THE WALL STREET JOURNAL. Monday, June 29, 2015 | C4A A t a time when global business is confronted with persistent economic uncertainty and relatively high monetary liquidity, Brazil stands out as a very attractive destination for global investors. According to the United Nations Conference on Trade and Development, Brazil has been among the six largest recipients of foreign direct investment since 2011, and the second largest recipient from the developing world, just behind China. In just the past two years alone, foreign direct investment reached a record US$132 bil- lion. Among the main targets of foreign investment in Brazil is infrastructure. This is because most segments of infrastruc- ture have major participation of national and international pri- vate investors. Energy, telecom, water and sanitation, as well as logistics, have increasingly attracted private investment. Indeed Brazil accounted for 41 percent of infrastructure investment contracted with private participation in developing countries in 2014 (World Bank, PPI) and is the home of several dozen international operators of infrastructure. The recent launch of the new round of the national Logistics Investment Program (PIL) offers new venues for this investment. The program aims at strengthening the competitiveness of the Brazilian economy by offering many roads, railroads, ports and airports to be built, expanded and operated by the private sector. “This program is a superb gate to a better future,” said Dilma Rousseff, President of the Republic of Brazil, during the announcement of this new round of concessions. This program creates opportunities for investing in new and upgraded infrastructure in the five regions of the country. It means deploying US$65 billion in 20 Brazilian states and 130 Brazilian municipalities. The program will help bring agricultural products to world markets at a much lower cost by connecting the central region of Brazil to enhanced ports in the South Atlantic as well as near the equator. This will shorten the time it takes to reach markets in Europe, the U.S. and Asia significantly. Several roads will serve manufacturing clusters, especially in the South region. Investments in airports will help the Brazilian infrastructure keep up with the growth in travel and air cargo observed in recent years, increasing the connectivity of hundreds of Brazilian cities to all regions in the country, in the Western Hemisphere and in the world. “Like all great programs of investments in logistics,” Rousseff said, “its effects will be multiplied throughout the production chain, in all areas of the economy, from agriculture, to industry, to the service sector and, above all, will contribute to enhance the quality of life of the people.” Domestic and international capital markets will play a crucial role in helping finance this ambitious investment program. For this purpose, the government is developing new financial instruments, working alongside Brazilian and international financial institutions, the World Bank and partner countries in the G20. It is also strengthening regulatory framework that has been suc- cessfully developed in the country in the last 25 years. New guar- antee mechanisms to private investors are also being designed to provide further comfort to those investing in these long-term op- portunities of income streams associated with real assets in one of the largest, most diversified and stable economies in the world. Indeed, a strong coordination and partnership between the public and private sectors is already a hallmark of this initiative, furthering its ability to leverage the growth of many economic sectors in Brazil. e Wall Street Journal news organization was not involved in the creation of this content. TURN THE PAGE TO LEARN MORE >>> Special Advertising Feature INVESTMENT OPPORTUNITIES IN BRAZILIAN INFRASTRUCTURE WITH RENEWED FOCUS ON PRIVATE SECTOR PARTICIPATION, THE COUNTRY IS NOW PRIMED FOR NEW INVESTMENT
Transcript
CM Y K Composite
THEWALL STREET JOURNAL. Monday, June 29, 2015 | C4A
A t a t i m e wh e n g l o b a l b u s i n e s s i s
confronted with persistent economic
uncertainty and relatively highmonetary liquidity,
Brazilstandsoutasaveryattractivedestinationfor
global investors.AccordingtotheUnitedNationsConference
on Trade and Development, Brazil has been among the six
largest recipients of foreigndirect investment since2011, and
the second largest recipient from the developing world, just
behind China.
In just the past two years
alone, foreign direct investment
reached a record US$132 bil-
lion. Among the main targets
of foreign investment in Brazil
is infrastructure. This is because
most segments of infrastruc-
ture have major participation of
national and international pri-
vate investors. Energy, telecom,
water and sanitation, as well as
logistics, have increasingly attracted
private investment.
Indeed Brazil accounted for
41 percent of infrastructure
investment contracted with private
participation indevelopingcountries
in 2014 (World Bank, PPI) and is the
home of several dozen international
operators of infrastructure.
