On 6 December, Brazil’s President Dilma Rousseff announced a major investment initiative for the country’s ports.  The long-awaited programme consists of government-sponsored projects in conjunction with private sector involvement to modernise the country’s port system.  In the joint statement, Rousseff and Ports Secretary Leonidas Cristino said “we want an explosion of investment though this partnership with the private sector.”  The investment is expected to total R$54.2 billion (US$26 billion), with the bulk of the investment expected to occur between 2014 and 2017.  This programme follows on from the R$133 billion (US$64 billion) investment package the government announced earlier this year to improve the road and rail networks, and is part of a concerted effort to upgrade and expand the country’s infrastructure.

The government aims to invest R$31 billion (US$15 billion) in port leasing projects by 2015, and an additional R$23.2 billion (US$11.15 billion) for 2016 and 2017.  It was also announced that there would be an additional R$2.6 billion (US$1.25 billion) in improvements to waterways, roads and railways to help regulate the flow of traffic through Brazil's eighteen main public ports.

According to the announcement, Brazil’s port system will be improved by modernising existing ports and constructing new ports or terminals.  The government announced specific investments in the ports of Itaguai and Santos in the Southeast, and Cabedelo, Itaqui, Pecem, Suape, Aratu and Porto Sul/Ilheus in the Northeast.  The programme includes plans for the construction of a new port in the state of Bahia, Porto Sul, which will be used mainly for the export of commodities and will be located at the end of a 1,527km railway running through the interior from the landlocked State of Tocantins.  An estimated R$2.6 billion (US$1.28 billion) will be required for the construction of the port.  Cristino said another new cargo port would be built in Manaus on the Amazon river and a new deep-water port is also planned for Espirito Santo state.  With respect to the former, the government has had plans to grant a concession for a new port in Manaus since 2010 and it selected ATP Terminals to develop the basic design and engineering model for the new port in January last year.  Financing requirements for the port are expected to reach R$350 million (US$172 million), with funds coming from Brazil’s national development bank BNDES, the Inter-American Development Bank (IDB) and the private sector. 

The economic and political rationale for the announcement is clear.  According to the government, the country’s 34 major ports are unprepared for the potential quadrupling of port traffic by 2030. At present 95% of Brazilian foreign trade is handled by Brazilian ports. This is unlikely to change given that Brazil’s key exports, such as iron ore, coffee, sugar, beef, orange juice, ethanol and soy, rely on transportation by sea and its key trade partners are China, the USA and the EU. Brazil’s ports in the industrialised Southeast and South are working at near 100% capacity and those in the North and Northeast regions are expected to reach capacity in the next two years. Investment in the country’s ports is vital to safeguard economic growth over the coming decades.

Another reason for the announcement is the strong desire by the government to reduce the so called “Brazil Cost”, which refers to the higher cost associated with doing business in Brazil. This phenomenon is harming Brazilian international competitiveness, economic growth and development. It is caused by multiple factors, including Brazil’s complex tax system, excessive bureaucracy, underdeveloped infrastructure and transport systems, high interest rates, energy and labour costs. The reduction of the Brazil Cost forms a central part of President Rousseff's economic agenda. In addition to the programme in question, recent reforms in electricity market regulation (see Law-Now  "Brazilian electricity market reforms" and the R$133 billion road and rail investment package (see Law-Now “Brazil’s new Logistics Investment Programme”demonstrate the government’s focus on dealing with this problem. It is hoped that this latest investment package will allow port capacity to expand in tandem with that of the road and rail network.

The port investment programme seeks to address the Brazil Cost in a number of ways. With regard to modernisation measures, Cristino said new concessions will be granted for the dredging of ports, starting with the port of Santos. The number of harbour pilots will be increased and ships weighing up to 5,000 tonnes will be allowed to dock without pilots. This is welcome news to the industry as navigational difficulties caused by shallow waters and lack of pilots are resulting in high operational costs.

The joint statement of Rousseff and Cristino clearly conveys the government’s desire for increased participation from the private sector in financing, construction and operation of the planned port projects. In addition, the public procurement process, expected to begin next year, will be a competitive process which moves away from the prior model of granting concessions to the highest bidder and instead favours tenders offering the lowest tariffs for handling the greatest volume of cargo. 

The latest announcement is not guaranteed to resolve the problems plaguing Brazil’s port system. Many delays are caused by complex and uncertain rules on importation licensing and taxation, which have not been addressed.  On average, ships are forced to wait a week before their cargo is unloaded, due to the delays caused by Brazil’s tax and inspection agencies. Nevertheless, the latest announcement is a step in the right direction, which has been welcomed by most stakeholders and will hopefully result in opportunities for the private sector, improve Brazil’s port infrastructure and contribute to country’s economic growth over the coming decades.