Only 65 Percent of Infrastructure Investments Executed in Brazil

By Lisa Flueckiger, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – Data collected by the IPEA Institute (Institute for Applied Economics Research) shows that only 65 percent of all transportation infrastructure investments that were planned by Brazil’s federal government between 2003 and 2014 were actually executed. Low quality of planning, bureaucracy and delays in obtaining necessary licenses were cited as the main causes.

The institute showed with its data that the low advancement in infrastructure development in Brazil therefore is not only a question of not enough money invested, but also one of ability to spend the allocated money in an efficient manner and as planned.

“What the figures show is that the low investment in infrastructure has not occurred for lack of money. What happened was an inefficiency in the management of public resources,” Infrastructure specialist from IPEA, Carlos Campos Neto, stated.

Between 2003 and 2014, R$206.7 billion were authorized in the federal budget for transportation infrastructure such as highways, railways, ports and airports, but only R$135 billion were spent, executing projects.

The outlook for 2015 and 2016 remains rather bleak as well. Additional to the inefficiencies in spending the allocated money, cuts in investments are expected due to the fiscal adjustments planned by the government made necessary be the dire economic situation in Brazil.

Campos Neto estimates that actual spending in transportation infrastructure will total R$11.6 billion in 2015 and R$12.10 billion in 2016, numbers well below previous years.

The main causes for the inefficient execution of transportation infrastructure projects are the low quality of planning, the politicization of the executing agencies, bureaucracy, mainly due to the law regarding bidding processes, and delays in obtaining environmental licenses.

The worst results were registered regarding infrastructure in ports with only 46.39 percent of allocated money, executed in projects. Highways and railways showed a rate of 69 percent, while airports executed 59 percent of all investments.

“The Docks companies [related to the Secretary for Ports] are dominated by political interests. They have labor debts that end up kidnapping resources and they also faced freezing of their rates in the recent past,” Claudio Frischtak, of Inter.B explained to O Globo.

However, Campos Neto, author of the IPEA study, sees improvement over time in the twelve years he researched. While the pre-PAC period between 2003-2006 was characterized by low investments and low execution, the second period between 2007 and 2011 with the PAC1 program already saw initiatives to speed up the execution process and a higher investment rate overall.

In the third period, between 2011 and 2014, investments fell and then stagnated, but the execution rate increased from 54 percent in the first period and 61 percent in the second period to 69 percent in the third.

Yet, a higher execution rate doesn’t necessarily mean higher quality in projects. In the World Bank’s Logistics Performance Index, which also considers quality and fulfillment of deadlines, Brazil ranked 45th out of 155 countries in 2012. In 2014, the country had fallen to the 65th place.

“We are walking towards an economy that only lives from day to day, and does not think in the long run. Brazil needs to grow to include people in the economy. This happens through efficiency in investments,” Eduardo Padilha, specialist in infrastructure at Insper concluded in O Globo.