Brazil’s Chaotic Transportation Systems At Stake – The Role Of The Private SectorBy: Arnaud Koehl, Research Associate at Council on Hemispheric Affairs
The operational failures of the Brazilian transportation system have had a detrimental effect on the country’s broader economy. Combined with other concerns including excessive taxes and bureaucracy, the obviously inadequate infrastructure is largely responsible for the colossal lack of competitiveness known as the “custo Brasil” (in English, the “Brazil cost”) that afflicts the country. Brazil’s freight haulage productivity especially suffers from the excessively complex logistics involved in disbursement. In 2007, transport costs represented a gargantuan 13 percent of Brazilian GDP, compared to the United States’ relatively efficient 7 percent.5 Thus, it costs an average of $1,240 USD to export a container of freight while the same task requires only $990 USD in the United States. This particularly damages the pre-eminent agrifood sector’s performance, therefore multiplying both external and internal prices.6
In order to prepare for the inevitable oncoming transitions in Brazil, the whole transportation matrix of the country needs to be remodeled. The World Bank’s 2010 Logistic Performance Index describes Brazilian infrastructure as “still outdated and undeveloped,” and ranking it as the 41st country in the world. The exorbitant costs of the Brazilian transportation system are correlated with the burdens of the road sector, which comprises sixty percent of the country’s total freight volume, demonstrating a critical need for diversification through multimodality.
Fortunately, the current economic climate allows for a comprehensive investment plan which would reverse historical problems while bolstering its economy. The total overhaul of Brazilian infrastructure will combat the country’s developmental necessities, while seeking to wholly transform the country. Through the National Logistics and Transports Plan (PNLT) and the Program for the Acceleration of Growth (PAC), the government allotted more than $29 billion USD between 2007 and 2010 to transportation.7 President Rousseff, previously nicknamed “the mother of PAC,” extended the program into the so-called “PAC 2,” thus adding to already numerous large-scale projects often challenged by Brazil’s large geographic size. This could potentially create jobs and stimulate growth. As the World Bank has noted, “any change in the transportation matrix will have a broad and complex impact on the Brazilian economy.”8
The shifting equilibrium between the private and public transportation sectors remains an important issue. Christopher Garman, director of Eurasia Group, depicted on July 10 the necessity for creating a new constructive framework, insinuating that only the private sector would be able to improve the PAC. According to Carlos Cavalcanti, head of the Infrastructure and Energy Department at the Industrial Federation of the State of São Paulo, the privatization would actually solve the “Bras infection,” an expression bemoaning the sprawling bureaucratic and rarely efficient public companies traditionally including “Bras” in their name. Besides the expected efficiency improvement, the World Bank concludes that the privatization process allows for a significant increase in finances. Therefore, Brasilia is shifting from primarily investment to increased regulation in order to control inappropriate and unwise private investments. However, public regulation has begun to suffer from deficiencies that have emerged from the ambiguity of the objectives and proliferations of specialized public agencies. Consequentially, a profound reorganization is crucial if the bureaucratic standards of the regulatory branch are to be made relevant.
Brazil recently implemented various public-private partnerships (PPPs) in its Logistical and Transports National Plan’s (PNLT) strategy through numerous auctions and concessions. Several projects demonstrate a massive transfer to the utilization of private companies, aimed at cost reduction as well as improving transportation’s efficiency. Operations such as the Federal Highways Concessions Program (PROCOFE) have already undergone such concessions.9 Brasilia is focusing on transforming the Brazilian coast and its extremely congested seaports, and in particular, must address the complete renovation and expansion of the Rio de Janeiro port as well as the road that connects Santos and São Paulo.10
The primary embodiment of the plan can be seen at the country’s airports. Guarulhos (São Paulo), Viracopos (Campinas) and Brasília’s airports started the auction process in early 2012, deals involving hundreds of billions of dollars with multinational conglomerates and the state.11 In order to bid, companies were required to meet rigid rules, but the bid still significantly surpassed expectations. Moreover, Infraero, the state-controlled company in charge of infrastructure operations, kept a 49 percent stake in each airport, providing another guarantee that the adoption reflected a stable consensus between private and public management. Combined with the auctions’ economic aspects, they consolidate Brasilia’s choice to expand concessions of infrastructure, notably to the Rio de Janeiro Galeão International Airport, already targeted by foreign companies including Aéroports de Paris.12 Currently, this orientation rewards the political courage of President Rousseff and her war against congestion, especially considering the projected enormous increase in traffic and national preparations for the 2014 FIFA World Cup and the 2016 Olympics. A member of the ruling leftist Worker’s Party (PT), her pragmatic approach allows the aviation sector to utilize international expertise while implementing the large scale expansion and designing reforms estimated to cost about $1.98 billion USD, for the five principal airports.13 However, the massive lack of developmental policies implemented during the two previous decades has resulted in a strained collection of colliding problems and misconceived mega plans that have some upset. When it comes to significant progress in the sector, Brazilian air infrastructures will continue suffering from an inadequate structure.
In order to effectively address congested airways, the emblematic high-speed train project TAV (High Speed Train) has also become an irresistibly attractive alternative between Rio de Janeiro, Campinas and São Paulo. The government auction granting control authorization to issue the contract attracted eight international conglomerates including Siemens, Alstom, and China Railway Materials. Due to geographical challenges, this project involves technologically and economically ambitious engineering and construction, thus Brazil cannot neglect the assistance of foreign companies. Still, the recent meeting between President Rousseff and Turkish Prime Minister Erdogan demonstrated that the decision could follow a geopolitical approach over a mere qualitative one by selecting an emergent country ally.14 The TAV project and its construction bill cause pessimistic forecasts concerning its long-term viability. Indeed, consequent usage costs represent a main concern given the economic challenge of prohibitively high fares.
Due to the economic risks, questions also remain about the relevance of the TAV project. Initially planned to be completed in time for the 2016 Rio Olympics, the project has been delayed to the point that its inauguration date is unknown.15 Its predicted high cost tickets will increase and normalize social differences by excluding much of the working class from the most efficient mode of transportation. According to the National Terrestrial Transportation Agency (ANTT) forecasts, this will be mitigated through a much more efficient transportation system.
Even if the southeastern region desperately needs improvement of its communication’s matrix, Brazil’s efforts will lead to grossly unequal levels of infrastructure throughout this territory. Thus, the TAV will increase regional discretional eclecticism, mainly regarding the under-developed Northeast, by conferring a high-performing transportation service for the wealthiest part of Brazil. Further, the World Bank pinpoints inter-regional concerns because “national transportation networks shape the patterns of competition and cooperation between various regions, and growth in one may come at the expense of another.”16 Undoubtedly, a country must first invest in its main axis in order to develop and permit a broader use of new technologies in connected parts of the system.
As the private sector becomes increasingly engaged in the transportation sector, it ushers in an opportunity to improve Brazil’s bureaucratic inefficiency. Provided that the grand design does not stand privatizations but concessions, the government will have smartly positioned itself and will have gained popular political support. The stimulus package pledged by Rousseff on August 15 is meant to contribute $66 billion USD over 30 years to the railway and road sectors. The government’s understanding of the transportation sector’s essential role in to boosting the Brazilian economy will allow it to undertake a boom in construction while facing an unprecedented slowdown.17 Nevertheless, this tsunami of privatizations will encounter a strong opposition in Rousseff’s own complex political coalition, where various senior leaders fear an abandonment of public prerogatives for sources of capital and which will emphasize the necessity to strengthen the entire nation instead of focusing only on economic growth.
Originally published on September 3, 2012.
Arnaud Koehl, Research Associate at Council on Hemispheric Affairs
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