State or Market Led? Brazil’s Struggle to Improve Infrastructure and IT

Yesterday I attended the annual Brazil Summit in New York, organized by the Brazilian-American Chamber of Commerce. What struck me in the presentations (reinforcing what I heard during my last two visits to Brazil), was the quite disparate views of Brazil today and the levers for growth tomorrow.

The first panel focused on information technology (IT). Here the speakers touted Brazil’s current position as the sixth largest IT market in the world, and it’s potential to rise to the third. In their view, this rosy future depends on the government. Here kudos were given for Dilma Rouseff’s Science without Borders program (which she highlighted on her recent visit to Washington DC and during later stops at MIT and Harvard), which will send some hundred thousand Brazilians to do post-graduate work abroad in the next four years. Also plugged was the government’s PRONATEC program to train some eight million mid-level professionals and technicians. On the investment side, the speakers highlighted the billions the government is investing in IT infrastructure (broadband, telecommunication networks, and the like), and billions more in payroll tax breaks and other public incentives within the “Greater Brasil” (Brasil Maior) plan to support the expansion of IT industries. In addition (and under government direction), Petrobras will provide some $200 billion in IT investment over the next decade as part of the buildup of its oil and gas business. Finally, on top of these specific programs, the BNDES—Brazil’s national development bank—will earmark a good portion of its $100 billion in annual lending for IT initiatives. For those on the panel, Brazil’s government has never been so involved, and has never been so necessary to leapfrog past the bottlenecks of today to the technology of tomorrow.

This contrasted sharply with the second panel on infrastructure. Here the mood was more somber, both about the challenge Brazil faces and the positive role to be played by its government. The overall picture was that Brazil’s infrastructure is bad and comparatively getting worse. Only 6 percent of its roads are paved, compared to over 50 percent in its BRIC counterparts China and Russia (and 35 percent in Mexico). According to the World Economic Forum’s Global Competitiveness Index (which ranks country’s infrastructure on a scale of one to seven); Brazil trails not only the Asian tigers such as Hong Kong and Singapore (which score in the six’s), but also countries such as China and Chile. Despite being the world’s sixth largest economy, Brazil comes in at 104 out of 142 countries in terms of its “overall quality of infrastructure.” It is also moving in the wrong direction, falling six spots over the last three years.

Yet when getting to the fixing phase, most of the suggestions involved less, not more government. Industry leaders did talk about needing a better skilled labor force (a public but also private sector challenge). But they also stressed streamlining bureaucracy, lessening the tax burden, lowering interest rates, and importantly creating long-term financing markets independent of the BNDES as vital to turning the situation around. For those in the infrastructure trenches, government doesn’t seem to be the answer.

These two seemingly contradictory positions capture another aspect of Brazil’s reality—the fundamental tensions over the best future development model: state or market led. As Brazil works to become a true global powerhouse, both camps have their supporters and detractors. Perhaps the greatest challenge will be to find a balance, incorporating both strands in order to harness (rather than hinder) the many potential engines of growth.