NCPA - National Center for Policy Analysis


October 24, 2007

After years of hesitation, and more than one false start, on October 9th Brazil's government finally held an auction in which private companies bid for the right to improve and maintain 2,600km (1,600 miles) of roads. 

  • OHL, a Spanish company that won five out of the seven contracts on offer, expects to invest 3 billion-4 billion reais ($1.6 billion-$2.2 billion) over the next five years on toll roads running from São Paulo north to Belo Horizonte and south to Curitiba and Florianópolis.
  • The winning bidders were those who offered to charge the lowest tolls over the 25-year life of the contracts.

This investment is overdue, says the Economist.  While exports have been booming, Brazil has not built much in the way of roads, ports or airport runways for the past 15 years.  High commodity prices have masked some of the impact of these shortcomings on the economy.  Some companies have found ways around the problem: CVRD, a giant mining firm, has its own railway and port.  Even so, the congestion means Brazil is poorer than it ought to be.

Earlier this year, president Luiz Inácio Lula da Silva unveiled an ambitious plan to increase public investment in infrastructure over the next three years.  So far the money promised has not materialized:

  • The federal government will spend no more than 0.9 percent of gross domestic product (GDP) on public investment this year, reckons Alexandre Bassoli, an economist at HSBC Brazil.
  • Unless that figure rises to at least 1.5 percent, he adds, Brazil can expect electricity rationing to return (it suffered this in 2001) shortly after 2010.
  • Public-sector pensions, by comparison, gobble up 11 percent of GDP.

The private sector could build more of what is needed, given the chance, says the Economist.

Source: "Highway to somewhere: The private sector revs up its bulldozers," Economist, October 18, 2007.

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