Available via license: CC BY-NC-ND 4.0
Content may be subject to copyright.
The Quarterly Review of Economics and Finance 62 (2016) 66–73
Contents lists available at ScienceDirect
The Quarterly Review of Economics and Finance
journal homepage: www.elsevier.com/locate/qref
Infrastructure and its role in Brazil’s development process
Edmund Amanna,∗, Werner Baerb, Thomas Trebatc, Juan Villa Loraa
aUniversity of Manchester, United Kingdom
bUniversity of Illinois at Urbana-Champaign, United States
cColumbia University, United States
article info
Article history:
Received 30 August 2015
Received in revised form 15 July 2016
Accepted 19 July 2016
Available online 3 August 2016
12.009: L9 – Industry Studies
Transportation and Utilities
15.001: O1 – Economic Development
15.002: O2 – Development Planning and
Policy
18.004: R4 – Transportation Systems
Keywords:
Infrastructure
Regulation
Growth
Brazil
abstract
This article considers the relationship between growth and infrastructure spending in the Brazilian con-
text and the nature and causes of infrastructural underinvestment. The paper begins by considering the
relationship between infrastructural investment and economic growth on both a national and regional
basis. Next, focusing on the critical urban transportation sector, the paper gauges the infrastructural
shortfall facing Brazil and the policies designed to overcome it. Given the obvious importance of infra-
structure, why has investment not been higher? In the final section we argue that a central reason for
this lies in regulatory design and implementation.
© 2016 The Authors. Published by Elsevier Inc. on behalf of Board of Trustees of the University of
Illinois. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/
4.0/).
1. Introduction
Well before the emergence of its current political and economic
crisis, Brazil’s once favorable track record on inclusive growth
masked serious structural deficiencies. One of the most important
of these centered – and continues to center – on the quality and
quantity of its infrastructure. The infrastructural challenges facing
Brazil are epitomized in the well documented difficulties that sur-
rounded the construction of facilities for the 2016 Rio Olympics.
However, the infrastructural issue runs far deeper than this heavily
publicized case, extending across transportation, energy, telecom-
munications, sanitation and housing.
Infrastructure has moved to the heart of the policy agenda in
Brazil. Since 2007, the authorities have been attempting to engi-
neer a step change in the scale and quality of infrastructure across
a range of strategic sectors. One major effort in this direction, real-
ized under the Lula and Rousseff administrations, was the Growth
Acceleration Program (or PAC, to use the Portuguese acronym).
This envisaged significantly raised investments in highways,
∗Corresponding author at: Economics, School of Social Sciences, University of
Manchester, Manchester M13 9PL, United Kingdom.
E-mail address: edmundamann@hotmail.com (E. Amann).
railways, energy, air transportation, telecommunications, housing,
water and sanitation. However, for reasons that will be made clear,
the ambitions embraced by the PAC were far from fully realized.
This rendered Brazil subject to significant supply side constraints.
In attempt to remedy the issues surrounding PAC, the interim
administration of President Michel Temer has launched a revised
infrastructure development program under the PPI (Program of
Partners and Investment) label. This embraces a significantly ele-
vated role for private sector capital, with a renewed emphasis on
public private partnerships.
The ingrained challenges surrounding infrastructure form both
the background and stimulus for this paper which adopts the
following structure. First, Section 1briefly considers the relation-
ship between infrastructural investment and economic growth.
This relationship is examined on both in relation to the Brazilian
experience and more broadly. A highly positive link is established
between infrastructural investment and growth. Bearing this in
mind and Brazil’s long-term growth underperformance vis-à-vis
other major emerging market economies, the question then is to
what extent and why has Brazil failed to channel more resources
in this direction? Section 2gauges the infrastructural shortfall fac-
ing Brazil, with extra focus on the urban transportation sector. The
urban transportation focus in our paper stems from the especially
high profile of this sector in the Brazilian infrastructure debate. This
http://dx.doi.org/10.1016/j.qref.2016.07.007
1062-9769/© 2016 The Authors. Published by Elsevier Inc. on behalf of Board of Trustees of the University of Illinois. This is an open access article under the CC BY license
(http://creativecommons.org/licenses/by/4.0/).
E. Amann et al. / The Quarterly Review of Economics and Finance 62 (2016) 66–73 67
has been driven by the obvious ramifications for social inclusion
and quality of life in cities. Attempting to understand why chronic
underinvestment has arisen, Section 3briefly analyses the evolu-
tion of recent infrastructural policies (especially the PAC) while
Section 4, focusing on regulatory issues, considers why such poli-
cies have fallen short of expectations.
2. The importance of infrastructure to economic growth in
Brazil
As indicated above, investment in Brazil’s infrastructure has
become a policy priority. The priority status of infrastructural
investment derives in large part from a belief that it is pivotal in
boosting growth performance. What is the empirical validity of
this view? In the remainder of this section we briefly consider the
relationship between growth and infrastructural investment in the
Brazilian and broader international context.
The causal link between infrastructure and economic growth
is one of the hardest relations to assess in macroeconomics. Eco-
nomic growth feeds investment in infrastructure, and the resulting
infrastructure accumulation impacts economic growth. The evi-
dent endogeneity between these two variables due to simultaneity
can confound the analysis, to the extent that authors have imple-
mented a significant number of identification strategies to obtain
reliable results (Straub, 2008). Examining a broad sample of this
empirical literature (64 studies in fact) Straub identifies a reason-
ably strong link between infrastructural investment and output.
Specifically, this link held (and across countries of different
income levels) in three quarters of the studies that employed a
physical measure of infrastructural investment. Interestingly, the
link was less evident in studies that employed alternative meas-
ures (including monetary measures). In one of the most important
recent studies (Calderón and Servén, 2011) the authors empiri-
cally establish an output elasticity of between 0.07 and 0.1 for
infrastructural investment (measured in physical terms) across
a range of 88 countries. In a useful literature review (Frischtak,
2013) summarizes the results of a further 6 influential interna-
tional studies (using both physical and monetary measures) which
demonstrate output elasticities ranging between 0.07 and 0.39.
