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In March 2010 Brazilian President Lula da Silva launched the second part of his Programme to Accelerate Growth (PAC) scheme, which was first launched in 2007.

Planned infrastructure projects over 2010-2017 are expected to provide a fillip to Brazil’s economic growth and business environment. However, with not all funding under the 2007 PAC 1 released, the impact of the scheme may be less than hoped for.

  • The US$886.2 billion PAC 2 scheme follows the US$285 billion PAC 1 in 2007. Both aim to provide funding for major infrastructure development designed to boost economic growth and create jobs. These projects will be funded by public-private investment schemes, with the government encouraging foreign companies to tender for construction projects;
  • Development areas include energy infrastructure, the construction of housing for low-income workers, sanitation and electricity infrastructure. There will also be transport projects, including three new railways, metro rail services, port improvements and bus lane projects;
Brazil’s projected spending under PAC 2: 2010-2017
% of total

Source: National statisticsNote: These figures are approximate and based on total planned projects.

  • The PAC programme will run until 2017 and the government estimates that it could add a percentage point to GDP growth per year. However, delays in releasing spending or initiating projects may hinder the completion of this ambitious programme.

Implications

  • The PAC scheme was launched in 2007 to provide a boost to Brazil’s economy. Brazil weathered the global economic downturn relatively well, largely owing to its well-diversified economy and fiscal stimulus plans, growing by 5.2% annually in 2008 and dipping briefly in 2009, with a contraction of 0.2%;
  • Not all projects under PAC 1 were initiated. The government claims that 40% of planned projects have begun, but some local groups argue that the figure is less. PAC 1 achieved a number of big ticket projects, such as the Belo Monte dam, and those benefiting consumers, such as low-cost housing and utility infrastructure extension;
  • Limited funding may have been because of the depth of the economic downturn. The projected US$285 billion for PAC 1 would have comprised 20.8% of 2007 GDP, a heavy cost for a government during an economic downturn;
  • Part of PAC 1 was intended to encourage public-private partnership. With foreign direct investment (FDI) falling during the global downturn, this reduced available funding. FDI inflows totalled US$25.9 billion in 2009, according to the central bank, down from US$45.1 billion in 2008;
Brazilian FDI inflows and real GDP growth: 2004-2009
US$ billion and annual % growth
Source: Euromonitor International from International Monetary Fund (IMF), International Financial Statistics and World Economic Outlook/UN/national statistics/UNCTAD/Central Bank.
  • However, the economy is recovering, growing by 4.3% annually in Q4 2009, indicating that businesses may have the capacity to invest in PAC 2;
  • The government has a political incentive to push ahead with the scheme ahead of elections in October 2010. Major projects include new railways, the construction of two million low-cost homes, 39 hydroelectric plants and a high-speed rail link between Rio de Janeiro and Sao Paulo. These projects will benefit the business environment, while consumers will have improved and more reliable infrastructure (aiding labour markets), and greater access to housing.

Prospects

The second tranche of the PAC scheme will help to underpin Brazil’s improving economic prospects from 2010:

  • Brazil’s economy is forecast to rebound in 2010, growing by 5.5%, before moderating to 4.1% in 2011;
  • Not all the planned PAC 2 schemes are likely to be launched, given the slow initiation of PAC 1. This is also likely if the opposition wins elections in October 2010, although an opposition government would be bound to continue the major infrastructure components;
  • However, the projects that are likely to be started immediately are the Rio de Janeiro to Sao Paulo high-speed rail link, the hydroelectric plants and the railway expansions, all planned for completion before the 2014 World Cup.

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