Lula da Silva “inherits” US$15.3 billion in investments contracted for 2023

By Célio Yano

Brazilian President Luiz Inácio Lula da Silva (PT) assumed his third term at the Planalto Palace with a “blessed” inheritance from his predecessor Jair Bolsonaro (PL): R$81.9 billion (US$15.3 billion) in private investments contracted only for his first year in office. 

The value, foreseen in the Investment Partnerships Program (PPI), may contribute to a GDP growth in 2023 well above the current projections of banks and financial consultancies, according to an information note from the Economic Policy Secretariat (SPE) of the now defunct Ministry of Economy.

According to the secretariat, a calculation with statistical loading and historical pattern, using the average growth rate of the last 10 years in the quarterly margin with seasonal adjustment, indicates a GDP growth range in 2023 between 1.4% and 2.9%. The median of market expectations captured by the Focus bulletin, from the Central Bank (BC), projects just 0.8% for next year.

Among other factors, the document emphasizes the direct relationship between an increase in the investment rate and short-term growth. “Long-term growth is not affected by the increase in the investment rate, but the increase in this indicator provides greater growth in the transition period for the highest level of product per worker,” says an excerpt from the note, according to which each addition of 1 percentage point in the investment rate increases potential GDP by 0.17 percentage points on average.

“Moreover, a relevant part of the increase in investment is due to the greater presence of the private sector, whether in the allocation decision or in financing. It is observed that the level of private investment, according to SPE estimates, is historically high and similar to that seen at the beginning of the last decade.”

PPI data show that the R$81.9 billion expected in investments for next year represent almost 10% more than expected for 2022 (R$74.6 billion). In 2021, investments in the PPI were close to half of that amount, around R$40 billion.

In 2023, disbursements should mainly benefit the oil and gas (R$26.5 billion), transport (R$18.5 billion) and electricity (R$20.5 billion) sectors. Other undertakings with relevant participation include the communication sector (R$8.4 billion), projects of subnational entities (R$6.2 billion) and regional development (R$745 million).

The total investments in infrastructure contracted under the program, largely related to concessions to the private sector, is in the order of R$1.3 trillion, of which R$416.2 billion should be disbursed by 2025.

For technicians, the main risk for the materialization of this scenario is related to global growth in an environment of higher inflation. “This Secretariat’s projection assumes a slowdown in activity in emerging and developed countries throughout 2022, but does not incorporate a recession in this and next year in the basic scenario,” says the note.

In the document, technicians also point out that GDP growth in the last three years has been consistently higher than forecast by the market “by two standard deviations”, which has not occurred since the creation of the Central Bank’s Focus report. “Articles show that the market consensus is slow to include changes in the trend of the economy in their estimates”, they assess. “Thus, the persistence of projection errors over the past three years may indicate a change in the growth trend.”

In February last year, the same SPE forecast a 2.1% increase in the country’s economic activity for 2022, while the median of projections by financial institutions estimated annual GDP growth at 0.3%. At the end of the year, the market consensus reached 3.04%.

At the time of the estimate, the then special advisor for Strategic Affairs at the Ministry of Economy, Adolfo Sachsida, attributed the disparity in the official forecast precisely to the significant increase in investment and savings rates and in total resources contracted from the private sector.

“Investment today goes where it is most efficient, not where the government sends it. You no longer have a ‘national champions’ policy established by Brasilia. The investment is going to where it generates the greatest economic return”, said Sachsida in a conversation with journalists at the time.

With information from Gazeta do Povo