On December 16, a smiling Dilma Rousseff, president of Brazil, visited the site of the first of 12 stadiums to be completed for the 2014 World Cup, the Castelão arena in Fortaleza. She had reason to be proud: The stadium was completed four months ahead of time, on budget (at R$518 million or US$250 million) and was the fruit of an innovative public private partnership (PPP). She then dismissed observers who had doubted her country: “Many said that we were not capable of building and delivering Castelão to international standards. Well, today, we are starting to show that we are capable, and the arena is here,” she said.

Rousseff promised to go to the openings of all the stadiums. Future inauguration speeches may lack such bravado, though. A number of stadiums are behind schedule. Work on the Duna stadium in Natal, the furthest behind, has been mired in labor disputes, for example. Workers laid down tools in November to demand 25% pay increases, higher daily allowances for meal vouchers and a health plan. The stadium is just one third complete. Other stadiums, such as Itaquerão in São Paulo, which is supposed to host the inauguration match, have seen budgets skyrocket as construction companies work around the clock to meet tight deadlines.

Aldo Rebelo, the minister of sports, is confident of success and dismissive of what he sees as minor timing over-runs. But one senior financier has the impression that Brazil has squandered an opportunity to innovate and to bring in more private sector participation. Moreover, he remains worried by the country’s progress in preparing for the Cup. He has visited key infrastructure projects related to big games all over the world and says both the volume of works in Brazil and the readiness look to be falling well short of international standards.

Reasons to be Cheerful

The difficulties encountered in getting ready for the two sporting events may carry useful lessons for a series of vast infrastructure projects the government has announced to improve logistics.

In August, the government announced an initial R$133 billion plan for roads and railways. It said it would build 10,000 kilometersof new railways and build or upgrade 7,500 kilometers of roads. The planned investments in rail, which got the lion’s share of the total at R$91 billion, surprised many observers. Much of Brazil’s railway network has been dismantled, forcing far more traffic onto the road. With the soft and hard commodities boom, that has overloaded the road system, and rail is seen as a cheaper, more environmentally friendly solution.

For rail, state-owned Valec will oversee a program of PPPs. The new projects will be aimed at opening new areas and unblocking bottlenecks and include an extension of the North-South line, from São Paulostate to the far south of Brazil. The completion of the rail-ring for São Paulo, the Ferroanel, will help open up the port of Santos, Brazil’s largest and most important, to rail freight.

The road program will see R$42 billion in investments, with 7,500km of federal roads coming under concession. The first concessions are set to be signed in March-April of next year, and 5,700km should be ready within five years of contact signing.

Three airports, including São Paulo’s Guarulhos, have already come under the hammer as concessions, and more are set to follow. Galeão, the international airport for Rio de Janeiro, and Confins, the main airport for Belo Horizonte, have been confirmed with others being talked about. The model of future airport privatizations is being revisited as relatively small companies won the concession for Viracopos airport, eliciting fears that they may not be able to run such a large airport.

In December, Rousseff announced some R$55 billion in investments in ports over the next 17 years, with 20 being affected. She is also clarifying the rules regarding privately owned ports in Brazil, which faced onerous restrictions on multiple usage. They will now be more open to all-comers, and that should drive investment in the area.

The most ambitious and controversial project is for a high-speed train between Rio de Janeiro and Campinas via São Paulo. Bids for the R$33 billion Rio de Janeiro-São Paulo-Campinas bullet train have had to be redrafted several times to attract foreign interest. The government has been forced to assume more risk on passenger numbers, cut the minimum number of trains at peak times, and take on more risk from construction cost over-runs, especially thanks to the high number of tunnels that will be required on the hilly route.

'The Will to Move'

That Brazil needs a quantum shift in infrastructure is not in doubt. The Global Competitiveness Index published by the World Economic Forum paints a grim picture. Take the transport sector. Out of 144 countries, Brazil is ranked 135th in port facilities, 134th in the quality of its airports, and 123rd in roads. Investments in all transportation modes combined do not exceed 1.2% of GDP, while in other countries the average is 2.5%.

The issue is attracting attention at least. Recent years have seen the government focus on outlining projects in greater detail and planning timeframes, saysL. Felipe Monteiro, professor of strategy at INSEAD. “There is now a clear sense of priorities and some timescale on these projects. The Cup and the [2016 Olympic] Games have seen projects expedited and, with written obligations to internationalbodies to complete works, the government has found the will to move.”

Moreover, the new government under Rousseff is more technically able than its predecessor and more pragmatic, says Monteiro.Rousseff recognizes that Brazil needs private investment and foreign money to forward her agenda, he says.

There is also a greater sense of urgency as slow economic growth sets in.Rousseff faces a much tougher economic environment globally and at home. Emerging economies have slowed, and Brazil is the slowest of all the BRICs, points out Wharton management professor Mauro Guillén. Growth forecasts for Brazil have been steadily top sliced. By mid-December, the Central Bank poll of leading economists pointed to growth of just 1%, down from expected growth of 2% to 3% earlier in the year.

