Brazil plans to privatise Rio airport

Brazil on Thursday said it would privatise the Galeão international airport in Rio de Janeiro, the gateway to the World Cup in 2014 and the Olympic Games two years later.

President Dilma Rousseff said the government would seek to attract total investment of about R$19bn ($9.2bn) in Rio`s airport as well as a major airport in Minas Gerais state and 270 regional aerodromes.

“We are certain we will have sustainable growth in our economy in 2013,” Ms Rousseff said during the announcement.

The plans came as the central bank slashed its forecast for economic growth in Brazil in 2012 to 1 per cent as Latin America`s largest economy struggles to rekindle animal spirits in what was one of the most promising emerging markets.

The airports package is the latest in major infrastructure initiatives from the government aimed at boosting the flagging investment rate, including R$133bn for rail and roads and R$26bn for ports.

In the third quarter, Brazil`s economic growth surprised by growing a mere 0.6 per cent compared with the previous three months – half the government`s forecasts.

Brazil`s investment rate has been slipping towards an annual 18 per cent of gross domestic product compared to the levels of more than 20 per cent seen as necessary to sustain the country`s recent high growth rates, in spite of government stimulus packages.

“A slow recovery in confidence meant that investment has yet to respond to stimulus measures,” the central bank said.

The government on Thursday said it would seek investment of R$6.6bn in Rio de Janeiro`s Galeão airport and R$4.8bn in Cofins airport in Belo Horizonte, a major industrial centre in Minas Gerais.

The outdated government-run Galeão is one of the weak links in the city`s infrastructure and is seen as a barrier to Brazil`s plans to host a successful Olympics.

Roads between the airport and downtown Rio and the tourist areas of Copacabana and Ipanema are so congested travellers often miss their flights.

The government said the concessions to upgrade and manage the airports would be auctioned in September next year.

Economists say the measures, while positive, will be unlikely to deliver a short-term stimulus to growth.

In addition, in an uncertain global economic environment with increasing competition for capital, the government will need to carefully calibrate the projects to ensure investors receive sufficient returns, estimated at somewhere between 6 per cent and 10 per cent.

“If you push too tight of a rate of return, ignoring the uncertainty around, you may be left with less investment,” said Ilan Goldfajn, chief economist with Itaú Unibanco.

The central bank, in its quarterly inflation report released on Thursday, estimated that economic growth would recover to an annualised rate of 3.3 per cent by the end of the third quarter of next year.

Mr Goldfajn said he was expecting growth of around 3 per cent in full year 2013 while Barclays in a report said it was expecting growth of 2.4 per cent annualised by the end of the third quarter of next year.

Barclays predicted the central bank would start cutting interest rates again in spite of the fact they are at a record low of 7.25 per cent.

(Joe Leahy | Financial Times)