In 2012, Brazil experienced US$93.5 billion real 2005 US$ in construction spending, making it the 16th largest construction market. Over the next five years, construction spending in the country is expected to increase at a 7% compound annual growth rate, making it the sixth fastest growth market. Brazil’s size and growth potential make it an attractive construction market. On the down side, Brazil is considered to be a high risk construction market. It is one of the 20 riskiest markets based on data from the IHS Global Risk Service.
Growth Acceleration Programme
In 2007, then president of Brazil, Luiz Inacio Lula da Silva, initiated the Growth Acceleration Programme, known as PAC, targeting investment projects for the 2007 – 2010 period. The programme placed a high priority on the development of energy resources, transportation infrastructure, housing and sanitation, as well as preparing the country for the 2014 World Cup and 2016 Olympic Games. The PAC programme was overseen by Dilma Rousseff who was dubbed “the mother of the PAC”. Rousseff was elected to succeed da Silva as Brazil’s president and has continued the programme with a second round of PAC, known as PAC 2. PAC 2 programmes include a number of initiatives to spur the Brazilian construction market and if fully implemented, stand to boost all segments of construction in Brazil.
Infrastructure development is vital for the development of the Brazilian economy. As the country advances economically, the physical infrastructure must develop to meet growing needs. Under the second phase of Brazil’s acceleration programme, the government plans to spend R$958.9 billion on infrastructure projects over the 2011 – 14 period and a further R$631.6 billion from 2014 onwards. PAC 2 will focus investment in transportation, energy, sanitation, housing and water. Spurred by PAC 2 initiatives, infrastructure spending is expected to increase 7.3% y/y in 2013 (in real 2005 US$) and should realise a compound annual growth rate (CAGR) of 7.9% between 2012 and 2017.
While all sectors of infrastructure are anticipated to experience healthy growth, transportation projects are a pressing priority as the country prepares to host the 2014 FIFA World Cup and 2016 Summer Olympic Games, international sporting events that will showcase Brazil’s potential to the rest of the world. Transportation infrastructure is expected to increase nearly 9.6% in 2013 and enjoy annual growth of 8.5% from 2012 to 2017. Transportation construction will begin to wind down following the buildup in anticipation of the sporting events; growth from 2017 to 2022 is expected to be a more subdued 2.4% CAGR.
Port and waterway construction are also in progress as part of the PAC 2 programme, with a public and private investment plan totalling R$54.2 billion. Eighteen ports are expected to receive investment, with the southeast region receiving the most investment.
With the largest energy market in South America, energy infrastructure also remains at the forefront in Brazil. Under PAC 2, energy infrastructure is slated to receive R$1092.6 billion. The government has set oil self-sufficiency and increasing domestic gas production as goals for the sector. Energy infrastructure is expected to experience fairly even growth with 6.4% CAGR expected from 2012 to 2017 and 5.7% from 2017 to 2022.
The non-residential structures segment saw weak performance in Brazil over the past decade, growing at 1.3% CAGR compared to 3.8% growth in infrastructure spending. Construction of structures will be coming into its own, however, as infrastructure investments lay the foundation to make Brazil a more attractive location for business investments. Growth in spending on structures will accelerate to 6.6% annually through 2017, with office and institutional structures spending enjoying annual growth over 7%. Growing employment levels will fuel continued strong growth in structures construction through the next decade.
Residential construction spending in Brazil will see healthy 4.7% annual growth over the next 5 years. The ‘My House, My Life’ programme will spur demand for housing for lower income families by offering low interest loans. The growth in the importance of the middle class in Brazil will also affect its residential sector construction, as a growing number of families have the means to buy their own homes. Changes in population and demographics, though, will offset some of the demand as the growth in the number of households slows to just 1.2% annually and household size declines. While non-residential construction spending growth will slow after the buildup to the World Cup and Olympics, spending on residential construction is expected to accelerate in the 2007 – 2022 period.
Written by Karen Blanford and Danielle Cummings, IHS Global Insight. This is an abridged version of the full article, which appeared in the June 2013 issue of World Cement. Subscribers can view the full article by logging in.
Read the article online at: https://www.worldcement.com/the-americas/28052013/construction_brazil_pac_2_paving_the_way_for_the_future_42/
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