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A March 6, 2012 file photo shows the new soccer stadium under construction in Sao Paulo, Brazil. The stadium, expected to seat as many as 65,000, will host the opening match of the World Cup in 2014. (Andre Penner/AP)
A March 6, 2012 file photo shows the new soccer stadium under construction in Sao Paulo, Brazil. The stadium, expected to seat as many as 65,000, will host the opening match of the World Cup in 2014. (Andre Penner/AP)

Brazil’s burgeoning appetite for construction Add to ...

The instruction from Altair Guimaraes is cryptic. Meet him at Gate 10 of the Autodromo, Rio de Janeiro’s old Formula One track that will be transformed into an Olympic park when the city hosts the games in 2016.

The gate marks the entrance to the Favela Vila Autodromo, of which Mr. Guimaraes is the community leader. A billboard says in Portuguese, English and Spanish: “A peaceful and orderly community since 1967.”

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Having been subjected to two forced relocations, including one to the City of God neighbourhood made famous by the film of the same name, Mr. Guimaraes is mounting an international campaign to save his slum of 3,000 people from being bulldozed for the Olympics project.

“Governments here have an old habit of social cleansing,” he says in the office of the community association, wearing a T-shirt in the green and gold colours of Brazil. “I told [Rio] mayor [Eduardo Paes] not to do what other countries have done and uproot people living close to games or mega events, like in China, where they put people in steel containers.”

For Mr. Paes, who accepted the Olympic flag from London this month, and President Dilma Rousseff, the conflict at Vila Autodromo captures in microcosm the challenges Brazil faces not only in its plans to host the Olympics and the 2014 football World Cup but in its efforts to break the choke hold on its economy posed by chronic infrastructure bottlenecks. Together, the events represent a once-in-a-generation opportunity for Latin America’s biggest economy to show it can execute large projects, as the government seeks to roll out an ambitious plan to invest $460-billion in new roads, ports, airports and power plants, with the participation of foreign investors.

The stakes are high. Ms. Rousseff, an economist by training, must steer the economy from a model too reliant on consumption toward one involving greater infrastructure investment – or risk losing Brazil’s place as a new engine of global economic growth.

“At least the discussion is now on the right issues,” says Alberto Ramos of Goldman Sachs. “This is not a strategy that is going to give you spectacular growth in the short term. But for sure it is a strategy that can elevate the potential growth.”

Brazil’s recent economic success has been driven by high commodity prices and the emergence of a middle class of consumers with easier access to credit. Gradually, though, demand for new cars and fridges and other products has overwhelmed the capacity of highways, logistics parks, ports and warehouses to supply the goods, creating inflation. Meanwhile, rising exports of commodities such as iron ore and soybeans are creating congestion on highways thousands of kilometres from the coast.

The effect is to choke off economic growth, expected to fall from an annual rate of 7.5 per cent in 2010 to below 2 per cent in 2012. “Every time we talk with an investor in Brazil, the biggest and the single most important problem they talk about is infrastructure,” says David Beker of Bank of America Merrill Lynch.

Important steps have been made in increasing infrastructure investment. According to the Institute for Applied Economic Research, a government think-tank, annual state investment in toll roads and railways nearly tripled between 2002 and 2010 to a total of just under $10-billion.

But while Brazil’s road network is more extensive in terms of kilometres per 1,000 workers than Russia’s or China’s, only 6 per cent of it is paved, compared with 54 per cent in China and 80 per cent in Russia, according to Goldman Sachs research.

In a World Economic Forum survey of infrastructure quality, Brazil scored 3.6 out of 7, compared with China’s 5.5. Mexico and Chile also beat Brazil on almost all measures, from roads, railways and ports to air transport, with the exception of electricity supply. The number of passengers using Brazilian airports rose 75 per cent between 2007 and 2011, leaving many of them running at overcapacity.

“Brazil’s infrastructure bottlenecks lead to inefficiencies that end up taking logistics costs to 12-15 per cent of GDP while in the U.S., Germany and other countries they are on average at 5 per cent,” says Bruno Savaris of Credit Suisse.

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