Analysis: Brazil investments have a long, potholed road ahead

Tue May 28, 2013 3:12pm EDT
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By Brad Haynes and Silvio Cascione

SAO PAULO (Reuters) - If you think you're seeing light at the end of the tunnel for Brazil's economy, look again: it's just brake lights from a growing line of 18-wheelers.

Investment in Brazil probably grew at the fastest pace in three years in the first quarter, official data should show on Wednesday. But as much as two-thirds of the rise may have come from the construction of heavy trucks - hardly the steady capital spending that Brazil so badly needs.

If anything, the new trucks highlight one of the country's great weaknesses: paltry investments in rail and waterways are forcing more and more goods onto a crumbling patchwork of highways. As more vehicles crowd the same lousy roads, shipping times have lengthened - which perversely creates a need for even more trucks.

Brazilians spend more on trucks in a year than the government plans to invest in a decade on new railways, according to economists at Bradesco Asset Management. They compare the investment pattern to spending on diesel generators for lack of a decent power grid - another example of capital spending that is a symptom of poor infrastructure, not a solution.

"We're skeptical of a really strong rebound in investments during the rest of the year," said economist Leandro Padulla of MCM Consultores.

The rebound comes after new emissions standards wiped out 40 percent of production last year and new safety rules slowed down truckers' trips.

The recovering output from truck makers should be enough to lift investments, measured by capital formation, from just 18 percent of gross domestic product in 2012, lagging behind all major economies in Latin America.

Brazil's meager growth since 2011 is due in large part to that dismal investment rate, which President Dilma Rousseff is struggling to boost toward her goal of 25 percent of GDP. While consumer spending has kept the economy plodding along, a lack of capital spending and a host of transportation bottlenecks make it hard to satisfy demand without stoking inflation.   Continued...

Trucks line up at Rodovia Conego Domenico Rangoni in Guaruja in this March 27, 2013 file photo. REUTERS/Paulo Whitaker/Files