BMI View: Brazil's construction industry will remain in recession in 2016 and return only to weak growth in 2017. Major structural changes to infrastructure policies under interim President Michel Temer have the potential to improve the investment environment over the multi -year horizon, however, for 2016-201 7 it creates greater uncertainty and will limit construction activity.
Latest Updates And Structural Trends
We have downgraded our construction industry value real growth forecast for 2016, with the industry now expected to contract by 3.4%. A 6.2% contraction was reported for Q1 2016, while employment in the sector continues to fall in 2016, down 13% y-o-y in Q1 2016, following a 10% fall in 2015. With limited visibility over new infrastructure concessions plans, we are cautious toward any potential recovery in 2017 and have therefore downgraded our forecast to 1.2% (from 2.2%), driven primarily by base effects following three years of recession in the industry.
Interim President Michel Temer's infrastructure plans remain light on details and therefore we are maintaining our forecast over the coming several years at 1.7% on average between2018 and 2025. Temer has dissolved the Workers' Party's policies which have guided infrastructure investment over the past decade, including the PAC and the transport concessions programme (known most recently as the Logistics Investment Programme (PIL)), and is auditing the Minha Casa Minha Vida low income housing programme. With limited detail on what the future plans will look like beyond the high level details of the Investment Partnership Programme (IPP) we are holding our outlook.
Addressing constrained domestic capacity and weak international investor sentiment will be crucial for the success of President Temer's new infrastructure plans. It will take several months for new regulations to be worked out and then several more months for tenders to take place, at which point Temer would be nearing the end of his two-year term. As a result, we anticipate limited short-term positive implications from the restructuring - particularly on jobs and growth, whilst noting that it is necessary in order to support a multi-year recovery in the market.
Domestic construction capacity continues to be in a state of flux with a number of high profile arrests having taken place in recent months and the sentencing in March of Marcelo Odebrecht to 19 years in prison for his role in the scandal. As of late November, 32 companies remain on Petrobras' banned contractor list, however, leniency deals are being agreed, with Camargo Correa and Andrade Gutierrez agreeing to pay fines - indicating some scope for normalisation. This implies limited fundamental changes in the country's competitive landscape. However, we do anticipate a large number of assets will come to market as these companies seek to raise capital in light of limited access to financial markets.
Chinese investor interest continues to expand in Brazil and could present one of the most viable sources of capital for infrastructure development. China Three Gorges is now the second largest private power generator in Brazil, following a BRL13.8bn investment into the sector in November. Chinese investors have indicated an interest in the country's transport concessions and electricity distribution infrastructure.
|e/f = BMI estimate/forecast. Source: IBGE, BMI|
|Construction industry value, BRLbn||325.08||343.35||366.27||393.79||420.40||447.71|
|Construction Industry Value, Real Growth, % y-o-y||-7.63||-3.38||1.18||2.22||1.51||1.49|
|Construction Industry Value, % of GDP||5.5||5.5||5.5||5.5||5.4||5.3|
Brazil's Infrastructure RRI score has fallen again this quarter to 43.2 out of 100 (from 43.4).
Brazil scores 35 out of 100 for Industry Rewards, reflecting our expectations for the industry to remain in recession in 2016 and post below trend growth over our ten-year forecast. Despite having the largest industry value size in Latin America, the country comes 9th regionally (out of 14 countries) for the segment.
Brazil's Country Risks score has fallen this quarter, down one point to 49.9. We have downgraded our outlook for policy continuity following President Rousseff's suspension pending impeachment proceedings. Although we expect vice-president Michel Temer will serve out the remainder of Rousseff's term, we note that investigations remain underway and we expect further allegations will be raised.
|Risk/Reward Index||Rewards||Industry Rewards||Country Rewards||Risks||Industry Risks||Country Risks|
The Brazil Infrastructure Report features BMI Research's market assessment and forecasts covering public procurement and spending on all major infrastructure and construction projects, including transportation and logistics by land, sea and air; power plants and utilities, and commercial construction and property development. The report analyses the impact of regulatory changes and the macroeconomic outlook and features competitive intelligence on contractors and suppliers.
BMI's Brazil Infrastructure Report provides industry professionals and strategists, sector analysts, investors, trade associations and regulatory bodies with independent forecasts and competitive intelligence on the Brazilian infrastructure and construction industry.
- Benchmark BMI's independent infrastructure industry forecasts for Brazil to test other views - a key input for successful budgetary and planning in the Brazilian infrastructure market.
- Target business opportunities and risks in the Brazilian infrastructure sector through our reviews of latest industry trends, regulatory changes and major deals, projects and investments in Brazil.
- Assess the activities, strategy and market position of your competitors, partners and clients via our Company Profiles (inc. SWOTs, KPIs and latest activity).
BMI Industry View
Summary of BMI’s key industry forecasts, views and trend analysis covering infrastructure and construction, regulatory changes, major investments and projects and significant national and multinational company developments. These are broken down into construction (social, commercial and residential), transport (roads, railways, ports, airports, etc), and energy & utilities (powerplants, pipelines and so on).
Industry SWOT Analysis
Analysis of the major strengths, weaknesses, opportunities and threats within the infrastructure and construction sectors and within the broader political, economic and business environment.
BMI Industry Forecasts
Historic data series (up to 2012) and forecasts to end-2024 for all key industry indicators, supported by explicit assumptions, plus analysis of key developments in the market and risks to the main forecasts. Indicators include:
Construction: Industry value (USDbn); contribution to GDP (%); total capital investment (USDbn); real growth (%).
Construction industry real growth forecasts (%) and industry value (USDbn) forecasts for industry sectors are split into Residential and Non-residential and Infrastructure sectors. Where the data is available for particular countries the infrastructure is further broken down into indicators for the transport subsectors of roads, railways, airports and ports and the energy and utilities sub-sectors of power plants and transmission grids, oil & gas pipelines and water infrastructure. This dataset is unique to the market.
The reports also include analysis of latest projects across the infrastructure sectors (transport, utilities, commercial construction).
BMI’s Infrastructure Risk Reward Index
BMI’s Risk Reward Index provides investors (construction companies, suppliers and partners) looking for opportunities in the region with a clear country-comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points. These provide indices of highest to lowest appeal to investors, with each position explained.
An assessment of the competitive landscape and key challenges to entering the market. Details of the largest companies active in the sector across the sub-segments of the industry, including the key financial figures from some of the largest players in the sector.
Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI’s industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape to generate company SWOT analyses. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.
The Infrastructure reports draw on an extensive network of primary sources, such as multilateral organisations, government departments, industry associations, chambers and company reports.
*Company profiles are not available for every country. Those reports instead contain information on the current activities of prominent companies operating in the market.