Public, private sectors drive infrastructure investment by 20%

Infrastructure investment is expected to grow by 19.6% in 2023. The increase reflects both the significant resumption of government contributions and a record volume of private funds allocated to concessions and public-private partnerships. The data set obtained by Valor comes from the Blue Book of Infrastructure, an annual publication of the Brazilian Association of Infrastructure and Basic Industries (ABDIB).

Total investment—which includes the transportation, electricity, basic sanitation, and telecommunications sectors—is expected to end the year at R$213.4 billion, close to the peak reached in 2014. In recent years, the country has seen a sharp decline in value amid the economic crisis and government spending cuts. In 2023, a turning point is clear, said Venilton Tadini, ABDIB’s president.

“This year we had the so-called Transition PEC [proposal to amend the Constitution], which significantly increased investments in the federal budget, especially in transportation. This is reflected in the public sector data, where there is a surge. In addition, the private sector not only increased but reached a peak.”

Government contributions, which had seen the biggest drop in recent years, reached R$47.7 billion this year, an increase of 44% compared to 2022. However, most of the work still comes from the private sector, which invested R$165.7 billion, the highest level ever reported since official records began.

“This reflects the new phase of auctions that began in 2016, with successful concessions in airports and highways, cross-investments in railways, and, more recently, sanitation projects. There has been an acceleration of the concession program, with a much more solid governance base than in the past,” said Mr. Tadini.

ABDIB’s expectations for 2024 are very positive, both on the public and private side. However, other experts in the sector point to risks and uncertainties.

According to Claudio Frischtak, partner at consulting firm Inter B., there is huge uncertainty about public investment. “There is a double uncertainty. The first is the execution of the 2024 budget and the whole discussion about the primary deficit. The second dimension is how much will be allocated to congressional earmarks. Unfortunately, the nature of these earmarks is excessive fragmentation, deviation from the plan, and poor governance. But the amendments come out of the government’s discretionary spending, which is limited. So, investment will be squeezed, and the PAC will be squeezed,” he said, referring to the Lula administration’s Growth Acceleration Program by its acronym.

For the consulting firm Tendências, the forecast for 2024 is for growth in infrastructure investment, both public and private, but without great optimism, partner Eric Brasil said. “We expect growth to be moderate because of the risk scenario. From the public point of view, we cannot deny that the biggest risk factor is the fiscal constraint, which can be limiting. But even so, we imagine that there will be growth because it is the banner of the federal government,” he said.

For Mr. Tadini, the expectation is that there will be fiscal space to expand investment in infrastructure. “Once the tax reform is passed, it will be easier to grow and, therefore, collect revenue. That is an important assumption. Another factor is the reduction in interest rates, which will create more fiscal space. Lower interest rates mean tons of money next year. And we believe that with the investment program, the clear induction of the state, there will be an increase.”

On the concession project side, ABDIB’s forecast is also positive. The company has identified a total of 518 initiatives in progress (from the study phase to the signing of the contract), which, if implemented, would represent an investment of R$836.2 billion over the life of the contracts.

In a short-term analysis, for the next five years, the projection (considered conservative by ABDIB) is R$201.3 billion in private-sector investment between 2024 and 2028. The calculation takes into account only new contracts, which are those signed as of 2019 and the auctions to be held soon—previous concessions that still generate investments are not included in the calculation. Within the projected values, the largest share should come from highways (R$66.7 billion). Next come railroads (R$45.9 billion) and basic sanitation (R$44.7 billion).

However, one of the doubts in the market today is the government’s ability to attract investors to so many auctions, which could be an obstacle for the new concessions to get off the ground. However, Roberto Guimarães, director of planning and economics at ABDIB, said that the scenario is improving. “The risks and uncertainties are lower today than at the end of last year,” he said.

As for the lack of interest in the recent highway auctions, he said that these are specific problems of the projects offered—either due to specific challenges or inadequate pricing—and not a lack of interest on the part of the private sector to invest in infrastructure.

For Eric Brasil of Tendências, the forecast is also moderately optimistic for private-sector investment. “In 2024, we expect an increase in sanitary auctions. We also have a scenario of falling long-term interest rates, which could help, and we have seen an increase in BNDES [Brazilian Development Bank] loans for infrastructure as a whole, which is likely to continue to grow. So, the expectations are good, but we don’t expect robust growth.”

Mr. Frischtak, on the other hand, is also more skeptical about concessions. He said that regulatory issues, particularly in the electricity and sanitation sectors, tend to get in the way.

“In 2023, there is an element of inertia in private investment, because what has been contracted cannot be suspended. The problem is 2024. In the electricity sector, we saw a lot of noise, terrible legislation, and subsidies that created huge distortions. In sanitation, we also had turbulence. In highways, on the other hand, the problem is that the returns are tight, the risk-return equation is not closed, so the projects have to be rethought.”

Source: Valor Econômico

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