Brazil extended concession periods and improved financing conditions to lure private investors into multi-billion dollar road projects, in the latest bid to bolster anaemic investment in Latin America's largest economy. Finance Minister Guido Mantega said on Tuesday the government has sweetened conditions of road concessions to raise the rate of return for investors to more than 10 percent in real terms.
"The government is seeking to boost the profitability of these projects to make them very attractive to investors," Mantega told a crowd of business leaders in Sao Paulo. "We are talking about a large volume of investment that will help our economy become more dynamic." President Dilma Rousseff is scrambling to refurbish the country's dilapidated infrastructure to pave the way for faster economic growth after two years of near stagnation.
Brazil has opened up public concessions of roads, railway, ports and airports to private investors in hopes of fixing the infrastructure bottlenecks that make the South American country one of the most expensive places to do business. Mantega said the period of concession for roads was increased to 30 years from 25 years and that the financing period was also extended to 25 years from 20 years. He added that state-run banks will lower interest rates on bridge loans to companies investing in those projects.
Brazil needs investment equivalent to between 24 and 26 percent of its gross domestic product to secure sustainable economic growth, Mantega said. Comparatively low investment rates have been a huge drag on the Brazilian economy in recent years, with investment equalling about 19 percent of GDP a year. That's way below China's 45 percent and 35 percent in India.
Investment fell in last five quarters, a sign of waning investor confidence in the Brazilian economy. The economy likely grew less than 1 percent last year and may grow a moderate 3 percent in 2013 despite a barrage of government stimulus measures, according to estimates of private economists.
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