Investment in infrastructure: what will change in the logistics of the country?

  • 04/02/2020
  • 9 minutes

Infrastructure investment has always been one of the foundations for a country’s economy: it speeds up and cheapens logistics processes throughout the chain — for those who produce, transport and market.

This is what the Government has been understanding in recent years, trying to bet on partnerships with the private sector to give Brazilian entrepreneurs conditions to match their competitive evolution in the market.

Do you want to know what is the plan to narrow this gap between infrastructure quality and the productive development of the country? With the help of Fernando Villela, Head of Business Development at Wilson Sons, let’s try to see what’s next. Let’s go?

What is the Government’s idea to leverage the Brazilian infrastructure?

If there is a common complaint from every Brazilian business, it is for sure our transport and marketing infrastructure. Brazil has a series of bottlenecks that disrupt life, especially of those who want to export and import products at competitive prices inside and outside the country.

This delay is already so evident that, even at a difficult time of account adjustments, the Government has seen the need to find ways to make these investments viable. The answer mainly comes from the private sector.

The current Investment Partnership Program (PPI) was created in 2016 to develop strategic infrastructure projects, but is only now being accelerated by favorable market winds. Villela explains:

“In the current scenario of low interest rates and controlled inflation, the Infrastructure Investment Package can unlock historical bottlenecks in our logistics chain and help unleash the growth of the Brazilian economy.”

The idea is to award concessions of key areas such as ports, airports and outflow routes, so that private sector is encouraged to expand, improve and develop the functioning of the public system.

Also, the search is for foreign investors as well — focus on major markets such as the United States, Europe, the Middle East and Asia. The Government wants to seize the opportunity to inject resources into the public treasury and thus further help the domestic economy.

Which areas will benefit the most?

The goal of infrastructure investments in Brazil cannot afford to be selective. Our entire logistics and transportation chain needs resources to get to the point where national companies need it to reach.

That said, the concessions in this new program focus, initially, on the big terminals and the way to them. Villela assess the current scenario:

“In 2019, 12 airports were awarded (6 in the Northeast, 4 in the Midwest and 2 in the Southeast), the Norte-Sul Railway between Porto Nacional (TO) and Estrela d’Oeste (SP), 437 km from the highways BR-364 and BR-365 between Uberlândia (MG) and Jataí (GO), as well as port terminals at the Ports of Belém (PA), Vila do Conde (PA), Cabedelo (PB), Vitória (ES), Santos (SP) and Paranaguá (PR).”

Negotiations range from concession to sale and equity in some assets. The final goal is to include about 15 thousand kilometers of railways and 16 thousand kilometers of highways in this project, totaling an investment of around 200 billion reais.

How is this search for infrastructure investments evolving?

As it is a complex program that involves various forms of concession and sale, it is impossible to do everything at once — especially in a country with the proportions of Brazil.

But the important thing is that the PPI is advancing, with varying degrees of maturity from study phases to drafting request for proposals. Most of these projects are expected to be bid by 2022. Villela gives an example of one of these ongoing processes:

“In my opinion, the most important projects are the construction of Ferrogrão — an investment of R$ 13 billion that will open another route for the flow of grain harvest through the ports of the Arco Norte —and the reactivation of the Rio-Vitória Railroad, which will connect the port terminals of the states of Rio de Janeiro and Espírito Santo to the Minas Gerais railway network, facilitating the transportation of agricultural products and Iron Ore.”

How will these investments affect sea import and export?

When we talk about fostering the Brazilian economy, the ends of all infrastructure paths lead to the same destination: international trade. Exporting and importing depends heavily on domestic logistics and the strength of the economy for companies to reach other markets at competitive prices.

In this sense, the maritime sector is a central part of the program. The package includes the lease of 8 port terminals (1 Container, 4 Fuel, 2 Cellulose and 1 Solid Bulk) and the privatization of 3 port authorities by 2022.

Fernando Villela says that the most advanced project is the 2nd container terminal at Porto de Suape (PE), which is in the process of preparing the request for proposals. This request for proposals should be issued by the end of 2019 and the auction will possibly be held in the first half of 2020 with an estimated investment of R$ 1.2 billion.

Other ports are at similar stages in the process, as this is one of the Government’s priorities. Even the privatization of Port Authorities is under study.

Competitiveness for exporters

Especially for those who import, developing this infrastructure is critical. Talking about the routes the product goes through, a faster and cheaper flow ensures profitability for the entrepreneur.

As for the modernization and expansion of ports, this program can cheapen and expedite customs and logistics processes, making production arrive faster and cheaper to the countries of destination. That is, PPI is a project to keep an eye on if you want more competitiveness in new markets. This is what Villela says in his conclusion:

“The concession of these terminals guarantees investment in equipment expansion and purchase, improving the operation of our port terminals through increased productivity and reduced operating costs. Reducing logistics costs has a positive impact on everyone, as it reduces the cost of both businesses and consumers in general, who will pay less for shipping and receive their products faster.”

The biggest bottleneck in our economy is now relying the private sector. With this investment in infrastructure, we can be optimistic for a more balanced, less wasteful and much more competitive scenario in the future.

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