Last month, the new government published a list of 9 companies to be privatized in the coming months, giving momentum to its privatization initiative announced in the electoral campaign.1. One of the sectors that can gain most from private investment is infrastructure, which today lacks public investment, with an amount equivalent to 0,68% of the Gross Domestic Product, according to the Infrastructure Charter, by Inter.B2.
Figures 1 : Evolution of public and private investments in infrastructure in Brazil2
Figure 1 shows that the government has been reducing the amounts spent on infrastructure and the increase in private sector participation in investments is not enough to offset this drop. As if that were not enough, both the Infrastructure Charter2 as for Oliver Wymann's Panorama Brasil3 indicate that the previous investment level, close to 2,2% of GDP, was no longer enough to meet the demand of the Brazilian economy, with necessary investments estimated at around 4% of GDP.
This resulted in a high infrastructure stock deficit that is absorbed by Brazilian companies, which today bear high logistical costs to serve their customers and, even so, do not reach the same level of service as other countries. O Panorama ILOS “Logistics Costs in Brazil” points out that, in Brazil in 2017, logistics costs reach 12,0% of Brazilian GDP, with transport costs totaling 7,0% of GDP4, while in the United States these numbers are respectively 7,7% and 5,0% of the American GDP5.
Figures 2 : Evolution of logistics costs in Brazil, in relation to GDP4
With the fiscal restriction imposed by the government, the tendency is for public investments to be cut even more and the priority will be to finish the works already in progress and offer the private sector the projects foreseen for the coming years, as stated by the secretary of Developments and Partnerships, Natália Marcassa2.
The hope of Brazilian businessmen is, then, that the federal government and the National Congress continue this privatization movement, acting in the transport infrastructure sector, preparing regulations that attract private investments and allow a change in the Brazilian transport matrix, currently supported by a precarious road network (24km of roads for every 1.000km², while the United States and China both have more than 350km of roads for every 1.000km²)4. Professor at the Department of Economics at PUC-Rio, Vinícius Carrasco points out three fundamental points for the initiative not to be frustrated: the fiscal crisis, the creation of clear regulations and the unification of the company under the control of a single sector3.
The model to be followed can be found in the process that the airport sector has been going through, which after consultation with representatives of the private sector, had the airport concession rules changed, reducing the minimum grant and associating the concession of coveted assets to the operation of assets marginalized. With the Franco Montoro International Airport (Cumbica), ceded in the 2nd round by then President Dilma Rousseff in 2012 with the requirement to build new and modern facilities, the sector is already in the 5th round, with the privatization of 12 airports this year and more 41 terminals are planned for concession until 2021, including the busy Congonhas and Santos Dumont2.
One sector that may be one of the most favored by a new investment structure is the railway modal, whose low level of development generates a great dependence on road transport, as evidenced during the truck drivers' strike in May 2018. A bill in the The Senate foresees the construction of new rails and the use of deactivated lines by the private sector, which would accelerate the expansion of the country's rail network, which requires a large volume of resources that the federal government is not willing to spend2.
It is up to the country's productive sector to hope and hope that the international crisis that is announced does not scare away foreign investors, today interested in the potential that the country offers6. A revolution in the country's infrastructure could mean lower costs (currently, the logistical cost of companies operating in Brazil is equivalent to 10,7% of net revenue)4, better level of service and, mainly, a reduction in insecurity, with better structured operations and less dependence on road transport.
No XXV International Supply Chain Forum, to be held between September 23 and 25, 2019 in São Paulo, the president of Inter.B Consultoria, Cláudio Frischtak, will participate in a session with the managing partner of ILOS, Maurício Lima, and together they will discuss the economic scenario , infrastructure and cargo transport in Brazil. It is a great opportunity to discuss the fragility of the national transport infrastructure and its impacts on cargo transport in Brazil.
Sources:
[4] https://ilos.com.br/web/analise-de-mercado/relatorios-de-pesquisa/custos-logisticos-no-brasil/
[5] http://www.scdigest.com/firstthoughts/18-06-21.php?cid=14356
[6] https://veja.abril.com.br/economia/leilao-de-aeroportos-e-sucesso-e-revela-apetite-de-estrangeiros/
Lucas Weber
ILOS consultant since 2018, working on projects focused on Logistics and Supply Chain in several sectors: pharmaceutical, home appliances, retail and steel. Among the projects developed are the redesign of the logistics network, conducting the transport contracting process and preparing a business plan.
