Brazil infrastructure players see reasons to be cheerful

Players in Brazil’s infrastructure sector are optimistic about the outlook for the coming years thanks to the increasing number of projects being structured and the greater variety of sources of financing.

Roberto Guimarães, planning and economics director at Brazilian industry and infrastructure association ABDIB, and former national treasury secretary, talked to BNamericas about the scenario.

BNamericas: What is the current scenario for construction companies in Brazil?

Guimarães: In meetings we’ve had with companies and sector leaders in the construction area, we’ve noticed growing optimism, which is closely related to the progress of infrastructure projects included in the federal government program, the so-called new PAC.

This optimism is in line with what we also witnessed when we [at ABDIB] prepared our annual study, which we call the Infrastructure Blue Book, where we map projects being structured and in the most recent edition of this study we mapped more than 500 projects with investment potential of more of 900bn reais [US$178bn].

BNamericas: What are the characteristics of these projects?

Guimarães: These projects refer to both PPPs and concession contracts and there are so many projects that it’s hoped that companies will be able to meet this great demand ahead.

In fact, there is a very positive scenario today for the materialization of these projects, given the combined desire of the federal government, state and municipal governments and the private sector.

BNamericas: Which segments have the most projects mapped?

Guimarães: Of the more than 500 projects, the areas with the most projects are highways, sanitation, railways, social infrastructure and electricity.

BNamericas: What is the current financing scenario for these projects?

Guimarães: The financing landscape for projects in Brazil makes the current scenario unprecedented in the country.

In the past, we had sources of financing very concentrated in [development bank] BNDES.

Now, in addition to a scenario of reduced interest rates, we have financing from BNDES itself, from the federal government, companies raising their own funds in the capital market, through issues of incentivized debentures and infrastructure debentures, international financing, with banks, multilateral institutions and for those projects with an appeal linked to sustainable practices, there’s also the so-called green financing.

We’re beginning to see in Brazil instruments offered by the national treasury that help companies adopt foreign exchange rate protection in financing operations, which opens up room for companies to increase their fundraising abroad, which historically offers lower interest rates than in Brazil.

The combination of a large volume of projects being well designed with more robust financing structures makes us optimistic about the scenario.

BNamericas: You mentioned the interest rate reduction but recent macroeconomic indicators show that interest rate cuts in the world may be slower than expected, according to many economists. Do you share this view?

Guimarães: Everything indicates that base interest rates in the main countries will remain at a level slightly higher than expected until recently.

In fact, we’re likely to no longer have a global interest rate scenario as low as we had in the first years of the pandemic and even going back further, at the time of the subprime crisis.

But yes, we will have a global interest rate reduction this year. Throughout 2024 and 2025, we’ll have a lower interest rate scenario than we have at the moment, but we won’t reach levels as low as in the first quarters of the pandemic or even during the first years after the subprime crisis.