2019 Economic Outlook Brazil: Infrastructure and Reforms

On February 4th, the Brazilian President Jair Bolsonaro delivered the yearly Message to National Congress, in its opening ceremony for the 2019 legislative year. This article is based solely on the official document, which is divided in five main chapters: Economy, Infrastructure, Society, Strategic Issues, and Public Administration. It covers highlights related to macroeconomic reforms and infrastructure. And a second post containing highlights related to Strategic Issues and Foreign Policy will follow.

Economic Overview

  • The country ended 2018 with a deficit of USD 14 bi for 12 months (0,7% of GDP).
  • Exports were impacted by the economic crisis in Argentina. However, soy exports to China increased in the second semester due to restrictions derived from US-China trade tensions.
  • The report states that the country faces low external vulnerability as a result of its international reserve volume (USD 380 bi) and the flow of its direct foreign investment.
  • Labour market still experiences high rates of unemployment, but shows slow recovery.
  • Macroeconomic reforms are proposed for social security, fiscal system, public administration, foreign trade liberalization, privatization, and the autonomy of Central Bank.

Fiscal Reform

Brasil faces two major problems in its fiscal system. First is the high tax rates, which can reach 33% of GDP. This is above the other emerging economies and other Latin American countries, which average 20% of GDP). Secondly, its tax system is highly complex. This demands high resources from both private and public sectors, and generates high levels of litigation disputes due to uncertainties. Current fiscal reform proposals are limited to measures that seek to simplify enforcement, reduce tax cost liability and reduce the cumulative effects of some federal taxes. The message also states the continuity of the New Fiscal Regime (or, NRF – Novo Regime Fiscal), introduced by the Constitutional Amendment No. 95, of December 15, 2016, which is relevant for the fiscal rebalancing of the Federal Government. This regime, also called the “spending ceiling” (teto de gastos), established a limit for federal primary expenditure.

Social Security Reform

Payment of Social Security benefits has been the main factor responsible for the increase in total public spending in the last 20 years. In addition, the growth of pension transfers tends to accelerate due to the rapid demographic transition that the country is experiencing. The fertility rate fell considerably between 1980 and 2015, from 4.1 to 1.7 children per woman, which implies lower population growth in the future.

Infrastructure

One of the main problems is the lack of intermodal infrastructure allowing for connections between the national network of seaports to other modes of transportation (road, rail and river). It is necessary to reduce costs by improving port efficiency, which implies integration with the railway and road networks, linking the main regions of the country. It is also imperative to reduce costs and deadlines for boarding and disembarking. The goal is to reach performance levels of ports in countries such as South Korea (Busan port), Japan (Yokohama port) and Taiwan (Kaohsiung port).

The Government plans to launch dredging and land infrastructure projects, as well as completing other projects that will increase its seaport infrastructure capacity by 11.25 million tons /year, 4.11 million tons m³ /year, 250 thousand TEU /year, 13 thousand passengers /year and 50 thousand vehicles /year. The immediate goal is to auction ten port terminals in order to expand current capacity.

In 2018, a bidding announcement was issued for the 30-year concession of 12 airports in the Northeast, Southeast and Mid-Western regions. For the next years, it is projected the continuity of the airport concessions through the release of other bidding blocks.

Its road network, has not received the volume of investments needed for keeping up with the economic activity. Recent surveys indicate that only 38% of the segments are classified as being of good or better conditions. The government estimates USD 7,08 bi in investments for the next 5 planned concessions, which will comprise around 5,000 km of highways.

Source: Mensagem ao Congresso Nacional 2019

Brazil investments in its Infrastructure and transportation system

One of the greatest development challenges for Brazil lies in its infrastructure; be it its communication, information technology, energy, civil construction or transportation systems. Financial resources is available like never before, high end technology is today offered by national and foreign intelligence production and services organizations, and public policies are strategically steaming for economic growth.

But Brazil is a culturally complex nation. Its vast territory and historical colonization process, and later dictatorial government have led the country into a corrupt political structure and society. And here is where foreign investor might find hardest to deal with, when looking for good investment opportunities. Younger generations strive for better educational and health systems, higher quality of life, and higher standards for moral and ethical values, but they are still very much conducted by a misleading and alienating mass media, along with a limited communication system.

In shorter words, it is my advice to foreign investors to hire highly qualified and ethical professionals for assistance in their business deals in the country. Hence my passionate approach to International Relations in Brazil, when in this article I speak about the improvement of its transportation system as indeed one of the top priority issues.

Economic growth means a stronger and more productive industry, and therefore logistics is very necessary for establishing efficient supply and distribution chains. The Ministry of Transportation is the federal governmental institution who coordinates national transport infrastructure expansion and maintenance through the National Department of Transport Infrastructure. Brazil is still highly dependent on its road system for national distribution, which holds the country in a position of a highly expensive and oil dependent internal logistics chain.

There are strong public policies for rail road expansion, urban metro systems, and air and sea ports expansion and improvement calls, and we can see a lot more work getting done nowadays through PAC – Growth Acceleration Plan and growing investments due to the major international events hosting in the near future like the World Cup 2014 and the Olympic Games in 2016.

Bellow is a few official sources for strategic investment planning, available in portuguese (please use google translator for better understanding).