Brazil: How Bolsonaro’s government’s successful strategy to attract investment is working out
RIO DE JANEIRO, BRAZIL – Last month, Brazil’s successful auction of deepwater oil reserves was hailed as a sign of big oil companies’ appetite for crude. But for Brazilian officials, the auction was also a turning point for the government’s infrastructure and natural resources concession program.
An earlier attempt to hold the complex auction had failed in 2019. “We cannot hide our joy,” said Bento Albuquerque, Brazil’s minister of mines and energy, referring to the US$2 billion in royalties collected for the cash-strapped government and the additional US$35 billion in investments to be made in the country’s oil and gas sector by companies such as Shell and TotalEnergies.
In contrast to the government’s most touted plans for structural economic reforms, which have been failing Congress for years, the program to attract private companies to invest in – and operate – major infrastructure projects has boomed.
Since President Jair Bolsonaro’s government took office in 2019, 131 concessions have been auctioned, generating more than US$145 billion in investment and US$26 billion in fees for the government. In the previous two and a half years – since the investment program began in 2016 – the figures were US$44 billion and US$8 billion, respectively.
And officials expect more than 150 concessions to be auctioned this year and US$70 billion in investments to be made as mostly local investors put in their money.
The program is one of the rare bright spots in Bolsonaro’s economic plan, generating billions in much-needed investment in the country’s road, rail, logistics, and sewage systems.
The program is an engine for an economy that has struggled to grow for nearly a decade. Despite a strong recovery from the initial effects of the pandemic, many economists predict that Latin America’s largest economy will contract again this year due to the combined effects of inflation, rising interest rates, and weak consumer confidence.
“The projects to be tendered … are already well advanced, and we are sure that it will be the most intense year for concessions of this government,” said Tarcísio Gomes de Freitas, Minister of Infrastructure.
Projects for 2022 include 26 airports, 25 ports, ten transport routes, and nine national parks and forests. In addition, the government plans ten auctions of mining rights.
However, independent analysts point out that while Brazil has attracted some international companies – Vinci Airports in particular – investment is still mainly by local companies.
Despite the growing threat of double-digit inflation, rising interest rates, and persistently high unemployment, Paulo Guedes, Brazil’s finance minister, believes these investments will boost economic growth to 2% by 2022.
However, economists warn that this year’s elections could hurt investor sentiment, likely to pit Bolsonaro against leftist former President Luiz Inácio “Lula” da Silva in October.
“Paulo Guedes is putting too much faith in private investment,” said Mauricio Molon, chief economist at Logus Capital in São Paulo. “The business community and market sentiment don’t trust Lula or Bolsonaro. It will put a lot of investments on hold.”
Martha Seillier, the government’s special secretary for the Investment Partnership Program, said the success so far is due to “structuring projects” and a more investor-friendly approach in a country that has always been driven by bureaucracy.
In contrast, the government has failed to pass its major economic reforms, including simplifying Brazil’s convoluted tax system and reforming the state’s administration. “Paulo Guedes needs to show the market that he is acting, doing something and that the government is not finished yet, but that is not the feeling we have,” said Carlos Melo, a political scientist at Insper. “The feeling is: what else can we really expect from Bolsonaro’s government?”.
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