Brazil Infrastructure Report Q3 2008

The Brazilian Association of Infrastructure and Basic Industries (Abdib) has estimated that the country's infrastructure investments so far in 2008 have fallen below expectations and anticipate this trend to continue. For 2008, they expect to see a year-on-year (y-o-y) increase of 3% in infrastructure investments, which will cover only 80% of the country's infrastructure needs. However, BMI believes that the Brazilian infrastructure sector is going through some very positive structural changes which, coupled with the strong wider macroeconomic context, will result in rising investments over the medium term.

Abdib forecasts that Brazil's infrastructure investments will reach an estimated BRL86.6bn (US$54bn) in 2008, compared with BRL84bn (US$52.4bn) in 2007. The sector's annual needs, according to Abdib, are BRL108.4bn (US$67.6bn) - 40% of which are needed for the country's burgeoning oil and gas sector. As a result Abdib recommends that BRL108.4bn should be the minimum amount spent on infrastructure annually for at least the next decade, in order to ensure that the energy, transport, telecoms and sanitation infrastructure does not deteriorate. Of this total, on an annual basis the power sector needs BRL21bn (US$13.1bn); transport BRL21.8bn (US$13.6bn); sanitation BRL10.5bn (US$6.55bn); and telecoms (US$8.4bn).

We are more bullish in our outlook than Abdib. We view both the strong private sector demand for participation in Brazil's infrastructure sector and an ameliorating business environment (including the creation of more public private partnership (PPP) schemes) as positive structural changes that will, over time, unlock significant new investments in infrastructure.

According to BMI's forecasts, real growth in the construction industry will average 5% annually between 2008 and 2012. We predict that the value of the industry will reach US$194bn in 2012, up from an expected US$130bn in 2008. Our anticipated rates of growth for Brazil's construction industry slightly outstrip those for the economy as a whole: we predict that GDP growth in Brazil will average just under 4.5% over the 2008-2012 period. This moderate difference in projected growth paths is accounted for by the positive influence of the public sector, which will mean that overall investment in infrastructure is likely to be higher than in other sectors of the economy.