Fernando Alcoforado*
The crisis faced by Brazilian Engineering at the present moment has as its main cause the unfeasibility of the neoliberal economic model inaugurated in Brazil by President Fernando Collor in 1990 and maintained by Presidents Itamar Franco, Fernando Henrique Cardoso, Lula, Dilma Rousseff and Michel Temer. The neoliberal economic model adopted in Brazil contributed to provoke the greatest economic crisis in its history. The results are there: deep economic recession, widespread bankruptcy of companies (around 1.8 million companies failed in the country during 2015), mass unemployment (13 million unemployed) and also regression in the field of social achievements.
The impact of Brazil’s economic crisis on national engineering has been devastating since 2014. The crisis led 253 contractors to judicial recovery aimed at renegotiating their debts in 2015 whose number grew 25% over 2014. The process of judicial recovery of contractors resulted from the country’s economic crisis that contributed to the reduction of infrastructure works and delays in the payment of invoices by the federal, state and municipal governments. The cuts in the public budget contributed decisively to raising the requests for judicial recovery of the contractors. The growth of requests for judicial recovery is a reflection of the country’s economic crisis, the lack of credit and the increase in the interest rate. The large construction companies stopped receiving and caused a cascade effect among the subcontracted smaller companies. Indebted, without credit and with contracts canceled or suspended, several companies followed the path of judicial recovery.
The Brazilian construction market is experiencing an unprecedented crisis. The sector’s profitability fell from 11.2% in 2013 to 2.3% in 2014. Only three of the 23 construction companies ranked among the 500 largest in the country were able to grow in 2014. Odebrecht, the largest of them, dropped 32 % in sales. In 2014, the construction sector was responsible for 6.5% of the Gross Domestic Product of the Country and directly employed more than 3 million people. The debts of contractors in excess of R$ 100 billion may also lead the country’s main banks to losses, which in turn will further restrict the granting of credit. Only Odebrecht has 63 billion reais in debt. Due to Operation Lava Jato, contractors find legal restrictions to enter into bids. Petrobras, the main client of the contractors investigated at Lava Jato Operation that combat corruption, plans to cut about 30% of investments by 2019. Without cash and without new contracts, the last resort of these companies is to enter with judicial recovery to renegotiate their debts.
The construction industry in Brazil was affected, not only by delays in government payments, but also by Operation Lava Jato, which led a number of companies involved in Petrobras’ corruption scheme to the courts, especially the large construction companies. Odebrecht, the largest Brazilian engineering company, was destroyed by Operation Lava Jato. The largest Brazilian construction company loses successive contracts abroad, faces tremendous credit difficulties in Brazil and abroad, suffers political discrimination and loses the most elementary conditions to establish a strategy to overcome the crisis. The number of workers, a large proportion of high-quality and well-paid jobs, has been sharply reduced, while middle managers, with different areas of expertise who once represented the soul of the company’s entrepreneurial creativity, are totally disoriented and without initiative. Odebrecht is gradually disappearing in a process of inexorable degradation. This is the greatest national engineering disaster of all time. It is an unparalleled disaster for the Brazilian economy.
In the last three years, the Brazilian economy has gone into deep recession. Political uncertainties led to a drop in investment affecting all sectors, especially the construction industry. With less money, large construction companies dismantled by Lava Jato Operation and by the paralyzed works, the construction market presented negative numbers for the fourth consecutive year. In 2017, the decline in GDP (Gross Domestic Product) of construction was 6%. By the end of 2017, the Engineers were the top-level professionals who lost most of their jobs in the private sector. With the crisis and the outflow of so much skilled labor from the sector, there was an avalanche of microenterprises opening for engineering services, which made the environment even more competitive, leading to deterioration in the fees of already established companies and consolidated. Despite the more than 5,000 works stopped and the 50,000 unemployed engineers, it is said that the federal government intends, irrationally, to facilitate the entry of graduates in engineering abroad with the sending to the National Congress of a bill to unlock the market construction and infrastructure sectors for foreigners.