The recent launch of the new round of the national Logistics
Investment Program (PIL) offers new venues for this investment.
The program aims at strengthening the competitiveness of the
Brazilian economy by offering many roads, railroads, ports and
airports to be built, expanded and operated by the private sector.
“This program is a superb gate to a better future,” said
Dilma Rousseff, President of the Republic of Brazil, during the
announcement of this new round of concessions.
This program creates opportunities for investing in new and
upgraded infrastructure in the five regions of the country. It means
deploying US$65 billion in 20 Brazilian states and 130 Brazilian
municipalities.
The program will help bring
agricultural products to world markets
at a much lower cost by connecting
the central region of Brazil to enhanced
ports in the South Atlantic as well as
near the equator. This will shorten the
time it takes to reachmarkets in Europe,
the U.S. and Asia significantly. Several
roads will serve manufacturing clusters,
especially in the South region.
Investments in airports will help the
Brazilian infrastructure keep upwith
the growth in travel and air cargo
observed in recent years, increasing
the connectivity of hundreds of
Brazilian cities to all regions in the
country, in theWestern Hemisphere
and in the world.
“Like all great programs of
investments in logistics,” Rousseff
said, “its effects will be multiplied throughout the
production chain, in all areas of the economy, from
agriculture, to industry, to the service sector and,
above all, will contribute to enhance the quality of life
of the people.”
Domestic and international capital markets will
play a crucial role in helping finance this ambitious
investment program. For this purpose, the government
is developing new financial instruments, working
alongside Brazilian and international financial institutions, the
World Bank and partner countries in the G20.
It is also strengthening regulatory framework that has been suc-
cessfully developed in the country in the last 25 years. New guar-
antee mechanisms to private investors are also being designed to
provide further comfort to those investing in these long-term op-
portunities of income streams associated with real assets in one
of the largest, most diversified and stable economies in the world.
Indeed, a strong coordination and partnership between the
public and private sectors is already a hallmark of this initiative,
furthering its ability to leverage the growth of many economic
sectors in Brazil.
TheWall Street Journal news organization was not involved in the creation of this content.
TURN THE PAGE TO LEARN MORE >>>
Special Advertising Feature
INVESTMENTOPPORTUNITIESIN BRAZILIANINFRASTRUCTURE
WITH RENEWED FOCUS ON PRIVATE SECTORPARTICIPATION, THE COUNTRY IS NOW
C4B | Monday, June 29, 2015 THEWALL STREET JOURNAL. THEWALL STREET JOURNAL. Monday, June 29, 2015 | C4C
Special Advertising SectionSpecial Advertising Feature Special Advertising Feature
As the fifth-largest country in the world, it’snot surprising that Brazil has one of the world’slargest road networks, with more than 1 millionmiles of roadways.
At present, though, less than 15 percent of thenational road network is paved, meaning that roadsurfacing and maintenance services are crucial tohelp connect more parts of the country and im-prove transportation efficiency.
Approximately 60 percent of total freight and45 percent of passenger transportation in Brazil iscarried over the national highway network, whichis a relatively high percentage compared to othersimilar-sized countries (in squaremiles)— such asAustralia, Canada and the United States — whererailroads play a much bigger role in transporta-tion. This creates a much larger demand in Brazilfor quality highways with updated infrastructure.
The investment in Brazil’s highways is esti-mated at US$21.3 billion, covering some 4,300miles of toll roads. A total of 11 new contracts fortoll roads will occur in 2016, while four auctions oftoll road concessions are expected for 2015.
The highway concession program has threemain goals: to create a wide, modern and integrat-ed road network; to supply efficient and competi-tive supply chains; and to lower toll rates. It is alsoexpected that there will be the creation of addi-tional lanes and roadway expansions in roads thatare already under concession.
Four toll road projects began in 2014, includ-ing the auction of the Rio-Niterói Bridge project inwhich six companies participated in a competitionand the winner presented a proposal with a dis-count of 36 percent.The new contract reduced thetoll by US$0.48.
