A new report by the World Bank points to a serious shortage of infrastructure investment in Brazil and calls for the removal of regulatory barriers to private sector investment which it says is essential to revitalise the sector. 字串4

The report, to be released later this week, will add to concern that the government’s recently announced plans to boost economic growth primarily through public sector investment will fail to match expectations and leave the country falling further behind its emerging market peers. 字串9

The World Bank says that investment in infrastructure in Brazil is running at about 1 per cent of gross domestic product, far short of the 3.2 per cent it says is necessary to prevent further deterioration of structures and services, assuming annual GDP growth of only 2 per cent. 字串6

On Wednesday the government statistics office said GDP growth in 2006 was 2.9 per cent. President Luiz In㡣io Lula da Silva, re-elected in October for a second four-year term that began on January 1, has promised to deliver 5 per cent growth. 字串4

The report does not detail what level of investment would be needed to achieve this growth, but says that adding four points to annual GDP growth would require spending on infrastructure equal to between 5 and 9 per cent of GDP.

The government’s growth plan, known as the PAC, calls for public and private sector investments of R$504bn ($237.6bn, €179.7bn, ⣱21bn) between 2007 and 2010 and includes an additional 0.5 per cent of GDP in government spending on core projects. 字串7

Paulo Correa, one of the report’s authors, declined to comment on the PAC. Speaking more generally, he said: “What is missing in Brazil is the idea that the government’s role is to enable the private sector to do its best by reducing regulatory costs.” 字串7

He said the high cost of capital in Brazil resulted in less, and less efficient, private investment. The cost of capital had fallen in recent years as Brazil’s sovereign risk had declined, but remained high because of regulatory uncertainty. 字串5

“What matters now is regulatory risk,” he said. “The legal and policy environment is not stable, concession contracts are not credible and the overall structure of regulators is not good enough.”

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The report highlights the need to reduce judicial uncertainty caused by imprecise laws and changes in policy, to improve the quality of concession contracts and improve the performance of regulatory agencies to reduce the risk of arbitrary interpretations of laws and contracts.

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It finds that 41 per cent of concession contracts in Brazil are renegotiated – higher than the average of 30 per cent for Latin America – and that the government is responsible for 75 per cent of renegotiations, compared with 25 per cent for the region as a whole.

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“Credibility of commitment is essential,” Mr Correa pointed out. 字串7

“Every time you change the ground rules you contribute to regulatory risk and reduce the attractiveness of what is essentially a low-risk, low-return investment.”

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