A jobsite called Brazil

Amid delays in the schedules of a few projects, most of which due to environmental issues, the country will reach a record volume of R$ 1.35 trillion (US$ 771.4 billion) in investments in infrastructure by 2016.

A financial crisis of global proportions had to break out before Brazil discovered that, following two decades of high levels of inflation and economic instability, the country was finally going by a fairly consistent book of rules. Better still was the country’s timely reaction; quickly identifying the risks posed by the international crisis and adopting measures to mitigate its effects focused on unburdening (i.e. relieving from taxation) production and investments in infrastructure, ahead of even the majority of industrialized nations.

With the country’s currency strengthened, a few initiatives in support of production, such as a reduction in taxes on the financing of capital goods (producer goods), turned out to be less effective than expected due to growth in importation, which caused local industry to gripe strongly. Despite warnings that the country might suffer deindustrialization (an actual possibility), the fact is that Brazil assumed an unprecedented stance, with positive results for economic growth.

Proof of this is that Brazil now has a scheduled volume of investment of R$ 1.35 trillion (US$ 771.4 billion) by 2016 for the implementation of 12,265 projects in the areas of infrastructure; industrial, commercial and hotel construction; and in works related to mega sporting events. These numbers are part of the study commissioned by Sobratema which lists most of the investments in the states which have received funding for the exploration of petroleum in the pre-salt layer. Not incidentally, Rio de Janeiro is at the head of the list with the largest volume of investment: R$ 355 billion. (US$ 202.8 billion).

Delays in permits 
Notwithstanding funding for pre-salt exploration, the study reveals that investments are still less than ideal, especially in the area of roadways where works has come to a halt following accusations of corruption in the federal agencies linked to the sector. Even so, the study indicates an ascending trend. “Brazil has already assumed sixth place in the ranking of the world’s largest economies and, according to international analysts, is expected to rank fourth by 2030. This reality may not materialize as fast as expected but it does indicate an irreversible trend,” considers Brian Nicholson, consultant to Sobratema.

As a result of this scenario, the sector of construction equipment experienced strong   demand which reflected in the expansion of production. Obviously, this advancement is not linear and in certain segments, such as in the construction of roads, manufacturers and construction companies report stagnation in the pace of activities due to halts in work and the revision of contracts by the federal government.

According to Nicholson, the sector’s greatest concern lies in the "entangled underbrush of Brazilian legislation," which complicates the process of securing an environmental license for infrastructure projects, affecting the schedule of works. "No company argues there should be a relaxation of environmental requirements, but rather that issues should get analyzed and resolved more rapidly," he considers. After all, delays in approving a jobsite mean additional costs and, in certain cases, can compromise the economics of a project.

Effects on contractors
Despite this scenario marked by contradictions, the fact is that the infrastructure sector is experiencing a period of unprecedented expansion in the country. This situation has wound up impacting the business of three of Brazil’s largest contractors, as recently reported in "Valor Econômico" (a major financial newspaper). According to the publication, Norberto Odebrecht, Camargo Corrêa and Andrade Gutierrez, which in the recent past derived most of their revenues from engagement in other activities outside the construction site, have seen their construction businesses spring back as their main source of income.

As regards Odebrecht, growth in the importance of the sector was inversely proportional to the drop in company’s business in the petrochemical area whose share in the revenues of the Odebrecht group dropped from 72% to 48% after the international financial crisis of 2009. Contracts in the construction sector on the other hand, which had once accounted for 26% of revenues, jumped to 46% in 2009 and reached 31% of the company’s revenues of R$ 53.4 billion (US$ 30.5 billion) in 2010.

This inversion was even more dramatic at Camargo Corrêa which, after extensive diversification of business including investments in cement production, electricity and mining, saw the company’s traditional area of business - i.e. construction - have its share reduced to only 13% of the company’s revenues in 2002 . Almost a decade later, however, the company was already figuring that contracts for infrastructure construction represented 32% of its gross revenues of R$ 20.4 billion (US$ 11.66 billion) in 2010.

At Andrade Gutierrez, in turn, heavy construction continued to account for one third of the group’s revenues of R$ 18.2 billion (US$ 10.4 billion) in 2010, despite the advancement of business in area of telecommunications (the company has a relevant shareholder in mobile phone operator ‘Oi’. In common, all three major companies have construction contracts for the execution of the largest infrastructure projects being implemented in Brazil, such as the Belo Monte, Jirau and Santo Antônio hydropower plants, in addition to the implementation of the Petrochemical Complex of Rio de Janeiro (Comperj), the expansion of the ‘Complexo Portuário de Suape’ (Suape Marine and Industrial Complex) and others.