Brazil's population and economic activity historically have been concentrated along the coast, particularly in the country's southeast. Several factors, including the scientific advances of the 1970s and 1980s, the economic reforms of the 1990s and exploding demand from China over the past decade, have seen the bulk of the production of commodities — primarily soybeans and iron ore — shift into the peripheral regions of the Cerrado and the Amazon.
Breakthroughs to Expanded Commodity Production
In the 1970s and 1980s, the state-owned Brazilian Agricultural Research Corp. achieved several major breakthroughs that revolutionized Brazilian agriculture and made large-scale cultivation of the country's vast savannahs feasible. The researchers discovered they could reduce the soil acidity of the Cerrado through the mass application of lime. They also introduced a nitrogen-fixing bacterium that reduced the need for fertilizers and bred a new strain of soybean plant that could tolerate the tropical climate.
To exploit the potential of the periphery, the government has had to attract massive investment in infrastructure while trying to mitigate the ensuing inflation and appreciation of the real. Up until the early 1990s, Brazil's biggest and most persistent economic problem was inflation. In 1994, the Brazilian government executed the Real Plan, which conquered inflation for the time being, stabilizing the country's macroeconomic environment and granting Brazil access to international capital markets. Around the same time, the country also began to partially liberalize, privatize and encourage competition in the economy.
The Brazilian government also has recently made adjustments to the regulatory system to help stimulate investment, learning from its mistakes from earlier infrastructure development programs. First, Brazil is in the midst of overhauling the regulatory structure for the country's ports. In December 2012, lawmakers published Decree 595, which among other things will allow private ports to handle goods not owned by the port owners. In other words, a port terminal owned by Vale could now handle cargo for third-party clients. This will force state-owned ports to compete with the private sector. The bill faces hundreds of amendments, but economic necessity has made it a priority for the current government.
In February 2013 the government changed the structure of the concessions to make investment opportunities more attractive. The government improved the terms for investment, promising higher rates of return (more than 10 percent), extending concession periods from 25 to 30 years, and increasing financing periods from 20 to 25 years. It also granted a five-year grace period before payments need to be made.
Around the same time, President Dilma Rousseff's administration began encouraging government-controlled banks, such as Federal Savings Bank and Banco do Brasil, and private sector banks to offer short-term, low-interest bridge loans to help finance infrastructure projects. Brazil's behemoth National Development Bank, which finances around 80 percent of infrastructure investments, has so far proven too slow and bureaucratic to allocate financing in a timely manner. These bridge loans will help cover the financing gap before National Development Bank loans can be rolled out. In addition to these measures, the government is also considering issuing tax-exempt infrastructure bonds, and Rousseff has authorized Finance Minister Guido Mantega to transfer treasury funds to private and state-owned banks to boost liquidity for infrastructure investments.
While challenges remain, the auctioning of concessions over the next few months will likely succeed in at least incrementally increasing infrastructure investment. But if Chinese and European demand slows, if Brazil's competitors recover and if the Brazilian economy continues to grow at a sluggish pace, then there are no guarantees foreign investors will meet these projects with much enthusiasm. Connecting Brazil's interior with the coast is an immense task that will take decades. Though the present attempt will not solve Brazil's transportation problems, it will bring the country a step closer toward integrating its vast interior with the coast.
