SOUTH AMERICA

Fixing the capacity shortfall

13 years ago

Investment in infrastructure projects in Brazil is very complex at the best of times and, even if the government has put aside money for new developments, there are invariably many bureaucratic and legal structures that have to be negotiated first.

“There is going to be no quick fix to Brazil’s transport infrastructure deficit. 2014 is an election year and might therefore mostly be lost, and ports in Brazil are not built that quickly anyway. In general, it takes three to five years to get a port project off the ground and one should not expect major capacity additions to come on stream before 2016,” says Drewry’s Michel Donner.

Hampering development might also be devaluation of the local currency, which while undoubtedly making exports more attractive, will perhaps also prompt foreign investors to be possibly more reluctant to invest in major handling or logistics facilities.

“We may well be in a situation whereby, although foreign investment might not decline, neither will it boom, resulting in stagnation at a time when the government is desperate to improve transport infrastructure.”

Rail connections are a particular concern, with the government allegedly having tried to attract Chinese investments to finance these, although Mr Donner stresses that they have so far shown little concrete interest in port terminal investments, especially in the dry bulk sector, unless vertically integrated with productive activity.

Nevertheless, there have been some significant indications that Chinese importers are beginning to lose patience with Brazilian producers and are looking elsewhere to secure consignments. Mr Donner cites an interesting recent case in which a Chinese company reportedly cancelled contracts to import soya beans because of the delays and uncertainty caused by the inefficiency of existing port infrastructure. Similarly, buyers of Brazilian sugar have already said they would like to see better facilities at ports able to accommodate larger ships.

The writing, it would seem, is already on the wall.

“However, I am relatively optimistic about the future of Brazilian dry bulk installations. Basically, there is no alternative; the country has to continue to invest in these if it wants key export business to continue growing,” he says.