Transport in Brazil desperate for a jump-start
news.ft.com By Jonathan Wheatley Published: February 12 2003 20:37 | Last Updated: February 12 2003 20:37
One of the final acts of Fernando Henrique Cardoso as Brazilian president was to modify a fuel tax called Cide, created in 2001 primarily to pay for much-needed investment in transport infrastructure.
At the request of his successor, Luiz Inácio Lula da Silva of the leftwing Workers party (PT), Mr Cardoso released Cide funds - about R$10bn (US$2.7bn) this year - for use at the government's discretion.
This will help the government to pay debts and meet fiscal targets. It is the kind of thing that has earned Mr Lula da Silva the approval of international financial markets but it has left the transport industry up in arms - not only at potentially losing funds but also at the cost to the economy.
"There is a clear crisis in the sector," says Clésio Andrade, president of the National Confederation of Transport (CNT) and vice-governor of the powerful state of Minas Gerais. "Taking away its funding is a bad start."
Some 65 per cent of Brazil's freight is carried by lorry; similar to small countries such as Belgium but more than twice the level of other continental countries such as the US, Russia and China.
Of 1.5m kilometres of roads, just 160,000 kilometres are paved. Of these, more than 75 per cent are in "precarious" condition: dangerously potholed, with inadequate and often contradictory road markings.
Accidents are horrifically common and highway robbery is on the rise. There were 8,000 such robberies in 2001, up from 3,000 in 1994, at a cost of R$500m. Many hauliers who suffer these conditions are owner-drivers, accounting for about half of Brazil's 1.8m lorries.
The average vehicle is as dilapidated as the roads, having been in service for 18 years, while maintenance is a luxury few can afford. "Most of them hardly make enough to pay for their diesel and their food," says Geraldo Vianna, president of the National Cargo Transport Association (NTC).
There are few alternatives to the roads: Brazil's rail network is tiny for a country of its size and suffered years of underinvestment and neglect before privatisation in the mid-1990s. Some foreign companies that bought parts of the system have since quit the country.
One reason is the cost of capital in Brazil. Paulo Fernando Fleury of the Federal University of Rio de Janeiro says Brazilian railways produce twice the operating returns of US railways (30 per cent a year compared with 15 per cent) because of low labour costs.
But railways are much more capital-intensive than labour-intensive. While US railways produce return on equity of 9 per cent, Mr Fleury says, Brazilian railways make a negative return of 34 per cent.
Lack of investment capital has also stymied development of river transport. The previous administration's grand plans for intermodal transport systems - to open up the enormous agricultural potential of Brazil's interior - remain mostly at the planning stage.
The cost to the economy is hard to quantify. As an example, Mr Vianna at the NTC says transport inefficiencies force Brazilian companies to hold 21 days' more stocks than US firms, tying up US$30bn.
Optimists hope Mr Lula da Silva will reverse Mr Cardoso's ruling on Cide. More realistically, the government-owned National Development Bank (BNDES) shows signs of paying more attention to development and less, as in the recent past, to returns on its investments. This could signal new funding for the sector.
More help will come if the government succeeds in its drive to make early progress on long-awaited pensions and tax reforms. Both would create sources of investment capital, especially through long-term savings. "These two reforms are the basis of everything in Brazil today," says Mr Andrade at the CNT.
But there are reasons for pessimism, too. The transport ministry has gone to Anderson Adauto of the Liberal party, the PT's electoral ally, rather than to a figure closer to the president, as happened with key ministries.
Mr Adauto has made a shaky start and been accused of corruption in a previous job; senior figures in the PT have called for him to be dismissed. Many fear that transport is not getting the attention it needs.
Mr Vianna at the NTC says: "[Mr Lula da Silva] will only meet his campaign promises if the economy grows. With transport infrastructure in its present condition, that won't happen."
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