In the particular case of Brazil quantitative studies of infrastruc-
tural impacts have been very thin on the ground. Perhaps the most
notable recent contribution has been based on the estimation of co-
integration models between the 1960s and 2000s by Ferreira and
Araújo (2007). Here, the authors establish the “significant impacts”
on output that can be generated by shocks to infrastructure stocks
(Ferreira & Araújo, 2007, p. 21). The authors further argue that
past reductions in capital expenditures are likely to have had high
costs in terms of foregone output and associated adverse social
impacts.
In a more recent Brazil-focused study Brazil, Amann, Baer,
Trebat, and Villa Lora (2014) analyze the sub-regional and national
impacts of infrastructure spending on output. A novel feature of
this study is its use of satellite-derived luminosity data as a proxy
for GDP, the objective here being to circumvent the endogeneity
issues which surround the econometric evaluation of the output-
infrastructure relationship.
The results of the study indicate that spending on infrastructure
has a positive effect on growth and per capita growth. Signs for GDP
and luminosity data coincide. If the sub-national authorities – the
states – increase their spending in one percentage point, then the
regional GDP growth rate would increase by 0.11 percentage points
per year, while the GDP per capita growth rate would respond with
an increase of 0.072 percentage points per year. The effects of infra-
structure spending on GDP are halved when economic activity is
measured by luminosity data. The study also found that spending
on communication infrastructure yielded the highest gains in terms
of eventual output increases.
An important point concerning the infrastructure–growth rela-
tionship, and one not always taken into account in available
empirical studies, concerns the long term effect of infrastructural
investment on demand for infrastructural services. Accepting that
infrastructural spending is a strong driver of output, it follows that
this in turn is likely to place further demands on the infrastructure
stock, necessitating yet further investment (Frischtak, 2013, p. 324).
Thus the challenge facing policymakers in Brazil and elsewhere to
stimulate infrastructural investment is likely to be an ongoing one.
3. Brazil’s infrastructural challenges: a brief snapshot
The previous section lends empirical support to the view that the
infrastructural deficit facing Brazil represents one of the key struc-
tural obstacles to accelerated growth. Some idea of the scale of the
challenge in international comparative terms is provided by the
World Economic Forum rankings (Global Competitiveness Report
2013–14). In these global rankings of infrastructure quality Brazil’s
overall standing was at 114th place. The quality of its roads was
ranked in 120th place, its railroads at 103rd, its ports at 131st, its
air transport at 123rd, and its electricity supply in 76th place. A
more thorough grasp of the issues can be gleaned by examining
data on a sector by sector basis.
According to a 2012 World Bank study, of 1.75 million kilo-
meters of highways, only 18% were paved.1This represents an
especially significant deficiency bearing in mind that 60% of Brazil’s
freight moves by road. Moreover, in relation to optimal levels, the
authorities have been spending far too little on highway mainte-
nance. In the budget for 2011–14 less than 1% of GDP per annum
has been set aside for such spending when, according to the World
Bank, 6% of GDP would be necessary to catch up with advanced
industrial countries. It is also important to note that the qual-
ity of highway infrastructure is heavily differentiated by region.
While the South and South East are comparatively well served with
divided multilane paved highways, the same is not true in some of
the less developed regions of the country, notably the North, the
North East and the Centre West. Even the capital, Brasilía remains
to be connected to the South’s multi-lane “interstate” system. Partly
for this reason, transportation costs are notoriously high in Brazil:
spending on logistics represents 15.4% of Brazil’s GDP. In advanced
countries this is typically closer to 8–10%.2
Some of the shortcomings identified regarding Brazil’s highway
sector would not be so critical were the country’s rail infrastructure
to be highly developed. However, as is the case in most economies,
the extent of the railway network is substantially smaller than that
for paved roads in Brazil (five times smaller in fact).3If one sums
the paved and non-paved road network then the rail network is no
less than 50 times smaller. Unlike in other key emerging market
economies – China and India for example – rail transportation is
almost exclusively the preserve of freight, the latter being heavily
dominated by iron ore (which accounts for no less than 79% of
total rail cargo). Brazil possesses just 3.4 km of rail per 1000 square
km compared with 14.7 km in the United States.4Another curi-
ous feature of the Brazilian rail network is that it possesses, rather
as Australia did, a significant narrow gauge as well as standard
gauge element. Such a feature poses a major challenge to network
inter-operability.
1World Bank (2012).
2World Bank (2012).
3Ibid.,p.78.
4Ibid. p. 79.
68 E. Amann et al. / The Quarterly Review of Economics and Finance 62 (2016) 66–73
Chart 1. Cars and motorcycles|Sales in Brasil (1990–2013*)
Sources: ANFAVEA Annual Report – Anuário da Indústria Automobilística Brasileira 2013 (http://www.anfavea.com.br/anuario2013/anfavea2013.zip). ABRACICLO –
Associac¸ão Brasileira dos Fabricantes de Motocicletas, Ciclomotores, Motonetas e Similares (http://www.abraciclo.com.br/images/stories/dados setor/motocicletas/
retrospectiva/2013 retrospecto setor motociclos1.pdf).
