Infrastructure stock deteriorates and remains practically stagnant since 2015

Trapped in a fiscal adjustment that brought public investment to the lowest levels in history and in a period of recession and stagnation that has lasted more than seven years, Brazil’s productive capital stock has practically stagnated since 2015.

Investments by the Union, states and municipalities have not been sufficient even to cover the deterioration of public assets such as roads, ports and buildings. Private capital inflows have resumed growth, but this increase has not been enough to offset the contraction in spending at different levels of government.

The priorities of the 2021 Union Budget and the prospect of more fiscal tightening show that this scenario is not likely to change anytime soon at the federal level. On the other hand, experts say that the package of concessions in progress, new regulatory frameworks and the improvement in the state and municipal funds already contribute to the beginning of the reversal of this trend.

The federal government itself launched a long-term plan in which it states that a transformative scenario in the area of ​​infrastructure depends on achieving fiscal balance and profound reforms to attract investment and improve the productivity of the economy.

Data from IPEA (Institute of Applied Economic Research) show that the so-called stock of public and private fixed capital, which includes machinery and equipment, commercial and residential construction and other assets, was R$10 trillion at the end of the third quarter of 2021. The value was 0.4% lower than in the same period in 2015, considering already deflated numbers.

The institute also shows that, as of the second half of 2016, Brazil experienced an unprecedented situation in the historical series started in 1980: having a negative net public and private investment rate. That is, the value of the depreciation of its infrastructure was higher than what was invested in the period.

This situation remained practically unchanged until the beginning of 2021, when a slow reversal led by the private sector began. The most recent data from the National Treasury, also for the third quarter of last year, shows that net public investment remains negative, at 0.4% of GDP.

The current crisis has reduced the country’s public and private investment rate from the peak of 21.5% before the 2014 recession to 14.6% in 2017. In 2021, it returned to 19.2%. Still, behind the percentages recorded by other emerging economies at the end of 2020, as shown by the IMF (International Monetary Fund). Among 171 countries, the country was in the 128th position in the ranking of those that invest the most, behind China (43% of GDP), South Korea (32%), India (30%) and Russia (24%), among other emerging countries. .

José Ronaldo Souza Júnior, director of macroeconomic studies and policies at Ipea, says that the country’s level of investment is low, but says that this is one of the components of GDP that have reacted most since the end of the 2014-2016 recession.

According to him, the most recent data show an increase in the stock of agricultural machinery and equipment for civil construction, where the residential segment stands out. In the infrastructure sector, preliminary information indicates a significant improvement, which can be attributed to concessions, regulatory changes and state government investments driven by last year’s revenue increase.

“We have a very significant improvement that has made the net investment positive again”, says the researcher responsible for statistics on the subject at the institute.

The publication Blue Book of Infrastructure 2021, by Abdib (Brazilian Association of Infrastructure and Basic Industries), points out that at least 4.3% of GDP is needed in investments per year, over a period of a decade, for the country to fill the bottlenecks infrastructure — two and a half times the amount spent in 2020.

Practically half of that in transport and logistics. It is precisely the area in which there are projects that are less attractive to the private sector, with investments more concentrated in energy, telecommunications and, more recently, in sanitation.

According to the association, 15% of the paved federal road network has already been granted and another 15% already have auctions planned. The other 70% are unattractive to the private sector and depend on the government for their maintenance, as with unpaved roads, but the federal budget in the area has been reduced by more than 75% since 2014.

Venilton Tadini, executive president of Abdib, says that in recent years the regulatory agenda for infrastructure has advanced a lot, although there are still many pending issues. And that the most recent bids were successful and there is a robust concession program underway, including in the states.

He says, however, that there are limitations for the private sector, which will not be able to meet all the need for investment in the country’s infrastructure for the next ten years. Therefore, it is necessary to recover space for federal public investment, an item that has become the variable of fiscal adjustment.

He cites as a negative example this year’s Budget, which increases spending on electoral funds and prioritizes the Defense portfolio, to the detriment of the Ministry of Infrastructure and its bodies.

According to him, no country has 100% private highways. The state that will advance the most is São Paulo, which, due to its economic density, has already exceeded 50% and may reach 70% of concession. At the federal level, reaching 30% is a great victory, a tremendous program, according to him.

“It is to this reality that we cannot turn our backs. Our infrastructure asset was already 60% of GDP in the 70s. Today, it does not reach 35%. We are not able to invest even to cover the depreciation”, he says.

“There will be no economic growth on the horizon, as the country will remain with an infrastructure unable to meet its needs.”

A survey by the Ibre Fiscal Policy Observatory (FGV’s Brazilian Institute of Economics) shows that investments by states, municipalities and the largest state-owned company in the country (Petrobras) started to grow again in 2020, but federal spending reached minimum values ​​(0, 23% of GDP) close to those observed in 2003 and 2004.

Former Secretary of Economic Policy at the Ministry of Finance Manoel Pires, current coordinator of the Observatory, says that Brazil has always reduced public investment in times of fiscal adjustment, since this is one of the few expenses that are not mandatory.

The current problem, he says, is that public investment has never been so low for so long. He attributes this to a fiscal adjustment that has lasted almost a decade and to a stance by governments, since 2016, to relativize the importance of these expenses.

“You cannot privatize everything. Several assets will not be of interest to the private sector. Leveraging investment in Brazil at the rates we have abroad means recovering space in the public budget for these expenses,” he says.

“When you look at the last few years, this battle is being lost. The most recent public decisions on the use of fiscal space are not in line with this problem.”