Test version
BRICS information portal

Friday, December 8, 2017

China Funds to Boost Brazil Infrastructure

The Brazilian government has received several applications for money held in a new development fund, as the struggling South American country seeks to kick-start a series of infrastructure projects in a move that could aid project cargo shippers.

The US$20 billion China-Brazil Cooperation Fund for the Expansion of Production Capacity opened for applications in June 2017 and is largely being financed by China. Better Brazilian ports, roads and railways will help the Asian powerhouse economy secure the raw materials it needs at home at a lower cost, as well as facilitating the return of manufactured goods.

By November, officials had already received four applications for financing from the China-Brazil fund, with a further 21 “on the way,” according to the Brazilian Planning Ministry Foreign Affairs Secretary Jorge Arbache.

“There is a lot happening,” Arbache said to Breakbulk. “And it’s going to have a positive influence” on many sectors throughout Brazil and further afield.

The China-LAC Industrial Cooperation Investment Fund will provide US$15 billion to the new fund, with the rest mainly coming from the Brazilian Development Bank and the state-owned Caixa Economica Federal. Private banks in Brazil are not excluded from also providing some of the funding for projects

Civil servants and banks in both countries will evaluate the project applications in the coming months, meaning disbursements to the more developed projects could start as soon as next year. Loans to less mature projects will take longer.

“We are accepting applications from projects that have already been developed,” Arbache said. “If a given project in these circumstances gets funding it will start borrowing very soon; depending on their circumstances, perhaps the second semester of 2018.”

The system of financing and decision-making by both sides distinguishes the new fund from many others involving China. Winning projects are likely to focus on upgrading Brazil’s ports, airports, roads and railways.

As well as these infrastructure projects, officials expect some funding applications from manufacturers and agribusinesses, especially as China is keen to ensure the food security of its citizens, and is a key buyer of Brazilian agricultural commodities including soy and corn.

Corn production in Brazil is forecast to reach a record 97.7 million tons in the 2016-17 growing season, up 46 percent from 2015-16. The increase stems from an expanded area and improved yields for the crop, according to the Foreign Agricultural Service of the U.S. Department of Agriculture, or USDA.

The bumper output is expected to lead to record exports, placing a strain on Brazil’s network of railways and ports, in need of expansion and modernization.

On top of this, greater soybean supplies available for export and a weaker local currency, coupled with strong demand from China, mean soybean exports are also on track to hit a record for the growing year 2016-17, according to the USDA.

While logistics companies may benefit from transporting these bumper crops, they stand to gain more if new infrastructure building goes ahead and closer ties develop between Brazil and China, both members of the BRICS association of emerging economies that also includes Russia, India and South Africa.

Source: Breakbulk