For an economy heavily dependent on exports of natural
resources-based products Brazil suffers to a surprising extent from
quality and capacity limitations in its port infrastructure. Despite
limited privatization and accompanying investment in the sector,
at turn of the 20th century inefficiencies remained. According to
Micco and Perez (2002) ‘tariffs were three to six times higher than
the international average, with long waiting times for ships’.5The
authors further establish that in ‘1998 the average cost of handling
a 10-foot container in Buenos Aires was US$ 180 – while in San-
tos, Brazil, it was US$ 350. At that time 50 workers were required
to handle a cargo ship in Santos, compared to only 14 in Buenos
Aires’.6Things did not improve by the second decade of the 21st
century. According to one report: ‘while Brazilian ports handle on
average 34 containers per hour per ship, ports such as Hamburg
handle 66 containers and Singapore 100 containers; and berthing
wait times are high and space is insufficient. The fact that Brazil-
ian ports handle 95% of the country’s trade by volume and 85% by
value underlines the scale of the problem and its broader ramifica-
tions. Important though the ports sector may be, for some authors,
at least, they may not be the most pressing priority.
Another critical bottleneck comprises urban transportation. This
sector came to global attention following urban unrest across a
number of Brazilian cities in mid-2013. Unrest here had been
sparked by a rise in bus fares and broader concerns around the
cost and quality of urban transportation.
Brazilian cities are among the most car-dependent in the world
(Biderman, 2009). Automobile production has grown from less than
one million vehicles per year in the early 1990s to about 3.5 million
in 2011. Domestic sales of autos have doubled in the 2005–2012
period and motorcycle sales also have shown dynamic growth
(Chart 1).
Automobiles are near the intersection of big business and big
government in Brazil. The country hosts more than 20 private com-
panies producing vehicles in at least 53 plants; new entrants into
this market appear regularly. The industry generates more than
150,000 jobs directly and many more indirectly through networks
of suppliers, retailers, and providers of support services. Automo-
bile sales generate significant tax revenues for the government
5Micco and Perez (2002).
6Ibid.,p.28.
with something on the order of 30% of the final consumer auto-
mobile price comprised of various federal, state, and municipal
levies.
Car ownership in Brazil as a whole is still relatively limited by
international standards. The ratio of inhabitants per automobile
in the United States, for example, is 1.2; this same ratio is 3.5 in
Mexico, a middle-income society comparable to Brazil. In Brazil, the
ratio is much higher – six residents per vehicle.7Between 2008 and
2012, years of rapid economic growth in Brazil, the percentage of
Brazilian homes with either an automobile or motorcycle increased
by nine percentage points from 45% to 54% of all households.8In
some of the wealthier states in the south of Brazil, these ownership
rates can be as high as 75% of households with access to a vehicle
(IPEA, 2012b).
While individual motorized transport has expanded relent-
lessly, Brazil’s system of public transportation – buses, suburban
railroads, subways, ferries, and so forth – is, for the most part,
a study in decline. In Chart 2, the main ridership trends can be
seen using long-term data from Rio. Cars are now the dominant
mode of transport, surpassing and competing for urban space with
public buses which is the only other important mode of transporta-
tion in the city. Streetcars have disappeared and, with only one
exception, no light rail systems have been built to replace them.9
Commuter rail usage, even including subways, has barely increased.
Most public transportation (on the order of 90% of all trips taken on
public transportation) occurs on buses and related informal modes
of transport, such as private vans. Rio has only 40 km of subway
lines.10 Bus Rapid Transit (BRT) construction, a cheaper alterna-
tive to subways, accelerated in advance of the 2014 World Cup and
2016 Olympic Games; 160 km of such dedicated lanes were under
construction.11
7Source: ANFAVEA.
8Amplifying this point, the same IPEA (IPEA, 2012b) study showed that only 28%
of the poorest households in Brazil in 2012 had an automobile whereas 88% of the
richest households owned at least one car.
9Rio inaugurated in 2016 a new light rail system in its downtown area.
10 By comparison, Mexico City, which started its system at about the same time,
has 177 kilometers. Other systems in wealthier countries typically have more than
200 km and, in the case of London, more than 400km of subways.
11 Ironically, BRT systems were pioneered in a Brazilian city – Curitiba in the
1970s. The irony is that no other Brazilian cities have proven to be good imitators
of Curitiba’s widely heralded success.
E. Amann et al. / The Quarterly Review of Economics and Finance 62 (2016) 66–73 69
Chart 2. Long-term Trends in Mobility in Rio de Janeiro.
Sources: BNDES 60 anos, p. 316.
São Paulo is emblematic of the types of traffic problems that
lie in waiting for other Brazilian cities. Some public investment in
transport infrastructure is occurring, but it is relatively small. Fol-
lowing years of delay, São Paulo has a subway extension of 60 km
and 120 km of BRT corridors. To put these advances in perspective,
São Paulo has 17,000 km of roadways, 15,000 buses, 4300 km of reg-
ular bus routes, and 7 million cars with the car fleet growing by 650
new vehicles per day. Traffic backups in São Paulo typically extend
to 100 km per day, peaking at between 200 and 300km (Biderman,
2009).
Transportation modes in Rio and São Paulo are typical of other
metropolitan areas. Chart 3 shows the relative importance and
recent growth of transport modes. Aside from the fact that most
trips taken in cities are by pedestrians on foot, the transportation
system in urban Brazil is basically bimodal – private autos and
municipal buses with growth of the former rapidly exceeding that
of the latter. All other modes – subways, commuter rail, metropoli-
tan region buses, etc. – account for very small percentages of rides
taken in cities.
Most automobile owners in Brazil use vehicles primarily as
a means to get to their places of employment. As congestion
mounts, commute times are increasing. IPEA data show that the
time required to commute one-way in Brazilian cities is already
among the highest in the world (IPEA SIPS). The average time to
commute to work is on the order of 30 min, but this is increas-
ing and higher in the larger urban areas: 20% of urban dwellers
spend one hour or more to commute to work; in the two largest
cities of São Paulo and Rio, 25% of commuters use more than one
hour to get to work, especially residents of poorer, outlying dis-
tricts (Biderman, 2009). In addition to the inefficiencies caused by
lengthening commute times, other negative externalities are gen-
erated by the growing national reliance on cars. Traffic accidents, air
pollution, inefficient use of public lands, and a national dependence
on fossil fuel are among the additional by-products of dependence
on cars.
