It was recently reported in Brazil that that country’s federal government intended to privatise, through concessioning, 158 port terminals. This marks another step in the reactivation of privatisation by the administration of President Dilma Rousseff as a means of stimulating the Brazilian economy, which has recently had the lowest growth rate of the five Brics countries (Brazil, Russia, India, China and South Africa). The President is already halfway through her term of office and, although still very popular, needs to get the economy growing again if she is to win re-election at the end of next year.
A number of federal highways and major airports have already been sold off (with the money from the airports already dedicated to the upgrade of minor airports in small towns – Brazil is a huge country and air transport is important even for minor centres). While the government hopes to get the port terminal concessioning process under way as soon as May, it is more likely to take off during the second half of this year.
“To give you an idea,” National Waterways Transport Agency director Mário Povia told the O Estado de São Paulo newspaper, “in the last five years we concessioned nine or eight. We have a Herculean task.” (This is also a reminder that privatisations were quietly restarted by Rousseff’s predecessor, President Luiz Inácio Lula da Silva.) Of the 158 terminals involved, 146 are already in existence and operational. In addition, 42 projects for new terminals will also be concessioned. The concessioning of the existing terminals should go quite quickly and smoothly, as the buyers will not have to obtain environmental licences (the terminals already have them). The new terminals will have to go through the same approvals process as any new project.
The concessioning will be done through a process of auctions. What is really interesting about this is that the winning bids will not be chosen on the basis of the highest price offered for a terminal. Rather, the competing com- panies will have to bid on the basis of under- taking to move the maximum volume of cargo at the lowest possible price. A tariff ceiling will be imposed. In some cases, the tenants will have to adhere to fixed prices and, in others, they will be able to freely set their prices.
There is no way that the government has the capacity to modernise 146 terminals and construct 42 more, all at the same time. Nor does it want to spend the money. This way, the government hopes to achieve invest- ments of 54.3-billion reais (about $27.58- billion or R245-billion) in the country’s port sector by 2017. But an even more important objective of the government is to use this process to reduce what is known as the ‘Brazil cost’, and so increase the competitiveness of Brazilian exports.
The Brazil cost is a concept that has been around for a long time and is now universally accepted. It refers to costs that burden Brazilian businesses and reduce the competitiveness of their products, both domestically and internationally. These costs include a high tax burden, inefficient transport infrastructure (especially the ports and airports), massive amounts of red tape, and so on.
Now, the privatisation of the freight railways in 1996/97 dramatically transformed that sector for the better. In the first nine years of privatisation, the new railway companies invested some $5.3-billion in their networks (government added another $230-million) and freight traffic in 2006 was 73% higher than in 1997, becoming 87.6% greater by 2011. The number of containers carried by rail in 2011 was 82 times greater than in 1997.
From 1997 to 2011, freight carried by the railways increased at a compound annual growth rate of 5.5%.
(The commuter railways were owned by State or city governments; some still are, while some, like the Rio de Janeiro commuter railway, have been privatised. The Federal government has continued to build new freight lines, which are concessioned when completed.)
When State-owned, the freight railways had been massively overstaffed, with 51 000 employees, and privatisation did see severe job losses – down to 16 662 in 1997. In 2011, the privatised freight railways employed 41 455 and that figure was forecast to increase.
(Unemployment in Brazil grew between 1995 and 1999, during the period of eco- nomic reforms, officially reaching 7.8% in the first semester of 1998, although trade unions claimed it was about 15% to 16%. From 2001 to 2010, the average unemploy- ment rate was 9.95% but peaking at 13.1% in August 2003 and thereafter falling, reaching a record low of 4.6% in December 2012. The economic reforms, including privatisations, of the administration of President Fernando Henrique Cardoso were maintained by Lula da Silva, although he halted further privatisations during his first term.)
From a South African perspective, what is striking about this is the sheer pragma- tism involved. What is ideologically correct is not important. What is likely to work is what counts. Experiences with the railways and federal roads strongly support the effectiveness of the privatisation option to benefit the Brazilian economy. (It should also be noted that the federal government has also been cutting taxes to benefit business.)
Also important is the concept of the Brazil cost. Let’s be frank. There is also a South Africa cost. The mix is similar, but not identical, to the Brazil cost. High and growing input costs, transport bottlenecks, pay rises without productivity increases (this is pretty much unique to South Africa), poor education (Brazil has a similar problem, but in South Africa it appears to be worse) and so on.
Indeed, one factor suggests that the South Africa cost is worse than the Brazil cost – the much higher South African unemployment rate. According to Statistics South Africa, this averaged 25.48% from 2000 to 2012, peaking at 31.2% in March 2003 and reaching a record low of 21.9% in December 2008. South Africa’s record low unemployment significantly exceeds Brazil’s highest unemployment! The South Africa cost has to be acknowledged and confronted and a start has to be made to dealing with it.