Theresults of these concession contractswillsee substantial upgrades to highways, includingadditional lanes, bypasses, pedestrian crossings,side roads, overpasses and bridges.
The Brazilian National Development Bank(BNDES)will beable tofinanceup to70percentofthe investment, and the program considers highincentives to the participation of other banks andcapital markets in the financing structure.
NEW TOLL ROADS BRING EFFICIENCY,COMPETITIVE SUPPLY CHAIN, BETTER SERVICE
Privatized in the 1990s, Brazil’s railwaynetwork has suffered from a lack of investmentfor many years.
Originally, the railroads were built to con-nect coffee-growing areas to the ports during the19th century. But then roads became the pre-ferred form of transportation.
There are 17,400 miles of railway underprivate management in Brazil and five railwayauctions are scheduled to take place in the nearfuture, adding over 4,682 newmiles of track.
Today, the bulk of rail transport accountsfor just 25 percent of the freight transportationin Brazil — a low share compared to similar-sized countries.
Brazil’s railway network mainly transportsiron ore (over 70 percent of total rail freight), soy-beans, corn, steel and other minerals.
From 2001 to 2014, the growth of Braziliangrain production reached an average 6.2 percentper year; more than 80 percent of the volume ofsoybeans is transported by trucks.
Upcoming auctions:• Two stretches (totaling 888 miles) overthe North-South Line (FNS): the first fromBarcarena (state of Pará) to Açailândia (stateof Maranhão); the second from Palmas (stateof Tocantins) to Anápolis (state of Goiás)
• Two stretches (totaling 556 miles) overthe North-South Line (FNS): the first fromAnápolis (state of Goiás) to Estrela D’Oeste(state of São Paulo); the second from EstrelaD’Oeste to Três Lagoas (state ofMato Grossodo Sul)
• 708 miles from Lucas do Rio Verde (state ofMato Grosso) to Miritituba (state of Pará)
• 355 miles from Rio de Janeiro (state of Rio deJaneiro) to Vitória (state of Espírito Santo)
• 2,175 miles over the Brazilian side of theBioceanic Railway
Ports are essential to Brazil’s business infra-structure, responsible for handling 90 percent ofinternational trade, including imports and exports.In June 2013, a new Ports Law came into effect.Thislaw — described as the most fundamental changeto the port sector since Brazil’s ports opened to“friendly nations” in 1808 — opens the port sectorto greater competition, attracting new investment.
At the heart of the new Ports Law is the goal ofmaking Brazil more competitive in both domesticand international markets by increasing port effi-ciency — to reduce costs, attract new investment,increase port handling capacity and absorb grow-ing demand.Thenew law also provides for a shake-up of the institutional structure governing the portssector in order to streamline decision-making.
The expected investments from the new pro-gramareestimatedtobemorethanUS$12.11billionover the next five years. The purpose of expandingBrazil’s ports is to widen andmodernize port infra-structure through strategic partnerships with theprivate sector, synergizing transportation betweenroads, rail networks, waterways and airports.
Theports program is operated to end entry bar-riers; launch a port lease program; end restrictionsto private terminals; and increase ship volume atthe lowest price. Of the US$12.11 billion allocatedfor ports, approximately 30 percent will go to ex-isting concession renewals. New terminals in theports of Santos and Pará state, totaling US$1.5 bil-lion, are expected to be auctioned this year.
By selecting criteria for awarding contracts,Brazil hopes to focus on greater cargo volume withthe lowest tariffs — and possibly the highest bid.Concessions will be granted for up to 25 years, re-newable for the same length of timeon the grantingauthority’s approval. Existing contracts will remainin force until they expire and will be put up for ten-der at least 12months prior to the deadline.
Simplification of concession procedures, in-cluding tender by auction with inverted phases,involves focusing first on cost control and secondon technical qualifications. Authorization for pri-vate port terminals to handle any type of cargo is akey change, as private port terminals could previ-ously handle only their own freight. A greater scopefor public consultations will be allowed in order todetermine whether to authorize total or partial in-vestment in submitted projects.
