Here is an early prediction for 2021: Brazil once again becomes one of the most attractive destinations for emerging markets infrastructure.
There are two main drivers for this forecast. First is the increasing interest – and capital deployed – in infrastructure supporting the development of growing economies. With competition high for assets in OECD markets, more infrastructure managers are expanding their strategies to include emerging markets exposure.
And the biggest opportunity that exists in emerging markets is renewables, as governments seek to power growing populations and industry sectors with cheap and clean energy sources. That leads to the second driver behind Brazil being one of next year’s leading emerging infrastructure markets.
After years of economic turmoil – caused first by corruption and then by the pandemic – Brazil’s government is stabilising its infrastructure sectors with “comprehensive market and regulatory reform” that is intended to assuage the concerns of foreign investors, Bento Albuquerque, Brazil’s minister of mines and energy, told Infrastructure Investor in a written interview. These measures have included implementing policies favourable to foreign investors, such as longer construction terms and more accurate pricing models.
This reform drive is already bearing fruit with the industry. In our recent Global Summit Online, partner Jin-Yong Cai told attendees that Global Infrastructure Partners saw Brazil as a highlight among developing markets, adding the government has done “quite well” in rebounding from years of recession and managing a region hit hard by the pandemic. Otavio Castello Branco, co-founder of Brazilian infrastructure firm Patria Investments, agreed, saying the government had responded with “responsible” measures to support the private sector and that, as a result, the Brazilian market was “almost back to normal”.
One of the key sectors Brazil is inviting foreign capital to invest into is clean energy, with a goal to bring $60 billion of investment over the next 10 years, according to the mines and energy ministry. That will be needed to meet an energy demand that is expected to grow by 2.5 percent per year between now and 2024, and then 3.3 percent per year until 2030.
To make this happen, the Brazilian Electricity Regulatory Agency, ANEEL, is preparing to restart its power auctions, which have been successful over the years in attracting investors from across geographies. In 2019, ANEEL awarded $3.6 billion for power sector contracts. Overall, the regulator has auctioned 30GW of solar developments and 25GW of wind.
Now, after the pandemic halted all auctions, the first of the year is set to take place on 17 December. With $1.3 billion in expected investments, ANEEL is planning to award 11 30-year concession contracts to construct, develop and maintain 16 transmission lines and 12 substations.
“The Brazilian concept of energy security lies in the diversity of our sources,” Albuquerque told us. “Transmission plays an important part in making renewable energy investment feasible, as it allows the exploitation of the most different energy potentials distributed in different regions of Brazil, taking this energy to the load centres and enabling fixation of investments in these regions.”
If investors are feeling the heat of competition for assets in OECD markets, or if they’re tired of waiting for the long-awaited US infrastructure renaissance, Brazil, its growing economy and the push to buildout clean energy may be an attractive place to consider.