As Brazilian cities become congested, technical solutions are not
at hand. BRT construction may be the most attractive alternative,
and it has worked well for the city of Bogotá (whose efficient Trans-
Milenio system carries huge passenger volumes with relative speed
and safety), but the experience of other Latin American cities (e.g.,
Santiago which faced great difficulty and public protests follow-
ing the roll-out of its “Trans-Santiago” BRT system which became
immediately overcrowded) shows that BRTs are not a cure-all. Sub-
way expansion helps and is very popular, but the cost per kilometer
of subway lines is eight times that of BRTs and constructing sub-
ways in the built environment of Brazilian cities adds delays and
legal complexities. Other approaches to congestion alleviation do
not play well politically in Brazil. Public and businesses do not sup-
port restrictions on vehicle use such as congestion charges, street
closures, parking fees, circulation restrictions, higher vehicle and
gasoline taxes, etc. Left undisturbed, the short-term and long-term
trends point to increasing use of the private auto and a relative
Chart 3. Urban mobility in Brazil: trips taken by mode of transport.
Source: National Association for Public Transportation (ANTP) 2011 and 2006 Annual Report.
70 E. Amann et al. / The Quarterly Review of Economics and Finance 62 (2016) 66–73
decline in municipal buses. Seminars are regularly held in both
Rio and São Paulo about what to do when these car-clogged cities
eventually “stop”.
As will be seen below, the story of how Brazil came to this
impasse in urban transportation as well as other critical sectors,
emerges out of a history of neglect of infrastructure investment
allied to longstanding regulatory issues.
4. Contemporary policy responses: The Growth
Acceleration Program (PAC) and the role of the private
sector
The previous two sections highlighted the fact of under provi-
sion of infrastructure in Brazil, together with clear evidence that
any infrastructural investment that takes place is highly growth
promoting. Given that failure to invest sufficiently in infrastruc-
ture represents such an obvious development priority, what policy
measures have been implemented in response?
By the time of President Lula’s second mandate (2007–2011)
a firm national consensus had developed around the necessity
to tackle the infrastructural deficiencies and bottlenecks retard-
ing growth and, by extension, the further alleviation of poverty.
As in the case of earlier efforts to tackle inflation (see Amann &
Barrientos, 2014) business groupings (such as the National Confed-
eration of Industry), trade unions and civil society were in broad
agreement over the need to tackle a serious structural issue, while
the government proved more than willing to step forward with
a pragmatic solution embracing elements of market liberalization
and state-directed investment.
The resulting program, known as the PAC (Programa de
Acelerac¸ ão de Crescimento – Growth Acceleration Program)
(Morgan Stanley, 2010, p55) was introduced in 2007 at the begin-
ning of President Lula’s second term. The PAC has divided into
two phases, the first (PAC 1) running from 2007 to 2010 and the
second (PAC 2), under the administration of Dilma Rousseff, from
2010 to 2014. They consist mainly of projects to increase infra-
structure spending in critical, growth-sensitive areas (see Table 2).
In terms of PAC 2, investments fall under six key initiatives: My
House, My Life (housing), Water and Light for All (Water, Sanitation
and Electricity), Bringing Citizenship to the Community (safety and
social inclusion), Better Cities (urban infrastructure), Transporta-
tion (railroads, highways and airports) and Energy (renewable, oil
and gas).
PAC I envisaged spending of R$ 503.9 bn over its four year period
while the more ambitious PAC 2 proposes spending of R$ 958.9 bn
over its lifespan (around 2.7% of 2010 GDP per year), with a fur-
ther R$631.6 bn of investments planned beyond 2014. The PAC,
recognizing the limitations of previous spurts in infrastructural
spending (notably the Second National Development Plan of the
1970s) also aims to address issues of infrastructural quality and
durability by increasing public resources targeted at operation and
maintenance.
Both phases of the PAC program have involved a central role for
the Federal Government whose key strategic function embraces
the selection of projects and the design of incentive mechanisms to
encourage private, as well as public investments. However, the pro-
gram has come under criticism for not delivering on its ambitious
targets sufficiently rapidly. A brief review of the data suggests that
these concerns may be – in the aggregate – overblown. Between
the beginning of 2007 and the end of 2010, 82% of planned
PAC 1 projects were completed with public investment rising to
3.2%12 of GDP compared with around 2% prior to the program’s
launch. It will be noted from Table 1 that there was a significant
12 Mourougane and Pisu, (2011, p.10).
Table 1
Brazil: PAC investments, percent by sector.
Sectors 2007–10 After 2010 Total
Logistics 14.9 7.2 11.5
Energy 45.7 92.4 66.1
Social and urban 39.5 0.4 22.2
Total 100.0 100.0 100.0
Source: PAC, Morgan Stanley LatAm economics.
concentration of investment in PAC 1 located in social and urban
infrastructure (mainly housing): this declined significantly in PAC
2. Furthermore, by the middle of 2016 fiscal pressures and the
advent of President Temer’s interim administration had resulted
in the number of housing units planned for the 2016–19 period
falling by half to 1.5 m (Globo Online Imóveis 10.6.16).13
Data released in February 2014 show that 82.3% of PAC 2’s
projects had been completed by the end of 2013 with accumu-
lated spending reaching R$773.4 bn, or 76.1% of the program’s
total budget.14 Despite the scale of the program’s achievements in
overall terms, it remains true that investment in certain critical sub-
sectors – notably urban transportation, ports and sanitation – have
met with significant delay. In the area of sanitation, for example,
by the end of 2013, out of a total of 4128 sanitation projects sched-
uled to go ahead as part of PAC 2 only 54% had been granted formal
approval and, of these, many have not reached the construction
phase.
