Brazil fights against infrastructure bottleneck

How to stimulate economy and put growth on the track again is something that has been making many countries to lose their sleep, and this is not different to the BRICS countries (Brazil, Russia, India, China and South Africa). Although these nations GDP are still growing while many countries face stagnation, BRICS is implementing measures to stimulate their economies. Brazil, for instance, decided to fight against one of the biggest obstacles to faster growth: its infrastructure bottlenecks.

Last week, the Brazilian president Dilma Rosseuff announced several measures focused on concessions for improvements transport infrastructure. The stimulus package will provide R$ 133 billion (US$ 65.5 billion) to spur investments in road and rail infrastructure.

The plan is to sell concessions in nine highways and 12 railways. So, the government will sell rights for private companies to operate 7,500km of roads and 10,000km of railways. The measures will double the capacity of the country’s main highways. Finance will be provided by Brazil’s state development bank called BNDES, the main source of corporate credit in the country. The bank will provide subsidized loans for the projects.

The idea is to expand Brazil’s overloaded transport system. According to Rosseuff, this is the first step to modernize Brazilian transport infrastructure and the government will launch other stimulus packages to improve airports, ports and waterways as well. Then, similar concessions for airports and seaports are expected in the coming weeks.

This is one of a series of measures the Brazilian government is taking to increase investors’ confidence in the world’s second-largest emerging market economy, and the stimulus package might also pave the way for higher growth rates. The global slowdown has hit Latin America’s biggest economy hard. After growing 7.5% in 2010 and 2.7% in 2011, Brazil’s GDP might grow just 2.5% this year according to International Monetary Fund (IMF) growth forecasts.

The stimulus measures are an effort to modernize Brazilian economy. Brazil is a continent-sized country which is struggling to upgrade transport infrastructure before it hosts the 2014 soccer World Cup and 2016 Summer Olympics, and the country has obvious infrastructure bottlenecks. It is also a necessary chance in Brazil’s policy, which has favored consumption over investments in the last years.

Just to have an idea, the country’s existing infrastructure is so deficient that many of its big mining, steel and commodities companies operate their own private rails, roads and even ports. So, the package can reduce business cost and make the economy more efficient and competitive. Today, goods take at least twice as long to move the same distance as they do in China, for example.

However, the big question is if the government will be able to implement the stimulus package in an effective way. Brazil has a huge bureaucracy, legal issues and costs that quickly get out of control.

Another thing is corruption, which is a big problem in Brazil. But Rousseff has been trying to fight against corruption since the beginning of her government.  Then, the real question is how long the measures are going to take before the strategies get out of the paper.