Business, government, and infrastructure in Brazil
March 4, 2015
With booming cities and a vastly expanded middle class, Brazil faces incredible new opportunities as well as dramatic challenges. Discussions of both quickly turn to the built environment: to provide a solid foundation for the future, everyone agrees, the nation must modernize and expand its infrastructure.
In recent decades, shifting dynamics between the nation’s public and private sectors have played a significant role in the development of critical systems like transportation and energy. Gustavo Loiola Ferreira, who leads Arup’s office in São Paulo, gave us his perspective.
Public-private partnerships (PPPs) and design-build arrangements are common in Brazil. Has this always been the case?
This all began around 1995. The majority of our highway network was built during the ’70s or the ’60s by the government — local governments as well as state and federal.
One major difference between Brazil and other countries in the world is that even with its continental size, our transportation grid is still based on roadways. We don’t have many railways in our country, and most are dedicated to freight and cargo, not passengers. The decision to have a very large and expansive highway network to connect our country was made 40, 50 years ago.
The government had to find a way to maintain, extend, and improve this network. But to be honest, they just built the roadways in the end and didn’t perform any kind of maintenance or improvement after. During the ’90s the country reached a certain moment where the maintenance and improvement of the national highway had to be done.
Brazil has very strong private construction companies that had developed new ways to build roadways. Everyone agreed that they were providing an improved service to the public. So the solution that the government found was introducing these concession programs, PPPs, and transferring everything to private sector. They chose requirements and goals, and also worked on creating the culture of having toll collection on the national roads.
PPPs were also attractive to the government because the project risk was shared with private companies.
Has that same strategy been used for other kinds of infrastructure?
Yes. At the same time that the government sponsored this large roadway concession, they used the same strategy for some railways, and also in the energy sector. Several public-private partnerships were sponsored related to transmission lines or new hydropower plants, and many other segments related to infrastructure. But I’d say that the most relevant program of all is the roadway program.
The railway program didn’t work as expected. Most of the bidders for the railway tenders were mining companies who bought the railways to use for their own interests. They didn’t have much experience transporting anything else besides their specific goods.
So PPPs became a focus in the country about 20 years ago. But there were some gaps in the middle of this period. All these processes kicked off when the party in charge of the federal government was interested in doing this kind of privatization. But the opposition party, a more left-wing party, won the next election, and they had the point of view that everything had to be managed by the government. They basically put the next stages of this program on hold for many years.
Many years later they realized that it would be best to leave management of the highways to private companies. So now we can see the result of the privatization ideas: the current government is working on the same kind of program that the former government began like 20 years ago. Besides additional roadway initiatives, we have seen two very important initiatives involving the major airports in the largest cities in the country.
The energy program has also been modified. They’re still trying to find the best model, but it’s an ongoing program.
And for the next stage we can expect a huge movement toward railways and ports. The government has introduced some modifications to the current laws in Brazil, although these changes were not appreciated by the private companies. We haven’t seen too much interest from many private investment groups for railway and port initiatives because the legislation is weak and needs some improvements.
So that’s something that’s still being figured out?
Yes, we can expect that within the next two years everything will become clearer and closer to reality.
Brazil’s middle class is growing fast, but the country still has one of the world’s highest levels of inequality. How do you see these economic and social realities affecting what’s being built in Brazil?
With the increase of the middle class in Brazil, the kinds of demands that have begun to arise from the general population have been changing a lot. More people are getting access to different kinds of things, but also are becoming more deeply aware of the country’s problems.
There’s been a huge movement to put some pressure on the government — local, state, and federal — to really do things in a faster way, and in a clever way. One of the biggest demands from the general population is the public transportation system’s improvement.
How are these demands being addressed?
A lot of work still needs to be done, but there have been some improvements. We are involved in one of the biggest initiatives here in the city of São Paulo: a new metro. We’re supporting a number of tenders for this program. It’s considered one of the biggest steps in really improving the urban transportation system that’s been taken here in the past 50 years.
Was that also built through a public-private partnership?
So basically everything’s being built through PPPs now.
Actually, the government decided it’s not really a question of having funds; it’s more than that. Now, they realize that they’re careless in managing large infrastructure projects. Negotiations tend to take forever; there’s a lot of corruption involved. The best way, they’ve realized, is to leave the private sector to manage these kinds of initiatives, because they can do that very well, they have expertise. Then the government can focus on other sectors of the country’s needs that the private companies wouldn’t get involved in.
So you think the move to PPPs has come to be viewed as basically apolitical? You said that a left-wing government came into power some years ago and said “No, we don’t believe in delegating infrastructure projects to the public sector.” But you think that today it’s generally accepted that PPPs are simply the most practical way to get things done?
For many years this was a controversial political discussion between the two major government parties in Brazil. But the left-wing government that’s been in power for the past 12 years, in fact they’re doing the same thing that the previous government did. They’ve just changed, subtly, some of the rules and some of the technical aspects of the program, but in the essence it’s the same program. So this discussion is over now.
And the results have been better?
Yes, much better.
Many private firms from around the world are now working in Brazil, and Latin America more generally. Is this something that’s changing daily practice in São Paulo? What have you noticed most on the ground?
In 2008 or 2007 we had a great movement of Spanish companies coming to the country. But this came out of the economic crisis in Europe and elsewhere, and international firms have returned to their countries of origin to some extent. In the infrastructure industry here, the great majority of the market is owned by local companies.
On both the consulting side and the contracting side?
On the consulting side, no, it’s a little bit different. We have very large local engineering companies, but we also have some international companies. All of them have had different approaches for getting to the country. Some of them are buying an existing company; some of them just have a small commercial office. Arup stays in the middle.
All these concessions and this whole initiative to migrate infrastructure access to private groups has offered very good opportunities to international engineering companies.
It’s also beneficial in terms of improving engineering services standards — improving the quality level up to more of an international standard. Transportation clients here are looking for partners that can really help them in thinking of the best engineering approaches for their projects; they want to benefit from their international experience.
Also, there are some companies here that have some foreign investment groups structured under their equity. These companies like to use engineering services with international reputations.
Brazilian engineers and construction specialists also provide expertise in particular areas on an international level: dam construction, for example.
So all these factors are putting more pressure on the country to be more open to international corporations rather than doing all the design locally, as was more common maybe 15 years ago.