With the policy decision to tackle Brazil’s legacy of ingrained
under spending on infrastructure two things became obvious; first
that the state did not have the technical or managerial means to
accomplish these projects by itself, and, second, that it did not
have the financial wherewithal to see these projects through to
completion. It was thus decided to turn to two models; the Public
Private Partnership (PPP) and the longer-established model of con-
cession contracts. According to Spilki (2012, p. 5) the PPP concept “is
not a precisely defined term and represents a variation of concepts
and possible structures”. In the Brazilian context these structures
– or modalities of PPP – have included Build Own-Operate, Build
Operate Transfer and Build Own Operate Transfer formats.15
However, their common feature, as established under a 2004
law, is that they envisage an injection of public sector resources
to support the private sector’s investment activity (Mourougane
& Piso, 2011, p. 14). Concession contracts, by contrast, under the
terms of the law, require no such public funding and should be able
to sustain themselves by the levying of (regulated) user charges
alone. The PPP approach was pioneered in the highways sector
in the 1990s and has continued to be applied in that area with
17,904 km of roads under private sector operation by late 2013,
compared with 15,365 km by the end of 2010 (O Globo,p.49
8.12.2013).
During the Rouseff administration – whether through PPPs or
concessions–the private sector became increasingly involved not
only in the construction and maintenance of highways, but also
in the construction, expansion and maintenance of railroads, the
modernization of ports, the expansion of power generation, and
the modernization of airports. This experience stands in some
contrast to the generalized perception that under Lula and Rouss-
eff, the approach to management of the economy became more
13 http://g1.globo.com/especial-publicitario/zap/imoveis/noticia/2016/06/
minha-casa-minha-vida-deixa-de-atender-familias-de-baixa-renda.html.
14 Investorideas.com, 20th February 2014 http://www.investorideas.com/news/
2014/international/02204.asp.
15 For a full discussion of these concepts please see the World Bank PPP in Infra-
structure Resource Center http://ppp.worldbank.org/public-private-partnership/
agreements/concessions-bots-dbos.
E. Amann et al. / The Quarterly Review of Economics and Finance 62 (2016) 66–73 71
“statist”. Faced with continuing fiscal tightness (see Afonso, Araujo,
& Farjado, 2016 in this issue) the major factor driving the progres-
sive introduction of both PPPs and the concessions was the lack of
public funds to fully underwrite the infrastructure projects from
the public sector, and the perception that the private sector would
be able to deliver infrastructure-based services in a more efficient
manner than its public sector counterpart (Calderón & Servén, 2012,
p. 679–684).
In the face of renewed fiscal pressure and the likely implemen-
tation of a measure to freeze federal spending in real terms over a
multi-year period, the new interim administration of Michel Temer
in mid-201616 announced its intention to place further reliance on
the PPP model with private banks, rather than their state-owned
counterparts (notably the BNDES17) taking the lead in providing
the necessary finance.18 Aside from the pursuit of fiscal adjustment
the renewed focus on PPP-style models reflects the commitment of
the new administration to reduce the scope of state intervention.
The new program, the Programa de Parceiras e Investimentos (Pro-
gram of Partners and Investments – PPI), envisages investments
of R$500bn over the 2016–2018 period (O Globo, Economia p. 15,
13.6.16). However, the principal sectoral focus of the PPI will not
center on urban transportation, but rather on oil exploration and
production, especially in the development of the pre-salt deposits.
The total investment envisaged here amounts to some R$ 408 bn
(ibid.). A secondary focus of the PPI is formed by inter-city high-
ways where spending of R$ 49 bn is planned. Further investment
in airports is planned under this program, the plans featuring as
their centerpiece additional privatizations. However, at the time of
writing, there were no signs of an enhanced commitment to invest-
ment in urban transportation, whether through the use of the PPI
or other mechanisms. This has to be of concern given the chronic
shortfalls in provision we have already identified.
5. Explaining the failure of infrastructural investment to
take off: regulatory issues, access to finance and delays in
infrastructural investment
A characteristic to date of infrastructure investments in Brazil
has been the comparative slowness with which they have been
rolled out. The delays in implementation (especially regarding
those embodied in the PAC), in particular, have been blamed on the
complicated bureaucratic mechanism which has grown over many
generations governing the release of public funds and the very cau-
tious approach of the authorities in running bidding competitions,
especially in the field of the novel PPP contracts. However, there is
a growing consensus (see, for example Amann & Baer, 2006; Cunha
& Rodrigo, 2012; De Paula & Avellar, 2008) that it is the nature
of regulatory governance in Brazil, and its attendant regulatory
uncertainty, that have long been holding back investment.
The theme of regulatory governance has attracted growing
attention in the development literature in general, and that dealing
with the issue of Latin America infrastructure in particular.19 This
has accompanied the rise of the ‘Regulatory State’ in developing
and emerging economies as publically owned infrastructure and
network industries were transferred to regulated, private owner-
ship in the 1980s and 1990s (Dubash & Morgan, 2013). In specific
terms, the concept of regulatory governance centers on ways in
16 President Temer came to power as head of an interim administration in May
2016 following the launch of a Senate impeachment trial against President Dilma
Rouseff.
17 Brazilian National Economic and Social Development Bank.
18 Agência Brasil 25.5.16 http://agenciabrasil.ebc.com.br/economia/noticia/2016-
05/especialistas-pedem-clareza-nas-regras-do-programa-de-parcerias-de.
19 See, for example Jacobs and Ladegaard (2010) and Jordana (2012).
which concession contracts or other public-private contractual
arrangements are managed and established (Correa, 2007). More
generally, Veljanovski (2010) considers regulatory governance as
comprising those mechanisms through which societies manage the
process of regulation. It has particular relevance to the analysis of
private sector provision of infrastructure and public utilities. Effec-
tive regulatory governance arrangements should serve to reduce
regulatory risk which in turn should drive up private sector invest-
ment (Correa, 2007, p. 1). Unfortunately, shortcomings in Brazilian
regulatory governance have resulted in high regulatory risk in
many critical sectors. Some examples here will serve to bear this
point out.
