Foreign investors who were considering entering Brazil began to review their appetite for projects, mainly infrastructure, due to the deterioration of the fiscal and economic environment, largely motivated by the anticipation of the 2022 electoral dispute.
Investment funds, pension funds and international operators were studying the proposals to participate in the next bids. However, they decided to wait for the next president.
According to advisers and lawyers who look after the interests of investors, they demonstrate distrust of the current government, which allowed severe environmental damage, abandoned structural reforms and today promotes spending focused on reelection.
They are also concerned about the climate of political polarization and understand that the worsening economy can be deepened depending on who wins the 2022 election.
For this group, which prefers to remain anonymous, future interest rates, already above 10%, are on an upward trend —a reflection of political uncertainty—, the exchange rate may be around R$ 5.50 (with the real if devaluing more against the dollar) and inflation will continue to rise.
If, on the one hand, the high dollar makes assets in Brazil cheaper, on the other hand, it requires more revenue in real to face the investment with funds raised in foreign currency. For them, all of this can harm the return on their investments.
In addition, they are supported by economists’ projections that indicate economic growth at low levels, which will affect consumption.
If before they bet on the heating of economic activity because of the tax reform, now they see a worse scenario: they say that, without changes in this field, the government will have no choice but to increase taxes since, on the expenditure side, there has been no progress.
With the latest clashes in Congress over tax reform, they decided to throw in the towel and consider that Brazil is not a country for beginners.
“They also think that the current situation indicates the return of populism, after everything they’ve seen this year,” says Claudio Frischtak, founder of Inter.B, an international business consultancy.
According to Frischtak, these investors believe that political polarization —whether with Bolsonaro or Lula at the helm in 2023— will bring possible greater state control over the economy, reflecting on tariffs and services.
They mention, for example, the current government’s attempt to control Petrobras’ pricing policy and interference with Banco do Brasil.
“The episode of Economy Minister Paulo Guedes, questioning IBGE surveys [Instituto Brasileiro de Geografia e Estatística] it fell very badly,” adds Frischtak.
“The investors I advise immediately remembered Cristina Kirchner [que manipulou o cálculo da inflação na Argentina]. Despite the criticism referring to unemployment surveys, the IBGE calculates the IPCA and INPC, important indicators of inflation in the country. This gang is connecting the dots.”
On the other hand, groups already operating in the country continue to be attracted by the next rounds of concessions and privatizations.
“New entrants should stay out of the infrastructure, but the traditional ones keep looking,” says Marcos Ganut, Infrastructure Director at Alvarez & Marsal.
However, according to Ganut, the devaluation of the real makes projects more attractive to foreigners.
For him, those preparing to compete in the auctions are more concerned with knowing what the economic policy will be from 2023 on.
“Infrastructure projects are an interesting fixed income option [fluxo de receitas]”, says Ganut. “Last year, investors began studying projects around the world as an alternative to low interest rates in other countries. Here we have projects with well-defined risks to attract these resources.”
Infrastructure analysts believe that projects motivated by agribusiness will be successful.
“Cargo transportation, motivated by agricultural production, was what led Brazil to be the country that generated the most investments in infrastructure last year,” says Frederico Turolla, a partner at the Pezco Economics consultancy.
According to him, there are more than a dozen infrastructure funds operating in this field.
“We are witnessing a redesign of the mesh [de transporte]. For the first time, we will have assets that are signaling a new longitudinal axis with railways and highways connecting ports in the North and the port of Santos.”
The government is aware of the change in mood of new investors, but remains confident in the sale or concession of its projects.
In the portfolio are the largest projects that, together, account for more than half of the estimated investments — something around R$ 154 billion.
Led by the Ministry of Infrastructure, the main airports (Congonhas, in São Paulo, and Santos Dumont, in Rio de Janeiro), the busiest highways, such as NovaDutra (which connects São Paulo to Rio de Janeiro), the largest railways, will be privatized (Ferrogrão and Ferroeste), and the port of Santos, the biggest hub for the outflow of the national crop.
NovaDutra alone will require R$14 billion in investments, including the improvements on the BR-101 imposed in return for the winner.
So far, the projects granted have guaranteed at least R$72 billion in investments contracted so far. The Ministry of Infrastructure estimates that this amount will reach R$ 100 billion by the end of this year.
According to the schedule, all projects planned for this year are underway and on schedule. The 2022 developments are still in the study phase.
The Secretary for Development, Planning and Partnerships at the Ministry of Infrastructure, Natália Marcassa, told the sheet that the government carefully planned each step to avoid setbacks.
Even more complicated projects from a political point of view, such as the Integrated Highways of Paraná —the target of resistance from local centers in the state—, have already passed through public scrutiny and are only awaiting the approval of the TCU (Tribunal de Contas da União) to be privatized .
“I don’t see anyone counting on the sighs of the hour,” Marcassa said. “I only see investors, including new entrants, interested in our projects.”
For her, despite all the difficulties and the current climate in the country, the government showed large investors that it respects contracts and defends legal certainty.
“We taught the world a lesson by the way we treated the airline industry during the pandemic [houve medidas de postergação de pagamentos de taxas e outorgas, por exemplo]. That’s why the last airport round was a success and we’re more interested in the seventh round [e última].”
In the secretary’s assessment, the degradation of the macroeconomic scenario is momentary and, for such long contracts, there is no way to compromise the revenue flow.
“In addition, there is a kind of insurance that is the correction of tariffs for inflation,” he says.
In his assessment, by the end of Bolsonaro’s term, the contracted investments are expected to reach R$ 250 billion.
This is the amount that the main state-owned companies of the government —Petrobras, BNDES, Caixa Econômica Federal and Banco do Brasil— were able to put in the box with the sale of subsidiaries or stakes in other companies.
Data from the Ministry of Economy indicate that, from January 2019 to August this year, the four state-owned companies obtained R$ 223.9 billion.
With its divestment program, Petrobras alone accounted for half of this result. A large part of the resources ended up returning to the National Treasury.
Despite this, the government did not fulfill the promise made by Economy Minister Paulo Guedes to privatize at least 17 state-owned companies.
The only relevant project approved recently was the capitalization of Eletrobras. Even so, the market estimates that there will be no breath for the purchase of shares to be sold in a first attempt.
Sales by other state-owned companies, such as Correios, Casa da Moeda, EBC, Serpro, Dataprev, Telebras, among others, remain stuck.
The minister made several declarations that this program would take off and could bring up to R$ 1 trillion to the government’s funds. Recently, Guedes stated that he intends to use 20% of the money that comes from privatizations and the sale of other federal assets to fund part of the new Bolsa Família.
Resistance in Congress made even the then Special Secretary for Privatization at the Ministry, Salim Mattar, to resign. The military wing that supports the government advocates an even greater state presence.
In the case of Telebras, which exists even after 23 years of privatization of its subsidiaries, the company will be involved in the offer of broadband via satellite and in the provision of telephone service on the private network of the federal public administration.
This network should be built by operators that win the 5G auction as a way to avoid the banning of Huawei, the largest supplier of fifth-generation technology equipment.
The event is scheduled for October and should generate investments of R$ 43 billion.