INVESTORS CAN NOW PARTICIPATE INNEW RAILROAD CONCESSION PROJECTS
STRATEGIC PARTNERSHIPS WITH PRIVATESECTOR WIDEN PORT OPPORTUNITIES
AIR TRAVEL SERVICES STREAMLINEDTO BOOST TOURISM
HIGHWAYS
13
14
15
4
3
6
72
1 10
11
12
8
9
5
CALDAS NOVAS
ARARASCAMPINAS (AMARAIS)
JUNDIAÍFLORIANÓPOLIS
BRAGANÇAPAULISTA
SALVADOR
FORTALEZA
NATAL(SÃO GONÇALO DO AMARANTE)
UBATUBA
RIO DE JANEIRO (GALEÃO)
ITANHAÉM
BELO HORIZONTE(CONFINS)
PORTO ALEGRE
PROJECTS UNDER WAY
RAILWAYS PORTS AIRPORTS
AIRPORTSIssuing at least 15% in infrastructure bonds increases long-term interest rate financing share from 15% to 30%.
NOBONDS
15%30%
55%
AT LEAST15%BONDS
30%30%
25%15%
AT MOST35%BONDS
35%30%
35%
HIGHWAYSIssuing at least 10% in infrastructure bonds increases long-term interest rate financing share from 35% to 45%.
BNDES LONG-T ERM IN T EREST RATE + 1 . 5% PER YEAR + CRED I T R I SK BNDES OTHER SOURCES + 1 . 5% PER YEAR + CRED I T R I SK IN FRASTRUC TURE BONDS EQU I TY + CASH F LOWHOW THE BRAZILIAN DEVELOPMENT BANK (BNDES) FINANCES INFRASTRUCTURE
NOBONDS
35%35%
30%
AT LEAST10%BONDS
15%
30%
10%
45% AT MOST25%BONDS
45%
30%
25%
NOBONDS
70%
20%
10%
20%BONDS
70%
20%
10%
PORTSIssuing at least 10% in infrastructure bonds increases long-term interest rate financing share from 25% to 35%.
NOBONDS
25%30%
45%
AT LEAST10%BONDS
35%25%
10%30%
AT MOST35%BONDS
35%35%
30%
NITERÓIRIO DE JANEIRO
ITAGUAÍ
MANAUS MACAPÁ
ITAQUIFORTALEZA
CABEDELONATAL
RECIFESUAPE
MACEIÓ
SALVADORARATU
VITÓRIA
SÃO SEBASTIÃO
PARANAGUÁ
SANTOS
SÃO FRANCISCODO SULITAJAÍ
IMBITUBA
PORTO ALEGRERIO GRANDE
SANTARÉMBELÉMVILA DO CONDE
PORTS
US$21.3 billionESTIMATED INVESTMENT
TOLLROADS
4,350 MILESOF NEW TOLL ROADSTO BE AWARDED
BRAZIL HAS ONE OF THEWORLD’S LARGEST ROADNETWORKS, WITH
1,056,331MILES OFROADS
US$27.9 billionESTIMATED INVESTMENT
TO BE AWARDED
4,682MILES OFRAIL LINES
US$12.11 billionESTIMATED INVESTMENT
63.1%GROWTHOF AMOUNT OF CARGOHANDLED THROUGH BRAZIL’SPORTS FROM 2003-2013
RAILWAYSBNDES will be able to finance up to 70% based on long-term interest rates and up to 20% based onmarket rates, regardless of whether infrastructure bonds have been issued.
Brazilian airports are an essential part of thecountry’s business infrastructure, responsible forprocessing 210million passengers in 2014.
Demand for air travel, both domestically andinternationally, grew at a rapid annual rate of10.4percent in theperiod2003 to2014.This, com-bined with the approach of major internationalsporting events hosted byBrazil in 2014 and 2016,has led the Brazilian government to divide invest-ment in airports into two parts: international air-ports and regional airports.
In 2012, concession contracts were awardedto the private sector for the operation and ex-pansion of the international airports in Natal(São Gonçalo do Amarante), Brasília, Campinas(Viracopos) and São Paulo (Guarulhos) — thelargest passenger airport in Latin America.