A recurrent theme in the literature surrounding the persis-
tence of high regulatory risk in Brazil is that of the sometimes
weak autonomy of the regulators, both from governmental polit-
ical interference and from the influence from the infrastructure
providers themselves. Correa (2007, p. 2) in a survey of 21
of Brazil’s 27 infrastructure regulators found that “13 reported
that the executive (ministry or governor) had made “highly” or
“very highly” effective attempts to intervene” while 8 reported
direct interventions. Prado (2013) identifies the electricity reg-
ulator, (ANEEL) for reasons of bureaucratic resistance, as having
fewer institutional guarantees of independence than ANATEL. De
Paula and Avellar (2008, p. 246–7) identify further evidence of
strong party political influence at ANTT. The contrast between
the experience of the solidly independent ANATEL, on the one
hand with the more politically exposed ANEEEL/ANTT on the other,
seems of special significance when one contrasts the rapid expan-
sion of the telecommunications sector following liberalization in
1998 with the slow progress observed in expanding electricity
generation and distribution capacity and accelerating highways
construction.
The case of highways construction is especially telling. Under
the government of Fernando Henrique Cardoso in the 1990s, road
tolls were set at a sufficiently high level to encourage private sector
operators to enter what was then a very new market. This policy did
lead to a rapid upsurge of private sector investment in the motor-
way network of the South and South East. However, the high level
of tolls provoked popular opposition and the decision of some users
to abandon the newly improved infrastructure for more congested
– and dilapidated – public sector highways.
Compromising regulatory autonomy, President Lula, appeal-
ing to his political support base, suddenly changed the regulatory
model for new highway concessions, selecting winning bidders
on the basis of those able to offer the lowest tolls rather than on
the basis of track record or capacity to deliver. Correspondingly,
the pace of private sector-driven upgrading of the highway net-
work has lagged behind schedule while there are curiously high
disparities in toll levels between highways governed by Cardoso-
era and Lula/Rousseff era contracts. As a result, tolls now vary
between R$1.99 and R$18.56 per 100 km (O Globo 8.12.13). Sim-
ilarly, political pressure on ANEEL to rein in tariffs underpins at
least in part, the failure of much needed additional power gener-
ation and distribution capacity to be put in place in the urbanized
South and South East. Stemming from this, power outages are
by no means an infrequent occurrence and Brazil remains vul-
nerable to electricity shortfalls (Mourougane & Piso, 2011, p. 20).
Recognizing the retarding effect low tariffs may have had on
investment, interim President Temer’s PPI program features a task
force which at the time of writing was examining the possibil-
ity of upward adjustments in user charges (O Globo, Economia
p. 15, 13.6.16)
Another undesirable feature of Brazilian regulatory governance
which, again serves to elevate regulatory risk, is identified by
Cunha and Rodrigo (2012, p. 13) as weak institutional leader-
ship and, allied to this, poor technical capacity and low efficiency
72 E. Amann et al. / The Quarterly Review of Economics and Finance 62 (2016) 66–73
Table 2
The BNDES and its participation in infrastructural projects, 2003–2013.
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Total infrastructure investments (US$ bn) 22 26 29.1 29.6 30.3 36.4 41 40.7 45.9 53.2 54.4
BNDES disbursements to infrastructure (US$ bn) 6 7.8 7.5 6.8 10.2 12.3 21.3 16.2 16.1 22.6 21.8
Source:Coutinho, 2015.
within some regulators. To try and combat this, financed by an
Inter-American Development Bank loan, the PRO-REG program20
was introduced in 2007. The central objective here was to drive
up the quality of Brazilian regulators through a deliberate process
of the diffusion of international best practice. However the results
here have been modest at best and, according to international
comparisons of regulatory quality, Brazil continued to fare poorly
(OECD, 2011). A particular area of concern, where both quality of
procedure and timeliness are issues is the case of IBAMA (Brazilian
Environment Institute), the environmental regulator. Cunha and
Rodrigo (2012, p. 12) describe this agency as “poorly equipped and
institutionally weak”.
In fact, perhaps the most glaring obstacle to accelerated pro-
cess has centered on the delayed issue of environmental permits
by IBAMA and state-level bodies. The delays here have largely con-
cerned the slow operation of dispute resolution procedures and
the licensing mechanisms rather than the environmental regu-
latory provisions themselves (Mourougane & Piso, 2011, p. 17).
Brazil’s environmental licensing procedure comprises a three stage
process involving the issue of Preliminary, Installation and Oper-
ating licenses, each of which requires its own procedures and
creates separate scope for the generation of disputes and appeals.
This stands in marked contrast to the more streamlined pro-
cesses which are typically found in other emerging and developed
economies. According to a World Bank study, no less than 15–20%
of the budgets of hydroelectric projects in Brazil are accounted for
by environmental licensing costs (World Bank, 2012). Easily the
most celebrated case in this regard has been the Belo Monte dam
project, which, in the wake of environmental disputes, has met with
repeated delays and budget overruns.
Lack of strategic coordination and poor regulatory design are
both features which have adversely impacted the urban trans-
portation sector, a focal point of the previous section. Aside from
the absence of adequate means to regulate effectively the setting
of user charges (notably bus fares), according to Frischtak (2013)
there also exists an absence of metropolitan governance mecha-
nisms which would allow projects to optimize the use of available
resources (p. 342). Successful integrated urban transportation
networks around the world (for example those of Zurich and Paris)
rely on strategic direction and planning by dedicated metropoli-
tan authorities which enjoy the necessary financial autonomy and
authority to direct and realize long term projects. The existence
of such an authority in New York City, under the famed Chair-
manship of Robert Moses, empowered by its ability to engage in
bond issuance, was instrumental in the construction of the New
York/New Jersey’s network of bridges and tunnels in the mid Twen-
tieth Century.21 This represented one of the greatest construction
projects of modern times. In Brazilian cities, the existence of such
autonomous, self financing authorities is notably lacking.
