Opinion – Pablo Acosta: Lack of investment in infrastructure compromises Brazil’s productivity and competitiveness

The Brazilian industrialization agenda began in the 1950s, during the administration of President Juscelino Kubitschek, who established the goal of “50 years in 5” and began a period of significant gains in access to basic infrastructure. In the 1960s and 1970s, Brazil was one of the fastest growing economies in the world.

Unfortunately, the relatively stable –albeit uneven– development of infrastructure in the country has seen a drastic slowdown due to the external debt crisis in the 1980s, when investments in productive capacity and, mainly, in infrastructure declined.

Chronic underinvestment has also led to a backlog in maintenance, resulting in a low-quality and highly vulnerable infrastructure, currently responsible for limiting inclusion, productivity and threatening the country’s long-term economic growth. Recent events such as the Covid-19 pandemic, as well as the ongoing effects of climate change, have highlighted the importance of infrastructure for the Brazilian economy.

Currently, almost all Brazilians have access to electricity, as well as treated drinking water at home, and approximately half of the population has secure sanitation. The internet was already accessible in 90% of households in the country in 2021, and the percentage of fixed broadband increased to 83%. However, Brazilians have the highest energy tariff and longest periods of interruption in Latin America. Almost a third of the water produced in Brazil is wasted. Broadband internet subscriptions are expensive. Most roads (88%) are still unpaved and a quarter are in poor condition.

Brazil today has a lower quality of infrastructure, and increasingly worse than comparable countries like Chile, Mexico, China, South Africa and Russia. This limits productivity growth in the country, impeding its competitiveness and contributing to increasing its economic dependence on commodity exports.

Investment levels in infrastructure in Brazil have shown a constant decline over the last 40 years, going from 5% of GDP before the external debt crisis in the 1980s, to less than 3% in the 1990s, and an almost historic low of 1.6 % in 2020.

The infrastructure financing gap in Brazil is fast approaching US$800 billion, which would require spending 3.7% of GDP per year through 2030 to close it. Almost half (44%) of Brazil’s investment needs involve the maintenance and replacement of assets that reach the end of their useful life distributed in the following sectors: digital development, energy, transport, water and sanitary sewage. Among the sectors assessed, the largest funding gap (53% of the total) is in transport, of which 43% is required for maintenance and replacement of existing assets. The remainder represents the construction of new assets needed to provide universal access to basic infrastructure services and achieve the SDGs (Sustainable Development Goals) related to the country’s infrastructure.

In addition, the country will need an additional 0.8% of GDP per year to ensure its infrastructure is climate resilient and in line with the country’s self-declared commitment to reduce greenhouse gas emissions by 37% by 2025 and 43 % by 2030. Investment needs point to a modal shift from road transport to rail and waterways, in addition to re-equipping infrastructure to withstand possible impacts such as increases in demand for energy during heat waves, better water storage and water demand management during droughts.

The Brazil Infrastructure Assessment report, soon to be published by the World Bank, summarizes areas that affect the performance and sustainability of the infrastructure sector, such as the effects of different public investment multipliers on growth, and the political economy driving investment decisions and the decarbonisation of infrastructure. The results of these activities aim to understand the relationship between infrastructure and productivity, inclusion and climate change in the Brazilian context. Combined, the results of these efforts have been used to support policy formulation aimed at stimulating Brazil’s long-term economic growth.

The need to increase public investment in infrastructure is paramount, but it will also fall short if it does not address the most important factor that has historically limited progress in the infrastructure sector: technical capacity. No amount of funding will solve Brazil’s infrastructure challenges without substantial investment in building technical capacity, especially at the state level. This will require strong political will, coordination and rigor across all levels of government, with particular emphasis on bottom-up approaches and a long-term perspective. Brazil has made enormous progress in infrastructure in the past and, with focus and persistence, it can do so again.

This column was written in collaboration with my World Bank colleagues Luis Alberto Andres, sectoral coordinator of the Infrastructure program, and Murilo Marques, consultant.