Striking a balance: Brazil's quest to blend public and private infrastructure investment

The Brazilian administration led by President Luiz Inácio Lula da Silva has reiterated its intent to increase public investment in infrastructure and recent data has shown that this is now taking place.

However, at the same time, the government is taking care to manage the perceptions of financial market agents, trying to demonstrate that it is being responsible with budget execution to avoid creating pressure on interest rates that could limit room for public investment due to higher spending on servicing sovereign debt.

Given this need for balance in public accounts, investments in infrastructure in Brazil are being funded by a combination of the public and private sectors.

Camila Affonso, a partner at infrastructure consultancy Leggio, speaks with BNamericas about the situation and tells us more about the government's initiative to attract more Arab investors to the country.

BNamericas: Is it likely that public investments in infrastructure will trend upward in the coming years?

Affonso: It's difficult to reach that conclusion without making some important considerations. We've seen that there's pressure on the government in relation to budget execution, which comes from financial market agents, who are pressing for more control of public spending.

But at the same time, we have to consider that there's a more favorable environment for government accounts due to the fact that inflation is slowing, indicating that there could be a reduction in interest rates, which would point to a scenario that is more conducive to investment.

BNamericas: With the recently announced PAC program, are public investments increasing?

Affonso: What we can expect within the context of the PAC is maintenance of public investments, but aligned with private sector participation.

The government showed in the PAC that it's not likely to cover all of the necessary investments in its budget alone, as the administration is also calling on the private sector to invest.

That's why I see a scenario of joint action between the public and private sectors in investment.

BNamericas: Why are there infrastructure sectors in which it is difficult for even the government to increase investment, such as railroads, for example?

Affonso: Investments in railroads have some different characteristics to those that we have in the area of highways, for example.

The regulatory environment for railroads has undergone updates and improvements only recently, but that environment is still not as advanced as for the highways. Despite the advances in regulation, the rail sector is still very challenging, even for the government itself to take on projects. Highways have a much more mature regulatory environment.

BNamericas: Brazilian government representatives are visiting countries in the Middle East this week, trying to attract investment. Where do you think Arab countries’ appetite for Brazil lies specifically?

Affonso: The profile of the Arab investor isn't concentrated on a single sector. I see interest from Arab investors in assets in infrastructure, logistics and also in the energy sector. But we have to emphasize that the interest and participation of Arab investors in Brazil is not a recent phenomenon as they already have a presence here; it's an ongoing process.

Arab countries have large amounts of financial resources and are in the process of diversifying their economies and they see Brazil as a country with the potential to help them with that diversification.

BNamericas: Do Arab investors tend to look at assets in Brazil individually or with a tendency to seek local partners?

Affonso: The tendency is to always look at the possibility of having a local partner who knows how to do business in the country and who also has a better understanding of the risks associated with each sector.