports.
Walter Kemmsies, chief economist at infrastructure engineering firm Moffatt & Nichol, said Brazil “should have built railroads long ago” to connect inland sources of natural wealth, such as minerals and lumber, with major seaports such as Santos on the Atlantic. “But it was hard to invest in rail when commodity prices were so low” and railcars shipped to the Atlantic were destined to come back empty to the thinly populated, inland towns close to all that natural wealth, he said.
Instead, Brazil suffers from “horrible congestion, and its roads are filled with potholes. The average rail speed is only 15 kilometers an hour (about 9 mph), and its rail network is only one-tenth the size of that in the United States,” Kemmsies said.
Brazil’s political leaders also have found it difficult to focus their limited financial resources on projects that would give the country the biggest bang for its buck. “They’re like someone who has a little bit of peanut butter but a lot of crackers to spread it on,” Kemmsies said. Rather than pursue an approach that seems more politically “democratic” — because it provides at least something for every interest group in every geographic location — “they need to focus on a few places that are critical to building a high-priority freight corridor. But it is hard for politicians to do this.”
That could be about to change. In an approach that has been widely hailed by the business sector, the government’s new plans involve creating a competitive bidding process for awarding concessions to private companies, which will build, maintain and operate many of these projects.
The government hopes this approach will lower construction and operational costs, because projects will be awarded to the lowest bidders and remove much of the politics from the process. “The Brazilian government doesn’t have the money to do this, so they are finally opening the door to the public sector,” Kemmsies said.
The Atlantic port of Ilheus in the northeastern state of Bahia, and Manaus, on the Amazon River, are two relatively small ports where investors from the private sector are expected to be responsible for building and running new, more efficient terminals.
As part of a massive effort to upgrade the Port of Santos, the country’s largest, the government will partner with the Inter-American Development Bank. The IDB in November closed a $430 million syndicated loan with a group of four international commercial participants that will finance the construction, operation and maintenance of a mixed-use (container and liquids) terminal at Santos. About $330 million of the total funding involved in the loan will come from various private institutions such as WestLB (Germany), Caixa Geral de Depositos (Portugal), HSBC (Britain) and Banco Santander (Spain).
John Graham, project team leader at IDB’s Structure and Corporate Finance Department, said the deal represents “an aggressive step toward supporting more private investment in the port sector. In this difficult credit environment, the IDB plans to do more to support Brazilian infrastructure, both through our own balance sheet as well as through attracting participating and co-financers.”
The new loans will finance construction of the first phase of a new terminal that will have a capacity of more than 1 million 20-foot-equivalent container units, as well as handle liquid bulk. Santos also will expand its capability to receive the new generation of deeper-draft container ships and reduce the endemic waiting lines outside the port.
Locating the new terminal away from congested downtown Santos is expected to relieve pressure on road traffic in the area. Forecasts call for the creation of 1,500 direct jobs during construction as well as an equal number of new jobs after the terminal reaches full capacity.
Clesio Andrade, head of the National Confederation of Transportation, praised the government for opening these investment opportunities to the private sector. “It is important that after more than 20 years, the government has left behind (socialist) ideology and opened the projects to participation by private enterprise,” he said. “That gives a lot of strength to the projects and will help generate more jobs.”
Earlier, the CNT had called for at least $200 billion in new funding for transportation infrastructure. “With these investments and those we’re expecting for ports and airports,” Andrade said, “we’ll approach that goal.”
Contact Alan M. Field at firstname.lastname@example.org.