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Poor Transport Is Killing Brazil’s Industry

Brazilian foreign trade figures could not be better. Brazilian participation in global export has been rising and, this year, the Development, Industry, and Foreign Trade Ministry forecast is for foreign sales should to rise 12%, reaching US$ 82 billion.

The target is to export as much as US$ 100 billion. The government has been working on reaching these results: announcing measures for reduction of bureaucracy, prospecting new markets, etc. All of this is being approved and praised by businessmen and analysts.


The problem is that the country cannot transport and ship all this production. Furthermore: even if it were possible to transport it, the operating costs would increase merchandise prices, and – little by little – remove the Brazilian competitive advantage.


That Brazil loses money due to precarious infrastructure is no novelty. What is surprising is the size of this loss. A World Bank study reveals that expenses with logistics in the country currently total around 20% of the country Gross Domestic Product (GDP) – double the percentage in developed countries.


“Logistics represent the largest part of business cost in Brazil, what is called the ‘Brazilian Cost’,” stated the organization.


For private companies, the pain is even greater. In the World Bank calculations, transport expenses represent 35% of the operating cost of Latin American companies: the percentage varies from 11% in the textile industry, to a bitter 60% in the food sector. In developed countries, the average is 20% – a minimum of 15% and a maximum of 30%.


Another surprising fact: Latin America loses US$ 25 billion per year due to inefficient transport infrastructure. That is what a study by Harvard University, in the United States, shows.


According to the study, the GDP in the region could rise 1% if the countries spent less on logistics.


“The situation is the same in Brazil,” informed Paulo Augusto Vivacqua, president of Corredor Atlântico, a non-profit organization whose objective is to discuss ways to improve infrastructure and logistics and promote Brazilian integration with Latin America.


Outdated Matrix


Apart from the chronic lack of investment in the sector, there is another reason to explain the high cost and inefficiency of the logistics system in Brazil: the way in which the matrix is distributed.


According to figures supplied by the Transportation Ministry, currently 63% of cargo in the country is moved on highways, 24% on railways, and 13% by water (river and sea).


A study by the Federal University of Rio de Janeiro (UFRJ) Logistics Study Department shows that in the United States, a country, like Brazil, of continental dimensions, the highway system participates in just 26% of total cargo transport, in Australia participation is 24%, and in China, the largest emerging country, 8%.


“This is strategic distortion,” states Vivacqua. The same criticism is made by dozens of specialists. “It is necessary to change the transport culture in Brazil,” believes Paulo Rossetti, an analyst for consultancy Global Invest.


“This model is not working,” he added. It does not work because highway transport is much more expensive than others: the Ministry itself estimates that the cost of this system is five times greater than water transport, and almost twice as expensive as railway use.


The origin of this “distortion” is historic.


“Early in the 20th century, it was decided to use highways. The auto industry started developing in the country, and programmed highway construction. The government focussed on it and ignored investment in railways and waterways,” explained Vivacqua.


However, despite prioritisation of the highway system, funds destined to the sector are much lower than necessary.


According to Rossetti, from Global Invest, world estimates show that, to maintain an “acceptable” level of infrastructure, countries must invest at least 2% of their GDP in the sector.


“Brazil must invest at least 4%, due to the precarious condition of the system,” he stated. However, money destined to the area is no greater than 0.2% of the GDP.


Bad Highways


Transportation Minister Alfredo Nascimento agrees with much of this criticism. In an address after his inauguration, he stated it was “urgent” to reanalyse the Brazilian transportation system.


“It is not possible to imagine a developed country with a transport system like this one,” he declared.


The Minister also recalled that, “in recent years,” 80% of the ministry budget has been invested in highways and, even so, 50% of the highway system is in “bad conditions.”


In reality, of the almost 1.725 million kilometers of highways in Brazil, only 165,000 are paved, according to figures supplied by the ministry itself.


The Highway Study, an annual study by the National Confederation of Transport (CNT), shows that the “Brazilian highway infrastructure is in unfavourable conditions in terms of performance, safety, and economy.”


In all, organization researchers evaluated 56,798 kilometers of highways and concluded that 58.5%, or 27,885 kilometers, have their paving in deficient, bad, or awful conditions; 77.6% do not have adequate signing, and 28% have their sign boards covered by bushes.


The CNT study also revealed that 8,077 kilometers, a distance equal to driving from the Northeastern city of Natal (in the state of Rio Grande do Norte) to Porto Alegre (in the southern state of Rio Grande do Sul) and back, have “sunken parts, undulations, or holes in them.”


Apart from that, 34% have no shoulder or the shoulder is covered in overgrowth; and in over 44.5% of the distance surveyed, there are no speed limit signs.


Distant Investment


Apart from increasing the price of country produce, logistic deficiencies can also affect multinational investment. “Companies may prefer to install branches in other countries, such as Argentina, for example, and not here,” believes Rossetti.


To the World Bank, “modest reductions in logistics costs may reduce the expenses of companies installed in Brazil and may have a substantial impact on economic growth.”


The government states it is aware of the difficulties. In various addresses, president Luiz Inácio Lula da Silva and Development minister Luiz Fernando Furlan have stated that investment in logistics infrastructure are priorities. Nascimento also promised to change the scenery. “This is my target,” he declared.


This report is part of a series of articles on transport in Brazil prepared earlier this year by ANBA ”“ Brazil-Arab News Agency – www.anba.com.br.

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