The quality of regulatory governance in Brazil, has since the
emergence of the Petrobrás contractors’ scandal (Operation Car
Wash) in 2014, been yet further called into question. This scandal,
which is still unfolding, has involved contractors to Petrobrás
20 Program for strengthening of institutional capacity in regulation.
21 The Triborough Bridge and Tunnel Authority, and its rise with Robert Moses at
the helm, is the subject of Robert Caro’s acclaimed biography, The Power Broker.
(the state-controlled oil firm) paying billions of Dollars’ worth of
kickbacks to political parties via corrupt intermediaries. Signifi-
cantly, most of the contractors identified have been among Brazil’s
largest builders of infrastructure. Aside from its broader political
ramifications, the Car Wash affair threatens future infrastructure
projects given the indictment of senior executives from Brazil’s
largest construction and capital goods firms. Given the scale
of the legal problems in which leading Brazilian infrastructure
firms as Odebrecht and Camargo Corrêa are now embroiled, the
Temer administration’s PPI program is said to be looking to foreign
investors, notably consortia led by US and Australian private equity
groups, to fulfill the lead functions once undertaken by these firms
(O Globo, Economia p. 15, 13.6.16).
At a fundamental level, the Car Wash scandal once more
illustrates shortcomings in the effectiveness and potential inde-
pendence of Brazil’s regulators: despite the enormous scale of the
bribery the relevant regulatory agency, ANP, failed to step in to
prevent it. The unveiling of huge levels of corruption surrounding
the relationship between a state-controlled client and contractors
cannot but significantly raise regulatory risk. Unfortunately, the
problem may extend beyond the oil sector. A study, by the São
Paulo State Industrial Association (FIESP), estimated that, with the
money lost to corruption in the first stage of the PAC, between 2007
and 2010, 124 percent more roads and 525 percent more railways
could have been built.22
While public attention has been focused on the role of regulatory
obstacles to accelerated infrastructural investment it is important
to recognize the role of one more critical factor: access to long
term finance. According to Amann and Baer (2006), since the 1980s
the capacity of both the federal and sub-national governments to
expand the scope of discretionary spending in the field of capital
investment has been severely restricted. As a result, and as already
made clear, the private sector has been expected to fill the breach.
However, at least as far as the domestic private sector is concerned
and unlike its counterpart in high-investing, China, its ability to
perform this function has been severely constrained by the compar-
ative shallowness and illiquidity of domestic capital markets (see
Torres, Macahyba, & Zeidan, 2014). At the same time, and, again in
telling contrast to China, base real interest rates have been main-
tained at among the highest levels in the emerging market world
as part of the authorities’ counter inflationary strategy.
Consequently, for potential domestic private sector infrastruc-
ture operators, the provision of capital has become a binding
constraint with the only viable sources being retained earnings, or,
more usually, subsidized credit from official sources such as Brazil’s
BNDES development bank or the International Finance Corporation.
As Table 2 illustrates, in the period leading up to 2013 the BNDES
played an increasingly active role in supporting the provision of
infrastructural provision through the extension of long term credit.
Even during this period, however, it was always clear that the scale
of the investment challenges involved would have required addi-
tional sources of capital if growth constraints were to be alleviated.
By 2016, though, the outlook for accelerated BNDES disbursements
had notably clouded with the Bank’s board of directors replaced
22 For details, see: Funmi Ojo and Allison Everhardt, “Brazilian infrastructure and
corruption”, in America’s Business Intelligence, Washington, D.C., October 11, 2013.
E. Amann et al. / The Quarterly Review of Economics and Finance 62 (2016) 66–73 73
with a new, less interventionist-minded team under Maria Silvia
Bastos Marques, a former Chief Executive of CSN, a steel company.
According to Mansueto Almeida, the new Finance Ministry’s Sec-
retary for Economic Monitoring, the Bank’s average annual lending
is destined to return “to its historical average” (Bloomberg, 2nd
June 2016).23 If the BNDES’ lending does indeed decline then it will
be doubly important to ensure that private capital is able to meet
demand for financing infrastructure projects, not least in the urban
transportation sector.
6. Conclusions
Despite the clear growth promoting properties demonstrated
by numerous econometric studies, significant under-investment in
infrastructure has continued to characterize the Brazilian economy.
This article made clear that the problems are not confined to one
area but stretch from highways, to urban transportation, from ports
to electricity generation and transmission. Given the obvious prior-
ity that should be accorded to infrastructure, why has investment
in this sector not been higher?
This article has argued that a central reason for this lies in the
design and implementation of regulatory mechanisms. In partic-
ular it was established that, in general terms Brazil’s regulatory
governance has proved deficient. As a consequence, regulatory risk
has remained elevated, especially in key infrastructural sub-sectors
such as highways and urban transportation. Not surprisingly,
this has deterred, or at least delayed, investment. At the same
time, domestic financing for infrastructural investment has been
squeezed by public sector fiscal constraints and the relative thin-
ness of Brazilian capital markets. Looking ahead, acceleration in
the pace of infrastructural investment will require fundamental
improvements in the quality of regulatory governance, and atten-
dant reduction in regulatory risk. The reforms necessary to achieve
this may prove politically contentious. However, a huge ongoing
scandal concerning infrastructure provision contracts in the energy
sector may provide the impetus to make progress. At the same
time, a new interim administration under President Temer, appears
committed to overcoming some of the traditional obstacles which
have beset private sector involvement in infrastructure projects.
Whether this translates into improved results will have a crucial
bearing on the degree to which Brazil is able to embark upon a
path of more sustainable, growth.
