Brazil remains the most important construction equipment market in Latin America as public investment continues to drive productivity

The search for new growth opportunities remains challenging and unpredictable. As institutional and private investors continue to look to Latin America for access to growth opportunities, the region's investment in infrastructure is of particular interest to the construction equipment sector.

Given that public investment is seen as one of the key factors driving productivity in the region, investment in infrastructure is widely seen as a catalyst for Brazil's future growth. Generally speaking, the country has resources and a regulatory framework that is favourable for the generation of important public-private works projects.

However, investors remain aware that Brazil has suffered a significant contraction of investment in the first three quarters of this year, mainly due to the sharp fall in confidence in the economy among business leaders.

According to industry estimates, Latin America accounted for around 8-10% of global demand for construction and mining equipment in 2013.

Brazil represents the largest market for construction equipment in Latin America, accounting for around 50% of the total demand. In response to the government's preferential policy for products made in Brazil, manufacturers such as Komatsu and JCB have engaged in integrated operation of production and sales, establishing production plants locally.

Large events, such as this year's FIFA World Cup and forthcoming Olympic Games drive further investments in infrastructure and civil construction.

According to data from Brazil's Agencia Nacional de Transportes Terrestres (National Terrestrial Transportation Agency), this year has witnessed auctions for 9 highways (totalling 7,500 km), as well as railroads (10,000 km) and ports.

In addition, Brazilian authorities have opened five of its busiest airports to private investors. These auctions, particularly airport concession have been an attractive plan to privatize hundreds of billions of reais worth of infrastructure projects, including expansion of Brazil's notoriously underdeveloped roads and seaports.

Certain sectors of the Brazilian economy have performed better than the average growth, including oil and gas, telecoms, and mining. With the introduction of the second phase of the Growth Acceleration Programme, the authorities are expected to increase investment in the country's energy generation, infrastructure and construction.

In this context, Brazil may offer attractive opportunities for construction equipment manufacturers that are looking to expand their operations in the medium term. Brazil Construction Equipment Market

In what is seen as attempt to restore credibility after several years of inflation lenience, the Brazilian Central Bank unexpectedly raised the SELIC (i.e. overnight rate) by 25bps to 11.25% just three days after the presidential election.

In the immediate term, ongoing evidence of a slowdown in activity in Brazil translates into a sense of caution among investors.

Market attention will focus on post-election policy action in anticipation of major adjustments to revive business confidence as Brazil unveils a new economic team.

Most crucially, inflation remains a concern, prompting speculation about the possibility of a higher interest environment in response to potential capital outflows and normalization of administered prices.

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