Prefeitura de Olinda

Brazil Under Construction

The Brazil Business

Updated

8 February 2012

Preparation for the World Cup and the Olympics have brought infrastructure problems to the surface in Brazil, rushing the country to be able to support the economic growth it has been experiencing.

Background

Due to both the economic expansion and the hosting of two major sports events, Brazil has been investing a lot in infrastructure. Plans of building new railroads, extending roads, reparing pipelines for oil, gas and ethanol from sugarcane and airport renovation contrast with the reality of buildings accidental explosions, chaotic public transportation, traffic and overcrowded airports.

The astonishing growth Brazil has been going through seems to be slowing down. According to IBGE, the Brazilian Institute of Geography and Statistics, Brazil is now facing an industry stagnation, once it only grew 0.4% between January and November 2011.

The high costs of running a business in Brazil make it hard for Brazilian companies to compete with major exporters located abroad. The problem is not only that Brazil is mainly focused on the exports of commodities, but also the huge amount of legal procedures that must be met in order to export.

Besides bureaucratic issues, companies often face difficulties related to the hiring of professionals. Besides being relatively expensive to hire a good professional in Brazil, they can be hard to find, especially if you are located far from major industrial areas like the Southeast.

But it is not only professionals that are expensive, basic infrastructure matters – such as renting and electricity –, can be a lot more expensive than in other BRIC countries. Also, SMBs face the problem of getting support from BNDES when trying to invest in the modernization of their companies.

The Construction Industry

Despite the somewhat negative scenario, the construction industry has been very prosperous. Buildings are being constructed throughout Brazil, but this increasing housing offer has not decreased prices. Actually, renting or buying a house in Brazil has hardly been so expensive, especially in cities like São Paulo, Rio de Janeiro and Recife.

The preparation for the World Cup and The Olympics has rushed Brazil to solve old problems such as logistic and electricity infrastructure.

According to SOBRATEMA (Brazilian Association of Technology for Equipment and Maintenance), Brazil aims to complete 12.265 infrastructure projects by 2016, requiring investments of BRL 1.5 billion.

Logistics is one of the key sectors that need to be modernized in order to meet the demand to be generated not only by the upcoming sports events, but also by the local economic growth. Nevertheless, it is important to say that The World Cup matches will take place in 12 different cities spread throughout Brazil, so it is not only transportation that can become a headache, but also the services sector.

The Services Sector

Many cities will have to significantly increase their amount of hotels and restaurants, not to mention the hiring of English-speaking staff, that can be difficult to find in some states, leading local entrepreneurs to hire staff from other areas, inflating salaries and increasing services costs.

The president of ABIH, which is the National Association for the Hospitality Industry, points as one of his major concerns the difficulty to hire qualified professionals. The association is working on several partnerships with educational institutes, focusing on staff training.

One of the examples of this training is the online language courses in Rio Grande do Sul, Paraná, São Paulo and Rio de Janeiro, result of a partnership between the association and Sebrae.

Sebrae has also launched several programs in order to improve the services sector in Brazil during the sports events. One of them is “Taxista Nota 10”, a program offered to 80 thousand taxi drivers who are interested in learning a foreign language and notions of management and entrepreneurship in order to better assist the thousands of tourists coming to Brazil

The other is related to the hospitality sector. Conotel, which is the National Hospitality Convention, believes that roads, public transportation and the stadiums for the matches of the World Cup are the major concern at the moment.

Ports and Exports

The port of Santos, one of the most important in Latin America, has been operating way beyond its capacity. As exports have been growing, the lack of infrastructure of Brazilian ports has become more obvious and led to enlargement and improvements. The port of Santos, for example, is expected to double its capacity by 2013.

Rio de Janeiro state will have two “superports” constructed by LLX: one for the exporting of minerals and the other a complex for steel, mechanical, oil and energy industries.

Innovations are not restricted to the Southeast. New ports are also being built in several different areas in Brazil. Petrobras is building large refineries in the Northeast, hoping to attract other companies to the area.

Electricity

Facing several protests by environmentalists, the government has decided to invest in wind power last year due to the decreasing cost of equipment.

Nevertheless, thermoelectric plants fired by natural gas or oil-based fuels are also under construction, and the government has decided to finish building the country's third nuclear power plant, Angra III, expected to be operating in 2015 and capable of generating 1.300 MW.

The Telecommunication Sector

Supposedly, until 2013 every Brazilian city hosting the matches and that have more 500 million people will have to provide 4G internet connection. The problem is that in many of these stadiums there will hardly be any demand for 4G connection once the World Cup is over, so it is hard to get long term investments.

Besides the general desbelief that a good quality service will be offered in time for the sports events, there is also the concern regarding prices. 3G connection in Brazil is expensive and often has a limited access. Just to give an idea, the cheapest plan ranges around BRL 29,90 and the maximum speed is of 1Mbps, with a limited data transfer of 100MB.

Two Sides of the Story

CBF is partially responsbible for the stadiums, but the proper infrastructure of the city must be provided by each federal unit, causing a lot of criticism from Brazilian citizens who complain that the government has taken money from basic services (like hospitals and schools) and invested it in the construction of stadiums for the World Cup.

For the more optmistic ones, public investments will generate jobs, increase the number of tourists, promote the revitalization of urban areas and attract heavy investments to the country. However, many of these jobs may disappear as soon as the event is over, unless these cities are able to really consolidate themselves as touristic areas.

Those who are more realistic claim that all the expected number of tourists and job generation are a little bit exagerated. Just to give some examples, the 1994 World Cup, held in the USA, increased their GDP in 1,4%; South Korea was able to increase its GDP in surprising 3,1%; however, Japan suffered a 0,3% decrease, proving that the event does not work so well for everybody.

Also, before the 2006 World Cup, Germany was expecting a creation of 100.000 jobs, but had actually 50.000; South Korea was expecting extra 500.000 tourists, but only half of them actually visited the country.