In a recent note to clients, Banco Santander has discussed the recent stimulus measures to boost industrial production in Brazil. The report (Will Stimulus Measures Boost Industrial Production?) also offers data on the quality of infrastructure in the country and compares it to other emerging countries (see below – Brazil’s average score is red-lined).

And it says the following:

“The matter of insufficient infrastructure deserves a closer look. The same survey on global competitiveness places Brazil well behind its counterparts in nearly all aspects of infrastructure — with the notable exception of energy, where Brazil’s large access to renewable sources (hydro power plants, biofuel) places the country at an advantage compared with some of the emerging markets.

In an effort to tackle this problem, since 2007 the government has launched a number of editions and sub-editions of the Programa de Aceleração do Crescimento (PAC), which is meant to be a collection of significant works (with a focus on infrastructure) carried out by both the public and private sectors. However, so far the public sector has been slow in executing its share of investments, in part due to its little fiscal space, given the budget rigidities and the policy of sustaining primary surpluses. At the same time, investors perceive some government reluctance to allow the private sector to effectively participate in the infrastructure effort. On the financing side, the government announced tax breaks for infrastructure-related long-term capital market operations (back in year-end 2010); nevertheless, regulation seems to be much less friendly to the private sector when it comes to making room for a partnership, rather than merely facilitating a financing relationship. For example, the government shows little willingness to advance in concessions of roads, ports, and airports— as illustrated by the concession of the three main airports (Guarulhos, Galeão, and Viracopos), which took place as recently as last February/12, but leaving little time for investing in the capacity expansion required to meet the demand arising from the upcoming World Cup Games (2014). The market perception is that, in this aspect, the government’s effort has been too little, too late.”

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