The airport investment plan is structuredin three parts. The first part comprised the twomajor international airports for which conces-sions were granted in 2013: Galeão, in the state ofRio de Janeiro, and Confins, in the state of MinasGerais. Together, these airports generate invest-ments worth over US$4.6 billion.
The second part of the program foresees in-vestments worth over US$3.6 billion in 270 re-gional airports. The program will strengthen andrestructure Brazil’s regional aviation network, ex-panding air transport supply and improving thequality of airport infrastructure and services.
Finally, the third part revolves around theinduction of commercial exploration of privateairports dedicated exclusively to general aviation.
The new concessions of airports seek to ex-pand the infrastructure, improve the quality ofservices, bring more innovation and experienceof international operators, boost tourism, im-prove cargo transportation and create new re-gional hubs.
Together, the regional and internationalairports selected for the next round of conces-sions represent a total planned investment ofUS$2.7 billion.
Themain goal is to improve logistics integra-tion between all modes of transportation in orderto enhance Brazil’s competitiveness. It is expect-ed that investments in infrastructure will boostthe country’s economic growth and will supportBrazil’s sustainable development.
Brazil is a reliable and sustainable source of food toan increasingly large number of countries, as barriersto its products are lowered or eliminated. Higheryields in agriculture, a sophisticated manufacturingsector that produces goods ranging from furnitureto airplanes to pharmaceuticals, and an expandingservice sector catering to the demands of the newmiddle class form a diversified and vibrant landscape.
The financial sector is well capitalized and Brazilis on the forefront of the implementation of Basle IIIregulations, reflecting the strength of banks and theeffectiveness of financial supervision carried out bythe Central Bank of Brazil. Capital markets continueto grow, with an outstanding stock of private bondsin excess of US$710 billion in government bonds. TheBovespa stock exchange is one of the largest and busi-est in emergingmarkets, with numerous infrastructurecompanies listed.The insurance sector has been grow-ing at double-digit rates for several years.
Another favorable feature of Brazil is the opennessof its society, manifested in thefreedom of the press and ofreligion, and the strength of itsinstitutions. A well-developedregulatory framework and theeffective upholding of the lawby local and national courts alsocontribute to the democraticstability of the country and are relevant to any long-term investor. The absence of geopolitical risk is alsoan often-noted advantage of Brazil as a destination toprivate investments.
The Brazilian population is relatively young, withthe median age just above 25. It is also the result of atrue ethnic melting pot, where people from all conti-nents have forged a national identity, while preservingtremendous diversity.
The government’s priority to ensure sustainable, in-clusive economic growth and more opportunities for allBrazilians is at the heart of public policies. The Braziliangovernment sees its commitment to good macroeco-nomicmanagement as crucial to achieve its objectives.
Fiscal responsibility, floating exchange rates anda successful inflation-targeting regime continueto play a key role in boosting investor confidenceand in supporting private investment. Recent talkswith Mexico and the European Union to establishfree-trade agreements, as well as trade facilitationinitiatives — notably with the United States — will helpfurther integrate the country in the global value chainsand make it more competitive. Carefully implementedsocial programs, on the other hand, have been able toexpand the opportunities for the youngest Brazilians,and to provide an effective safety net to the eldest.
To these advantages, Brazil is adding the prospect ofan improved transport infrastructure through the secondround of the Logistic Investment Program, (PIL). Thisprogram builds on more than 25 years of successfulconcessions of roads, railroads, ports and airports inBrazil. Plus, it aims at connecting the main productionareas to key international gateways, lowering productionand distribution costs, and enhancing companies’competitiveness in the globalmarket place.
BRAZIL’S RECORD ON PRIVATE INFRASTRUCTUREInfrastructure operations run by the private sector
have a long and successful record in Brazil. The iconiccable car connecting the Sugar Loaf hills in Rio deJaneiro, for example, has been operated by privatecapital for more than a century.
Private companies are vested in water andsanitation, electricity, telecommunications, gasdistribution, roads, railroads, ports and airports,among other industries. Many of these concessions
are operated by international companies, andmore than a few are listed in the Brazilian stockexchange. The willingness of consumers to pay forquality services has been a constant throughoutthese sectors.