In order to solve the Brazilian engineering crisis, it is necessary to overcome, above all, the economic crisis that affects the Brazilian economy. In order to do so, it is necessary to replace the neoliberal economic model that has been devastating the Brazilian economy since 1990, and especially after 2014, by the national development model of selective opening of the Brazilian economy that prioritizes national interests, not those of the market. Immediately, the federal government should adopt an economic policy that prioritizes the following:
- Elaboration of a program of works of economic infrastructure (energy, transport and communications) and social (education, health, housing, sanitation and environment) to rebuild Brazilian engineering
- Implementation of public / private partnership in the execution of economic and social infrastructure works
- Elaboration of an industrial development program that replaces imports and focuses on exports to reactivate the Brazilian economy
- Elaboration of a program of scientific and technological development centered on the industrial policy that encourages the development of industries that substitute imports and expand exports
- Raising public savings by increasing public revenues and reducing government costs so that it has the resources to invest in economic and social infrastructure
- Increase of the public collection with the taxation of the great fortunes, of the dividends of individuals and of the banks
- Reduction of government costs by reducing the burden of paying public debt, eliminating superfluous expenses in all the powers of the Republic, and reducing public agencies and commissioned personnel
- Immediate adoption of the renegotiation of the payment of interest on the country’s domestic public debt in order to reduce the burden and to possibilite raising public saving for investment
- Drastic reduction of bank interest rates to encourage private investment in economic and social infrastructure works, industry and the economy in general
- Establishment of conditions for the resumption of public works by companies that have been involved in corruption cases
- Restriction of the participation of foreign companies in the execution of works in general and of engineering professionals in the Brazilian labor market
It is important to note that Brazil’s biggest economic leverage is the infrastructure sector that will most rapidly lead to a new acceleration of the engineering sector. Emphasis should be given by the Brazilian government to raising the rates of savings and public and private investment to invest in the growth of Brazil’s infrastructure. The Brazilian government’s difficulty in investing in infrastructure stems from the insufficiency of public and private savings in Brazil, which currently corresponds to 15.6% of GDP, which should be around 25% of GDP (Gross Domestic Product) to enable economic growth of 5% per year. It should be noted that investment, which is an essential item for the recovery of the Brazilian economy, reached its lowest level in two decades (15.6% of GDP) in 2017. The rate of public investment reached 0.3% of GDP, according to IPEA (Applied Economic Research Institute). The infrastructure sector has been the most affected by cuts in the budget of the Brazilian government.
The share of large construction works, generally of infrastructure construction, in the GDP has dropped precipitously in 10 years. The share of major construction in the GDP of Brazilian construction fell from 41.3% to 29.5% in ten years. The fall reflects the end of a cycle of expansion of infrastructure in Brazil. The data are part of the Annual Survey of Construction Industry (PAIC), released by the Brazilian Institute of Statistical Geography (IBGE), which mapped the sector between 2007 and 2016. In 2012, at the height of economic expansion in the 21st century, infrastructure investment totaled R$ 67.04 billion, more than triple that of 2016.
According to the Institute of Logistics and Supply Chain, the necessary investments in Brazil in ports (R$ 42.9 billion), railroads (R$ 130.8 billion) and highways (R$ 811.7 billion) total R$ 985.4 billion. Adding this value to the investments required for waterways and river ports (R$ 10.9 billion), airports (R$ 9.3 billion), electric sector (R$ 293.9 billion), oil and gas (R$ 75.3 billion, basic sanitation (R$ 270 billion) and telecommunications (R$ 19.7 billion) total R$ 1,664.5 billion. In Brazil, the education sector requires investments of R$ 83 billion per year, health R$ 54 billion per year and the popular housing requires R$ 68 billion to eliminate the housing deficit. Adding the total investment required in economic infrastructure (energy, transportation and communications) to social infrastructure (education, health, sanitation and housing) would total R$ 1,869.5 billion, that is, almost R$ 2 trillion. The program of economic and social infrastructure to be adopted in the short term should achieve these objectives. Brazilian engineering activity would certainly be retaken with the execution of this infrastructure program.
The resumption of Brazilian engineering activities should also contemplate the adoption of measures that make the Brazilian justice system in its fight against corruption seek penalizes corrupt people, businessmen and executives and not attack companies, as if legal entities had the human quality of virtue and sin. It is necessary to avoid that the national legal system destroys Brazilian companies responsible for the generation of hundreds of thousands of jobs and for the accumulation of engineering knowledge unparalleled in the world, and with a high international competitive capacity. Companies with a recognized technical capacity, with a significant contribution in works and services for the benefit of the country, are paralyzed by the legal processes to which they are responding. We are thus witnessing the destruction of our largest engineering companies. The professionals, especially their engineers, are fired in the thousands and the works are suspended. A number of large projects are being interrupted, some of them already in an advanced stage of execution, such as the works of COMPERJ, Angra III, the nuclear-powered submarine, the Abreu e Lima refinery in the Northeast, the transposition of the São Francisco River and many others. The losses already amount to tens of billions of reais and unemployment for millions of workers.
It is necessary to avoid that the situation of Brazilian engineering is further aggravated by the adoption of measures to prevent Petrobras from contracting only foreign companies to bid for the resumption of works in COMPERJ. What is being done in Brazil with Brazilian engineering companies is not occurring in other countries that fight corruption like Volkswagen in Germany that fraudul data of their cars and German government applied very high fines while company officials were fired and prisoners. At Volkswagen, the production of cars continued and no worker has lost his job. Germany has preserved its wealth and jobs. In Brazil the behavior has been the opposite. