Medicina

I ng l es
Investing in Brazil's infrastructure
The road forsaken
Brazll's infrastructure needs are huge. So ls the job of
attractlng private capital
Aug 11th 2012 | SANTOS | from the print edition
1 . IF MITT ROMNEY, America's Republican presidential
candidate, doubted London's preparedness
for the 2012 Olympics, what must he think about Brazil's?
'lhe 2016 Olympics and 2014 football World Cup will
happen in a country where only 14% of roads are paved.
The World Economic Forum ranks Brazil's quality of
infrastructure 104th out of 142 countries surveyed, behind
China (69th), India (86th) and Russia (100th). On a recent
visit to Santos, Brazil's largest port, your correspondent
watched men clean up the remains of a ship that had
exploded carrying chemicals-in the 19705.
2 . In theory, Brazil's urgent infrastructure needs should
provide rich pickings for investors. From 2011-14
the government will spend 163 billion reais ($80 billion),
or 1% of GDP a year, on infrastructure as part of its
"growth acceleration" programme. That is not enough,
says Arthur Carvalho of Morgan Stanley. According to a
2010 report by the bank, Brazil would need to spend 6-8%
of GDP annually to catch up with South Korea in 20 years
and 4% per year to catch up with Chile.
3 . But there are plenty of reasons to think that private
capital will not rush to ll the gap. Infrastructure
projects require lots of debt, but long-term nancing in
reais is extremely expensive. Loans are available from
BNDES, Brazil's giant national development bank, at a
more affordable rate, but lts activities have the effect of
crowding out other lenders. The Brazilian government is
trying to encourage projects to use tax-free infrastructure
bonds, but so far there has not been a successful issuance.
Exactly who will buy these bonds is unclear since
Brazilian investors can get a comparable yield without
taking on so
much risk.
4 . There is a lot of risk to go round. Getting hold of
environmental licences to undertake big projects is a huge
hassle. They have been known to delay a project's start by
as much as ve years. One aggrieved investor recounts
how his rm had to wait months to get approval to take a
port terminal, because it needed 21 separate entities to
sign off. Dilma Rousseff, Brazll's president, has at least
made it possible to fast-track approval for certain
infrastructure projects. Yet it is not unheard of for a
project to be halted when it is nearly nished, as happened
earlier this year to a São Paulo mall because of a missing
licence. The introduction of "completion insurance" could
help, says Fernando Gentil of Darby, a private-equity rm,
but no one offers it in Brazil at the moment.
5 . Whether investors are willing to put with delays,
bureaucracy and other costs ultimately depends on what
sort of return they expect to achieve. Most infrastructure
funds in Brazil say they target nominal returns of around
20%. But a licence to operate three airports that the
government auctioned in February looks set to yield only
8%. investors in infrastructure also want long-lasting
projects with stable cash ows, which means they will
probably leave it to the government to build stadiums that
may barely be used after the 2016 Olympics. As for other
projects that matter a lot more to the country's future, Ms
Rousseff has lots to do if she wants to lure private money
to back them.
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