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The new labor contracts signal an infrastructure recovery in Brazil, analysts say

part of construction heavy, aimed at the implementation of infrastructure works, should help civil construction to maintain the growth process that began in 2020, according to experts heard by CNN Brasil Business.

According to a number of concessions in the area and the growth of contracts supported by the regulatory framework, the sector is expected to replace the housing area and become the main driver of civil construction, especially in 2024 and 2025. José Carlos Martins, President of the Brazilian Chamber of Construction Industry (Cbic).

With this, the prospect is for the recovery of the sector, which suffered both from the economic crisis of 2015-2016, and from the interruptions. Operation Car Washwhere major companies in the industry were investigated and charged with corrupt practices in contracts.

Private initiative assistance

An example of the recovery movement in the infrastructure sector, the company Azevedo e Travassos signed approximately R$ 1 billion in contracts in the first seven months of 2022.

According to Leonardo Martins, the financial director of the company, half of the total amount is allocated to the infrastructure, and the other half to the oil and gas sector. It’s a different scenario than the last few years. In 2019, the company’s revenue was 3 million BRL, reaching 27 million BRL in 2020 and 78 million BRL in 2021.

Although the company was not investigated in Operação Lava Jato, the director says the consequences of the investigation were felt. “From 2016 to 2019, the infrastructure market stopped, no one invested in anything. Investigations hit large companies, which paralyzed everything, and contracts with small companies were canceled. Petrobras, for example, canceled the 2017 contract with us for R$ 1 billion,” he informs.

As a result, the company’s revenue dropped from BRL 600 million in 2016 to BRL 3 million the following year. However, the director now sees a recovery in the sector after a “very bad” period.

“We have a favorable outlook for private infrastructure in the coming years. Today, we are talking to all vertical clients of the industry,” he says. The company expects to sign several billion more infrastructure contracts in 2022.

The annual study of the Brazilian Association of Infrastructure and Basic Industries (Abdib), published in December 2021, estimates that transport and: sanitary should receive around R$160 billion in investments by 2026, taking into account concession initiatives and federal, state and municipal public-private partnerships (PPPs).

The association notes that the new regulatory framework for the sanitation sector, approved in 2020, has allowed “an important increase in private participation, with investment prospects of around R$ 60 billion in projects”. The investment expectation from 2022 to 2026 will be R$35.8 billion. Already around R$124 billion will be linked to transport and logistics projects.

2021 60 auctions were held by the federal government, with an expected investment of R$334 billion and the collection of R$51 billion in grants and bonuses covering ports, airports, energy, telecommunications, railways and highways.

For 2022, the Ministry of Infrastructure still expects to hold auctions 15 airport concessions, including Kongonas, in Sao Paulo. This year it is expected to provide 50 assets165 billion R$ with planned investments.

Expectations are that large private equity-backed projects will boost civil construction between 2024 and 2025, Martins estimates, reflecting longer timelines for infrastructure projects.

He cites government measures such as concessionswhich should lead to road, airport, port and railway projects supported by foreign capital and implemented by more structured companies in the sector.

According to Martins, one project such as the Dutra highway should already exceed all state investments in infrastructure during the year.

Given this, civil construction is expected to experience a downturn in the coming years, with heavy construction creating more jobs than housing and thus sustaining the sector’s GDP growth.

For Abdib president Venilton Tadini, investment in infrastructure could be greater if the share of public investment was not at one of the lowest levels in history.

On the positive side, he points to the improvement of management, inspection and design of concession projects, which allows the growth of this model.

“There has been a very significant increase in private participation, more than 65% of investment in infrastructure comes from it,” he says. In this regard, he believes that the new concessions represent “a significant improvement in quality, but what remains in the hands of the state becomes impoverished.”

Promotion of construction

how the seventh consecutive quarterly increase in its GDP, construction has been through an expansionary cycle, aided by the recent recovery in infrastructure investment.

Growth since the third quarter of 2020, as measured by the National Confederation of Industry (CNI:), arise mainly due to good performance residential.

As the sector operates on a labor contract scheme, an investment made in one year effectively creates value only in subsequent years, as work is carried out by hiring staff, buying and selling material. This period is shorter in the housing sector and longer in the infrastructure sector.

The main driver of the growth of the sector, the positive cycle of housing construction started mainly in 2020. according to Jose Carlos Martins and continued in 2021, supporting a The interest rate of the cart historically low and therefore cheap credit.

Even with the slowdown in the second half, as interest rates rose and inflation eroded the purchasing power of the population, the sector is still signing contracts and enforcing contracts that have already been signed, indicating its continued growth.

In 2022, Cbic expects the civil construction sector to grow by 3.5%, more than forecast at the beginning of the year (2%). The amount would be enough to bring civil construction back to 2015 levels.

However, the trend is that the macroeconomic environment, with high interest rates and inflation, will eventually lead to a slowdown in housing in the coming years, but the movement should be offset by an expansion of heavy construction as contracts come to life.

The FGV researcher estimates that public investment in infrastructure should decline in 2023 due to fiscal deterioration at the federal and state levels, and lower state budgets due to: ICMS cut.

“It will be a difficult situation, and even if private investment increases, it cannot compensate for this decline. “Civil construction can have a more difficult situation, it is a big challenge,” he says.

Tadini, on the other hand, believes that the global scenario has changed: a recession, higher investment costs and uncertainty in an election year that could lead to delays in project schedules and delays in implementation, delaying some investments and impacting the economy.

“Of course, what can happen is that due to the change in the macroeconomic environment, these investments can be extended, but I do not believe that this will have a significant impact, because the programs are already very mature. However, new projects should come in, so the values ​​should not change too much,” he says.

Challenges

Citing the negative effects of the 2015-2016 economic crisis and Operation Lava Jato on the sector, President Abdib emphasizes that some infrastructure projects are still suspended today, and even important ones are not restarted due to lack of resources from the state. , with other problems, for example, the legal problems related to the operation have already been solved.

“The number of projects is very large, it is moving forward, but there is no place in the world where only the private sector invests in infrastructure,” he says.

For Ana Castello, coordinator of FGV-Ibre Construction Projects, the regulatory changes implemented by the federal government, such as Sanitary cleaning and: railways, gave a boost to the industry. However, even positive, there has not yet been a recovery of all lost investments in the sector.

“There is a forecast of an increase in investments in infrastructure, but it still leaves us in a bad situation. We have not been able to invest enough to cover the depreciation of capital. “The market has shrunk a lot in other years due to the decline in government investment,” says Castello.

According to Castello, infrastructural works had a positive cycle, which intensified in 2022.

“We have an election context where the states mainly act as a driver, especially for road works and with a favorable budgetary situation, they strengthen investments,” he says.

The CBIC president estimates that during the pandemic, “states and municipalities had a very large increase in cash, which led to more investment in infrastructure, schools, hospitals,” which also has a positive effect today.

Martins, of Azevedo e Travassos, points out that in the last 30 years the state “invested in old infrastructure far below the cost of replacing it with a new one. This delay, in addition to the lack of public capacity to invest, meant that all this investment had to be transferred to the private sector.”

As a result of the wave of concessions, he now sees the approximation of large infrastructure investment conglomerates, benefiting construction companies such as Azevedo and Travassos, whose focus is not on concessions but on the labor contracts that flow from them.

Citing tenders related to airports, ports, sanitation and highways, he believes the infrastructure sector should continue to grow in the coming years. “Auctions will still generate more contracts in 2023, even through the auctions we will have in 2022. The auction will be R$200 billion in new highways alone, and they will need work. We will fight for these contracts.”

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