That slower growth may focus minds on the infrastructure program, says Guillén. Brazil has been running a current account deficit for the last several years, even before commodity prices started to fall, he notes. The country needs to attract foreign capital to cover that deficit, he adds. So far, Brazil has been able to attract more capital than it needs, thanks to attractive interest rates. But with low growth and interest rates coming down to stimulate the economy, there are questions marks over whether the influx of foreign capital will continue, he points out. “Brazilis not in a critical position, but it is at a delicate moment. It will find itself in trouble if it is not able to maintain foreign investment,” he says.

The government is keen for the contribution infrastructure would make to growth. With estimated levels of GDP growth just a little over 1% this year, any additional growth is vital, says Guillén. Moreover, the improved logistics would provide the impetus for other parts of the economy and signal to consumers that things are on the mend, he adds.

The Brazilian private sector seems to get it.“We need $300 billion per year to sustain 5% annual growth, and we are competing for this money with the other BRIC countries,” says Paulo Oliveira, CEO at Brazil Investments & Business. This money cannot come from government, he contends, but will require the development of deep capital markets and the participation of foreign capital.

The message has percolated through to the Brazilian Development Bank (BNDES), which has long dominated Brazil’s infrastructure scene, says Guillén. He points out that with a balance sheet larger than that of the World Bank, the role of the BNDES is absolutely key in Brazil. The ability to lend at subsidized rates makes it the first port of call for financing, he notes.

Otávio Lobão Viana,head of the bank’s capital markets department, has strongly signalled to the public at a number of recent forums that the BNDES managers understand the needs to change and for the bank to act as a catalyst for private investment. Viana is talking about sharing guarantees with the private sector and accepting cross-default clauses. Guarantees are a stumbling block, as banks are reluctant to take on all the construction and demand risk, while cross-default clauses would align the banks' interest with that of other debt holders. One senior banker says that the BNDES has indicated that it expects at least one third of the money for infrastructure to come from the private sector.

Guillén cautions that the governmentmay find investors a tougher sell.The general anxiety surrounding the global economy is urging caution. Investors are also worried over the direction of the Brazilian economy and whether the realis still overvalued, despite its slide against the U.S. dollar.

Looking Back with Trepidation

But the question remains: Will the Brazilian government's determination and a greater sense of energy be enough to overcome inertia and address the practical issues that tend to dog Brazilian infrastructure programs?

There is a sense of impatience and déjà vu. “Is there anything really new to talk about? We’ve been repeating the same story again and again. It’s well known what has to be done,” says Monteiro. In the last couple of decades, very little has been done in Brazil in infrastructure, adds Guillén. “Every couple of years, Lula [former president Luiz Inácio Lula da Silva] would launch a new plan or tweak an existing plan to make it bigger, but a small percentage of the projects have been completed,”he says.

Indeed, under Lula, the country announced two very hefty Growth Acceleration Programs (known by their Portuguese acronym, PAC) covering principally transport, energy and housing. The first PAC launched in 2007, went through 2010 with plans to invest R$657 billion, and the second, launched in 2010, added new projects to bring that figure up to R$955 billion.

The PACs, however, have been a disappointment in terms of deliverables. “Even the most optimistic would acknowledge that [the country is] far from what was expected,” says Monteiro. Local magazine Exameshowed that of 135 PAC projects that it studied, the average was four years late, and only 7% had been concluded.

Moreover, corruption has been rife. The financial watchdog of the Federal republic, the Tribunal de Contas da União(TCU), has repeatedly called for major works to be halted. It is currently suggesting 22 projects be suspended to investigate irregularities. The TCU estimates that it has saved R$2.5 billion in the programs thanks to its decisions to look at contracts.

Brazilalso has to overcome its protectionist instincts if it is to bring in foreign investments on an equal footing, says Guillén. The country continues to emphasize domestic companies in a number of key areas, he says. He points to the development of Brazil’s pre-salt, deep-water oil reserves where state-owned Petrobras and its local suppliers have been awarded a near-monopoly. “That sends a message that there will be privileges for insiders,” he says.

Overall, Brazil continues to be inward looking but today needs more foreign money to develop solutions to problems that it did not have just a few years ago. “There are so many bottlenecks, from logistic weaknesses to bureaucratic approval, a shortage of talent and too few visas for well-qualified foreigners. This is what is restraining growth,” Guillén says.

There’s a final twist as well for foreign investors. In the last couple of years, the Ministry of Finance has imposed taxes on foreign investors investing in government bonds to curb the high level of the real, only to relax the measures when the currency weakens, says Alexander Gorra, senior strategist and head of the international platform at BNY Mellon ARX in Rio de Janeiro. That has made foreign investors reticent, he notes.