Introduction to Infrastructure in Brazil
Team Leader: Matthew Tai
Analysts: Micaela Hanley, Andrew McKenzie, Natalia Rohraff, Rojin Hessami, Nicholas Di Cecco
With the emergence of Brazil’s political and economic instability, growth in this Latin American country has been compromised by structural deficiencies. One of the most critical areas affected by these deficiencies are the challenges to the development of infrastructure. The infrastructure of a country refers to the physical and organizational structures such as buildings, roads and power supplies that it has put into place for the effective operation of the society. According to the World Economic Forum, Brazil ranks 123rd out of 144 countries in the overall quality and level of infrastructure development. Common risks to the industry generally stem from instability due to political and economic sources, as well as social unrest.
Political Situation
When asked about political instability in their country, 86% of Brazilian respondents stated that it is a major issue in the country of Brazil and only 26% believed the situation would improve. In the same survey, respondents were asked their thoughts on Brazilian political leadership and 95% of respondents stated that political corruption among leaders is also a major issue in their country. In the past year, Brazil has been subject to a series of social and political crises, and according to professionals, the nation is likely to relapse into a state of instability.
Brazil’s current presidential system through public voting was only retained in 1993, as the government had previously been under military rule from 1964 to 1985. In 2016, Brazil’s first female President, Dilma Rousseff, was impeached and forced to leave office. The former President was charged with falsifying the federal budget in order to obscure the country’s increasing economic problems. In addition, Rousseff was impeached on the basis of her leadership capabilities and misjudgement with regards to the nation’s fortune. Following Rousseff’s exit from office, Michel Temer, her successor and the current Head of State, struggled as his presidency was in jeopardy as well. President Temer was caught on tape in May 2017 endorsing a bribe to the former Speaker of the House Eduardo Cunha to stay quiet. Cunha was a key player in the fight for the impeachment of former Brazil President Rousseff, which brought
Brazil’s most recent instance of terrorism occurred in 2016 prior to the Rio Olympic Games. According to authorities, twelve individuals suspected of planning terrorist attacks at the Rio Olympics were arrested by Brazilian police. The group was said to have not been directly linked to the Islamic State (ISIS), however, they were inspired by the active terrorist organization and on many occasion attempted to contact the extremist group. Despite being characterized as an amateur group, Justice Minister Alexander Moraes, as well as top military aide in Brazil, have expressed their concerns of terrorism has escalated significantly.
Economic Situation
Like many other Latin American countries, Brazil’s future as an economic engine has also been chained to a long past of instability. Since 2017, Brazil has been recovering from the most severe recession in its history. Though the nation’s economic growth rate had been slowing steadily since 2006, Brazil’s GDP contracted by over 7% between 2014 and 2016. During this period, the Brazilian public had faced record-high unemployment rates, leaving 14 million citizens (14% of the country’s labour force) out of work. The passage of regulated pricing of goods and exchange rate depreciation caused inflation to peak at a rate of 10% in 2015. Brazil’s economic situation further worsened when allegations surfaced regarding President Temer’s discussion of bribery with a former lawmaker, causing markets to plunge by more than 10%.
Brazilian agriculture and industry sectors helped alleviate the nation’s recession with a record harvest of Brazil’s main export, soybeans. The export of soybeans has been a leading agent in the economic turnaround. Transparent monetary policy and
In order to assess Brazil’s stability, the nation’s foreign relations must also be taken into consideration. Maintaining a positive, stable relationship with the United States is ideal for many countries. However, Brazil’s dominance in the Latin American region creates both opportunities and challenges for the U.S.A, which would like to establish a stronger affiliation in areas such as security, trade, and energy matters. Throughout the former administration of US President Barack Obama, Brazil was consistently regarded as a significant power, particularly in its influence and ability to act as a stabilizing force within the region. Despite both states sharing mutual objectives for regional stability, the independent approach to foreign policy adopted by Brazil has created various conflicts with the United States in regards to trade and political issues, such as the nation’s blatant opposition to the Iraq War and U.S.A’s prohibition of Cuba.
Infrastructure Outlook
For a country with vast resources, a growing purchasing power, and a new role in global politics, Brazil has still not made sufficient investments in its infrastructure. In the 1970s, infrastructure investment averaged 5.4 percent of GDP but that number has dropped off to just over 2 percent in the 2000’s. Roads require upgrading although they remain the most common method of passenger and freight transportation due to a limited rail network. Furthermore, despite the existence of several rivers, waterways are rarely used except as an access to isolated points in the Amazon region. While the 2014 FIFA World Cup and 2016 Olympic Games have presented opportunities for Brazil to benefit from tourism and prove to the world that it is as an important global player, the private sector continues to suffer setbacks that reduce infrastructure investment. As a result, to address these issues and as a strategy to restore business confidence into the industry, the Brazilian government launched the Investment Partnership Program (PPI) also known as “Projeto Crescer” in 2016 – an infrastructure concessions program to raise US$14.4 billion in investments for building and operating roads, port terminals, railways, and power transmission lines. However, while the government’s concession program has the potential to step up and speed up infrastructure investment in the country, it by itself may not be enough to boost potential growth significantly.
