MacroScope

It’s not just Brazil – Latin America’s infrastructure among the worst in the world

September 27, 2013

Brazil’s creaky network of roads and rails is once again in the spotlight after a much-awaited highway concession auction failed to draw any bids from private investors earlier this month.

The concession of the BR-262 highway was part of President Dilma Rousseff’s government 43 billion reais program to revamp the country’s roads. The stakes are high: without serious investment in infrastructure, Brazil risks a lost decade of mediocre economic growth — which would likely halt its recent progress in reducing economic inequality. A credit downgrade might be in the pipeline as well.

It’s easy to see why infrastructure is so key to Brazil with the following graphic prepared by HSBC with data by the World Economic Forum, which shows how far it lags behing other economies in that matter.

Click on the image for an enlarged view:

For those too worried about Brazil, here is a surprise: other Latin American nations also have a poor record in expanding and maintaining their transport system. While this is a perfect scenario for backpackers and lovers of off-the-beaten paths (like me), it is also a powerful blow to regional growth and economic integration.

Rousseff knows that, and tried to court Wall Street investors this week to make sure the other upcoming auctions don’t fail like the first one. If she and other Latin American leaders succeed in luring private investors, the best way to take direct advantage is not through shares of road operators, but rather by buying construction material suppliers, HSBC economists led by Ben Laidler said in their research note.

“We see suppliers rather than operators as the main beneficiaries here, given pricing power (cement industry – for example – is consolidated, and local), and lower risks – regulatory, political, bidding, and execution.”

(This photo was taken during a roadtrip from Sao Paulo to Bahia in July. It’s fair to say this is not the worst I saw – by far.)

Comments
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That road look absolutely wonderful. It gets much worse, trust me. People (locals) often warn tourists about driving at night. The tourist think it is a concern about thieves, but really it is a concern about being able to see giant pot holes in the road (and maybe a little about the thieves…).

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