Funding
This document is an output from a project funded by the UK
Department for International Development (DFID) for the benefit of
developing countries. However, the views expressed and informa-
tion contained in it are not necessarily those of or endorsed by DFID,
which can accept no responsibility for such views or information
or for any reliance placed on them.
References
Afonso, J., Araujo, E., & Farjado, B. (2016). The role of fiscal and monetary poli-
cies in the Brazilian economy: understanding recent institutional reforms and
economic changes. Quarterly Review of Economics and Finance,62, 41–55.
23 http://www.bloomberg.com/news/articles/2016-06-02/brazil-s-bndes-to-sell-
assets-seeks-to-lure-private-investment.
Amann, E., & Barrientos, A. (2014). Is there a new Brazilian model of development? Main
findings from the IRIBA research programme. IRIBA Working Paper 13, University
of Manchester.
Amann, E., & Baer, W. (2006). Economic orthodoxy versus social development? The
dilemmas facing Brazil’s labour government. Oxford Development Studies,34(2),
219–241.
Amann, E., Baer, W., Trebat, T., & Villa Lora, J. (2014). The role of infrastruc-
ture in Brazil’s development process. IRIBA Working Paper 10. http://www.
brazil4africa.org/wpcontent/uploads/publications/working papers/IRIBA
WP10 Infastructure and its Role in Brazil’s Development Process.pdf
Biderman, C. (2009). Mobility, integration, and accessibility – transport policies in
the São Paulo metropolitan region. In Cities and social equity: Inequality, territory,
and urban form. London: London School of Economics (LSE) (chapter 6)
Calderón, C., & Servén, L. (2011). Infrastructure in Latin America. In J. A. Ocampo,
& J. Ros (Eds.), The Oxford Handbook of Latin American Economics. New York:
University Press Pedro.
Calderón, C., & Servén, L. (2012). ‘Infrastructure’ in José Ocampo and Jaime Ros. In The
Oxford handbook of Latin American economics. Oxford: Oxford University Press.
Correa, P. (2007). What it takes to lower regulatory risk in infrastructure industries: An
assessment and benchmarking of Brazilian regulators. Gridlines No. 29. Washing-
ton, DC: PPIAF, World Bank.
Coutinho, L. (2015). ‘Financing Infrastructure in Brazil’ a BNDES presentation given in
New York, June 29th 2015.http://www.bndes.gov.br/SiteBNDES/bndes/bndes
pt/Galerias/Arquivos/empresa/download/apresentacoes/Coutinho financing
infrastructure.pdf
Cunha, B., & Rodrigo, D. (2012). Regulatory governance in Brazil: Inconsistent coordina-
tion, institutional fragmentation and halfway reforms. Paper presented at the 4th
Biennal ECPR Standing Group for Regulatory Governance, University of Exeter,
UK, 27th–29th June 2012.
De Paula, G., & Avellar, A. (2008). Reforms and regulation in Brazil: The expe-
rience of ANTT and ANTAQ. Quarterly Review of Economics and Finance,48,
237–251.
Dubash, N. K., & Morgan, B. (2013). The rise of the regulatory state in the south:
Infrastructure and development in emerging economies. Oxford: Oxford University
Press.
Ferreira, P., & Araújo, C. (2007). Growth and fiscal effects of infrastructure investment
in Brazil. Rio de Janeiro: Fundac¸ ão Getúlio Vargas. FGV Working Paper.
Frischtak, C. (2013). Infraestructura e desenvolivimento no Brasil. In Desenvolvi-
mento Econômico: Uma perspective Brasileira. pp. 322–347. Rio de Janeiro:
Campus.
IPEA. (2012). Sistema de Indicadores de Percepc¸ ão Social – Mobilidade Urbana. Brasília:
IPEA.
Jacobs, S., & Ladegaard, P. (2010). Regulatory governance in developing countries.
Washington, DC: World Bank.
Jordana, J. (2012). The institutional development of the Latin American regulatory
state. In D. Levi-Faur (Ed.), Handbook on the politics of regulation. Cheltenham:
Edward Elgar.
Micco, A., & Perez, N. (2002). Determinants of maritime transport costs. Inter-American
Development Bank. Web.
Morgan Stanley. (2010). Brazil infrastructure: Paving the way.(May5).
Mourougane, A., & Piso, M. (2011). Promoting infrastructure development in Brazil. pp.
1–33. OECD Economics Department Working Papers No. 898.
OECD. (2011). Regulatory management indicators of Brazil. Paris: OECD.
Prado, M. (2013). Bureaucratic resistance to regulatory reforms: Contrasting expe-
riences in electricity and telecommunications in Brazil. In N. K. Dubash,
& B. Morgan (Eds.), The rise of the regulatory state in the south: Infra-
structure and development in emerging economies. Oxford: Oxford University
Press.
Spilki, M. (2012). Public-private partnerships and the role of internal control in the
State of Rio Grande do Sul in Brazil. The Institute of Brazilian Business & Public
Management Issues, The Minerva Program, The George Washington University.
Spring.
Straub, S. (2008). Infrastructure and growth in developing countries: Recent advances
and research challenges. ESE Discussion Paper No. 179, Edinburgh School of Eco-
nomics, University of Edinburgh.
Torres, E., Macahyba, L., & Zeidan, R. (2014). Restructuring Brazil’s national financial
system. IRIBA Working Paper. http://www.brazil4africa.org/wp-content/
uploads/publications/working papers/IRIBA WP06 Restructuring Brazil’s
National Financial System.pdf
Veljanovski, C. (2010). Strategic use of regulation. In R. Baldwin, M. Cave, & M. Lodge
(Eds.), Oxford handbook of regulation. Oxford: Oxford University Press.
World Bank. (2012). How to decrease freight logistics costs in Brazil. Washington:
World Bank.