The Brazilian ports in particular — one of the firstsectors to be opened in the early 1990s — illustratethe extraordinary success of private participation inthe country’s infrastructure. In the 20 years since,traffic grew several-fold, the speed of movementincreased significantly and many private terminalsopened. And just as the early concessions were toexpire, a new law further opened the sector to privatecapital by facilitating the construction of privateterminals by operators that were not aiming to movetheir own cargo.
More than 50 private terminals have been autho-rized and built since then, including several belongingto grain-trading companies. The second round of thePIL foresees more authorizations and the concessionof many areas in public ports.
A similar recordof successful long-term investmentscan be found in other infrastructure segments, such asairports and roads. There, keen competition amongvarious players has helped lower tolls and fees, andfoster investment.
INVESTING IN LOGISTICS IN BRAZIL NOWThe second round of PIL includes more than just
ports. It includes the concession of more than a dozenroads,where theoperatorwill be responsible to expandthese roads, linking agriculture and manufacturingclusters to ports. There are also at least four largeairports and many local airports to be offered to theprivate sector.
The private sector is also invited to invest in rail-roads, notably in the operation of the Norte-Sul tracksbuilt by the government in the last decades.Thewinnerof this concession will be responsible to extend thesetracks by about 300 miles in order to reach the mouthof the Amazon. Such an investment will complete a lo-gistics backbone that will allow significantlymore than20 million tons of grain and minerals a year to reachmarkets in Europe and Asia at substantially lower costthan through the traditional, existing routes.
The second round of the PIL has an additionalnovelty, which is the greater reliance on the financing
by the private sector, includingthrough project bonds andnew instruments designed toprovide the necessary comfortto long-term investors.
Project bonds, notably inlocal currency, are already areality in Brazil, with strong
performance and increasing secondary trade in localmarkets. The Brazilian government is working closelywith financial institutions, including multilaterals,institutional investors and partner countries in theG20, to develop adequate enhancements to suchbonds and similar instruments.
The scale of the PIL and other infrastructure proj-ects in Brazil eligible to be financed by tax-exemptproject bonds make these instruments an interestingasset class on its own.
MACROECONOMIC STABILITY AS THE BEDROCK FORSUCCESSFUL LONG-TERM INVESTMENT
The strengthening of the applicable regulatoryframework and an unshakable commitment to fiscaland monetary stability are irreplaceable ingredientsto make the Logistic Investment Program and the newfinancinginstrumentsdesignedtosupportrealsuccess.Together, they can open new valuable opportunitiesto local and international investors, providing steady,long-term income streams backed by quality projectsin several fields. Tax-exempt investment funds aimedat facilitating risk diversification and providingliquidity to those project bonds complete this strategyand have already been authorized.
Brazil is one of the top seven economies in the world. It has a diversified economy with strengths in energy,
agriculture, manufacturing and services. Brazil is one of the countries with the cleanest energy sources in the
world, and it is a large producer of oil and gas. The country’s consumer market is already among the sixth
largest in the world, but it has tremendous growth potential, as more and more Brazilians reach the middle class
and become more educated. In fact, the number of people in college has doubled in the last 10 years, reaching
seven million. This is a college population similar to those in the U.K. or Germany.
BRAZIL’S
INFRASTRUCTURE
INVESTMENTS HAVE
TRIPLED OVER THE
LAST 10 YEARS.
“The time has come to build the basis for a new cycle ofdevelopment and growth for the country.”
—NELSON BARBOSA, PLANNING MINISTER
FOR MORE INFORMATION, VISIT INFRASTRUCTURE BRASIL: HTTP://INFRASTRUCTUREBRASIL.BRASILEXPORT.GOV.BR/SITES/ESTADOSUNIDOS/
MINISTRY OF PLANNING, MANAGEMENT & BUDGET (MPOG)WWW.PLANEJAMENTO.GOV.BRCONTACT: [email protected]
MINISTRY OF EXTERNAL RELATIONS (MRE)WWW.BRASILEXPORT.GOV.BRCONTACT: WWW.BRASILEXPORT.GOV.BR/ASK-BRASIL-EXPORT
