Public investment in infrastructure fell in 2023, Lula’s 1st year

Investments in infrastructure decreased last year, the first year of President Luiz Inácio Lula da Silva’s (PT) current term. They fell from 1.84% of Gross Domestic Product (GDP) in 2022 to 1.79% of GDP in 2023, according to a survey by consultancy Inter.B, specialized in the subject.

Inter.B’s expectation is for a slight improvement this year, with disbursements reaching 1.87% of GDP. However, it is still far from the ideal level for modernizing national infrastructure – something close to 4% of GDP each year. “For more than three decades, there has not been enough investment to meet the demands of the population’s well-being and the basic requirements of a competitive economy”, highlights economist Cláudio Fritschak, partner at Inter.B.

According to the survey, the 2023 retraction was determined by public investment, which went from 0.68% of GDP in the previous year to 0.60% of GDP. Private disbursement, in turn, increased from 1.16% to 1.19% of GDP, but it was not enough to compensate for the shrinkage of the public sector.

In absolute values, Inter.B calculates that Brazilian infrastructure received investments of R$194.5 billion last year, with R$129.8 billion in private resources and R$64.7 billion in public resources.

Public investment fell even with the increase in fiscal space provided by the Transition PEC, the PEC “breaks the ceiling”. Launched in August, the New Growth Acceleration Program (PAC) was also not enough to increase investment.

“Public investments in infrastructure at the federal level have not advanced, with the significant exception of highways”, says Fritschak. He attributes this behavior to fundraising through parliamentary amendments, which, according to the consultant, leads to the fragmentation of resources and, potentially, their misallocation.

The modernization of infrastructure, says Frischtak, will depend on private investments, given the structural nature of fiscal restrictions and the ephemerality and limitation of the space created by the Transition PEC and the new fiscal framework.

The consultancy predicts that public investment in infrastructure will rise slightly this year, reaching 0.64% of GDP – still below the level of 2022. The projection for the private sector is for a new advance, also discreet, to 1.23% of GDP.

Inter.B highlights that the infrastructure modernization agenda needs to be linked to greater legal certainty and regulatory predictability, in addition to improvements in the governance of public investments, with more efficient planning and prioritization, respecting the limits of fiscal responsibility.

“Brazil has first-rate potential to attract investments and mobilize domestic and external resources, making the country’s infrastructure inclusive and environmentally sustainable, promoting decarbonization and facilitating its integration into the international economy. The country needs solid legal and regulatory frameworks, public policies based on evidence, and persistence in the search for reforms that reduce inequality and boost productivity”, emphasizes the consultancy.

What are the expectations for energy, telecom and sanitation

Inter.B predicts that investments in electricity will grow in real terms (above inflation) in 2024, being predominantly private, and even more accentuated after the privatizations of Eletrobras in 2022 and Copel in 2023. In recent years, investments in this sector have been driven by renewable energies, such as solar and wind, and the associated demand for transmission and distributed generation.

To the telecommunications faced a reduction in investments in 2023, with a decrease of R$4.62 billion, representing a drop of 16%. Sectoral restructuring was the main reason. Oi, which led applications in the 2010s, became financially fragile in recent years, transferring its telephony assets to Claro, TIM and Vivo, dedicating itself exclusively to fiber optic services.

Another factor that influenced was the transition period of cell phone operators, who are implementing 5G technology. The expectation for 2024 is a partial resumption of investments, driven by the fulfillment of obligations related to new technology and the expansion of small fiber and signal providers.

The legal framework of sanitation, approved in 2020, is the main factor responsible for the growth of investments in this segment. The expectation is for an 11.1% increase in disbursements this year, reaching R$30.47 billion, despite the noise caused last year by the Lula government’s attempt to change the framework approved by Congress by decree.

One of the effects of the new legal framework was the intensification of investments made by some state-owned companies, due to increased competition with private operators. Their presence in the segment tends to grow with the privatization of São Paulo’s Sabesp, scheduled for this year, and with the expansion of concessions and public-private partnerships (PPPs).

Investments in transport are expected to grow in 2024, but are below what is necessary

The projection of investments in infrastructure transport for 2024 it is R$75.3 billion, a growth of 7.77%, corresponding to 0.65% of GDP. The values ​​are considerably below what is necessary to modernize the segment, which would be 2% of GDP per year.

Highways absorbed the largest investments last year, totaling R$43.6 billion, an increase of 5.6% compared to 2022. The drop in state and municipal investments (33.1%) was offset by the expansion of the destination of private and federal resources. For 2024, R$47.05 billion in works are planned.

The greatest growth was recorded in ports, which received R$4.9 billion in investments, an increase of 28.9%. Performance is associated with investment commitments made by terminals whose lease contracts have been renewed; the bidding of new areas on the perimeters of public ports; the leasing of underused terminals; and capital expenditure on private port facilities.

The investment in waterways also grew last year, but was restricted to the federal government and a few private companies. R$440 million were allocated, an increase of 15.8% compared to 2022. However, the expansion is not expected to continue this year, mainly due to the lack of legislation and regulation that promote legal certainty and encourage the exploration of this modal through of concessions.

The allocation of resources to railways has been gaining strength, driven by private investments. Investments were R$10.31 billion, an increase of 5.2% compared to the previous year. By 2024, this value should reach R$11.35 billion, 93.8% of which will be private.

Investments are driven by commitments made by companies that operate in the sector and have negotiated early renewal of their contracts, such as Vale, MRS and Rumo Malha Paulista.

You airports they received R$1.4 billion last year, a 10% drop, due to changes in the management of several terminals, with the departure of Infraero. The expectation is for a better scenario for 2024, as a significant part of the contracts will be in the execution phase. The forecast is that R$4.5 billion will be invested.

Inter.B estimates that it will take a few years for there to be a new surge of investment in the segment, since airlines are in a fragile financial situation, and the airport system also has idle capacity.

At urban mobility, which received R$6.6 billion in investments in 2023, the consultancy’s projection indicates the investment of R$6.34 billion this year. Two thirds of these investments are the responsibility of states and municipalities.