Brazil’s successful auction of deep sea oil prospects last month was hailed as a sign of oil majors’ appetite for crude. But for Brazilian officials, the auction was also a watershed moment for the government’s programme of infrastructure and natural resources concessions.
A previous attempt to execute the complex auction had flopped in 2019. “Our joy can’t be disguised,” said Bento Albuquerque, Brazil’s minister for mines and energy, heralding the $2bn in fees raised for the cash-strapped government and the further $35bn in investments to be made by the likes of Shell and TotalEnergies in the country’s oil and gas sector.
In contrast with the government’s more vaunted plans for structural economic reforms, which have floundered for years in Congress, the programme to attract private companies to invest in — and operate — major infrastructure projects has boomed.
Since the beginning of President Jair Bolsonaro’s administration in 2019, 131 concessions have been auctioned, generating more than $145bn in investments and $26bn in fees for the government. In the previous 2.5 years — since the investment programme began in 2016 — the figures were $44bn and $8bn respectively, in today’s dollars.
And officials predict the expected auction of more than 150 concessions and the generation of $70bn in investments this year as investors, mostly local, put their money in.
It is one of the rare bright spots in Bolsonaro’s economic agenda, generating billions in sorely needed investments in the nation’s creaking road, rail, logistics and sanitation systems.
The programme is an engine for an economy that has struggled to grow for almost a decade. Despite a strong bounceback from the initial impact of the pandemic, many economists are forecasting Latin America’s largest economy will again contract this year, buffeted by the combined impact of soaring inflation and interest rates and weak consumer confidence.
“The projects that will be auctioned . . . are already well advanced and we are certain that it will be the most intense year in terms of concessions under this administration,” said Tarcísio Gomes de Freitas, minister for infrastructure.
Among the projects lined up for 2022 are 26 airports, 25 ports, 10 highways and nine national parks and forests. In addition, the government is expecting to host 10 auctions for mineral rights.
Independent analysts point out, however, that although Brazil has attracted some international companies — notably Vinci Airports — the investments are still predominantly from local players.
“We are on the right path, but we have a long way to go and the pace is slow. We have a problem of attracting [new players]. Those who are here are used to all the uncertainties and the government insisting on shooting itself in the foot. But outsiders find it difficult to understand Brazil,” said Cláudio Frischtak, president of consultancy Inter. B.
“The point is it is difficult to attract investors when you have a government that has an ideological radicalism that makes no sense for a country like Brazil,” he said, criticising the controversial rhetoric of Bolsonaro, which often spooks investors.
Paulo Guedes, Brazil’s finance minister, believes these investments will propel economic growth to as much as 2 per cent in 2022, despite the growing threat from double-digit inflation, soaring interest rates and persistently high unemployment.
Economists caution, however, that this year’s election — which, in October, is likely to pit Bolsonaro against leftwing former president Luiz Inácio Lula da Silva — could impact investor sentiment.
“Paulo Guedes is putting too much confidence in private investment,” said Mauricio Molon, chief economist at Logus Capital in São Paulo. “The business community and market sentiment is not confident in Lula or Bolsonaro. This will put a great amount of investments on hold.”
Martha Seillier, the government’s special secretary for the Investment Partnerships Programme, said that its success to date was attributable to the “structuring of the projects” and a more investor-friendly approach in a nation historically riven by bureaucracy.
This contrasts with the government’s failure to pass its headline economic reforms, including a simplification of Brazil’s byzantine tax system and an administrative reform of the state. “Paulo Guedes needs to demonstrate to the market that they are acting, they are doing something and that the government is not finished, but that is not the feeling we have,” said Carlos Melo, a political scientist at Insper. “The feeling is: what more can you really expect from the Bolsonaro government?”
Additional reporting by Carolina Ingizza
Source: Economy - ft.com
