Investment recovers with private money, but remains below the level of 2013

Despite the growth in the investment rate in the second quarter of 2022, the productive sector still sees restrictions for the country to recover from the collapse seen from 2013 onwards.

One of the issues under discussion, including among candidates for the Presidency of the Republic, is what will be the contribution of the public sector so that the country can meet all its investment needs in productive and social infrastructure.

Driven by the private sector, the investment rate of the Brazilian economy rose from 14.3% of GDP (Gross Domestic Product) in the second quarter of 2017 to 18.7% in the same period of 2022. Despite the recovery, the figure is nine years below the record of 21.5% seen in 2013, when the performance of the indicator was driven by the federal government and state-owned companies.

At that time, investments in public and private infrastructure reached the equivalent of BRL 208 billion (at 2021 prices). Last year, it was R$ 148 billion, below the annual need of R$ 374 billion for the next ten years, according to an estimate by Abdib (Brazilian Association of Infrastructure and Basic Industries).

For the entity, it will not be possible to reach such a figure only with private resources, since many projects do not have an economic return — the case of a good part of the road network that has not yet been privatized.

“It’s no use wanting to throw everything to the private sector, because the private sector has no appetite, due to profitability and risk, for all needs. The private capital market alone is not enough. It will need the BNDES”, says Roberto Figueiredo Guimarães, director of planning and economics at Abdib.

He also cites data from the IBGE that show that total investment in the second quarter of this year fell compared to the fourth quarter of last year. Guimarães says that the indicator should remain stable in the second half, in the face of many uncertainties that are leading to the postponement of projects.

“Many investment decisions are being postponed. We do not believe it is for political reasons. It is more for the economic question: global crisis, Brazilian crisis, very high interest rates, input prices”, he says.

Much of the contraction in investment during the 2014-2016 recession is linked to the construction sector, the main component of this indicator. The sector lost its share of investment from 52% (2014) to 44% (2019, latest IBGE data available).

As a result, the weight of items such as machinery and equipment (from 37% to 41%) and investments in intellectual property (from 10% to 13%) such as software creation and research and development grew.

In the release of the second quarter of 2022, still without consolidated numbers, the IBGE highlighted the growth of construction and software.

The opening of these data made by Ibre (Brazilian Institute of Economics of the FGV) shows that the accumulated growth in 12 months of construction was 6.8% until June this year, while the item machinery and equipment shrank 0.8% — in a deceleration trend seen since September last year.

“Machinery and equipment took a leap in 2021. There was investment at that time, both national and imported, showing that new technologies have entered. In the most recent period, it turned negative again”, says Claudio Considera, coordinator of National Accounts at FGV Ibre .

“What has happened now is thanks to construction, which has gone up a bit in the most recent period.”

Consider states that he still does not see a clear recovery of investment in Brazil. According to him, the periods in which there was a record in gross fixed capital formation were those in which there were major works carried out by the government. Now, there is an expectation that regulatory changes and concessions will help improve the indicator.

“There will probably be investment now due to the sanitation framework and airport concessions. These are things that may come, it doesn’t mean that we already have that.”

Candidates disagree over state role

At a time when public investment has reached the lowest levels since the end of hyperinflation, candidates for the Presidency of the Republic have paid special attention to the issue, but with divergent proposals on the role of the federal government and public banks.

Federal public investment fell by 65% ​​in the comparison between 2010 and 2021, discounting inflation, according to Abdib. The values ​​indicated in the Budget indicate further declines in 2022 and 2023, when it should reach the floor of R$ 22.4 billion.

Data from the FGV’s Fiscal Policy Observatory show that the total went from 1.94% of GDP in 2017 to 2.05% last year, the lowest values ​​of the historical series started in 1947, also considering states, municipalities and federal state-owned companies. Since 2016, expenditures have not been sufficient even to replace the depreciation of assets, such as the maintenance of bridges and highways. Last year, this loss was R$ 31 billion.

The government program of candidate Jair Bolsonaro (PL) highlights the government’s role in expanding the privatization process and infrastructure concessions and ensuring legal certainty, through the implementation of legal frameworks. It also talks about improving infrastructure in less developed regions. BNDES is not mentioned in the document delivered to the TSE (Superior Electoral Court).

Former President Lula (PT) defends in his program a “vigorous public investment program”, with the strengthening of BNDES in the offer of credit and guarantees in projects and the resumption of important works that were paralyzed. He also talks about raising the rate of public and private investments — the latter, stimulated through credit, concessions, partnerships and guarantees.

Candidate Ciro Gomes (PDT) defends the role of BNDES as a financer and project structurer and proposes the creation of a fund for investment in infrastructure. The program talks about encouraging the private sector to invest heavily in the country, expanding public investment, boosting civil construction, and resuming 14,000 tendered works that have been stalled or not started.

Candidate Simone Tebet’s (MDB) team calculates that the modernization of Brazilian infrastructure will require an increase in public investments, “correctly prioritized and executed”, within the limits of fiscal responsibility, from 0.5% to an estimated 0.9% of GDP , and private investment from 1% to at least 2.8% of GDP. She also defends maintaining the concession and privatization program, expanding the participation of capital markets in financing and using the BNDES as a project structurer.

What do government programs say?

Lula (PT)

• Raise the rate of public and private investments
• Private investment stimulated with credit, concessions, partnerships and guarantees
• Strengthening the BNDES (in offering long-term credit and project guarantees)
• Recompose the inducing and coordinating role of the State and state-owned companies

Jair Bolsonaro (PL)

• Expand the privatization process and infrastructure concessions
• Ensure legal certainty through the implementation of legal frameworks
• Infrastructure improvement in less developed regions
• BNDES is not mentioned, but it has acted as a project structurer

Ciro Gomes (PDT)

• BNDES as a project financer and structurer
• Fund for investment in infrastructure
• Increase public investment, boosting civil construction
• Resume 14,000 stalled or unstarted bids
• Encouraging the private sector to invest heavily in the country

Simone Tebet (MDB)

• Practically doubling public investments and tripling private ones
• Maintain concession and privatization program
• Expand the participation of capital markets in financing
• BNDES as a project structurer

Source: Government programs delivered to the TSE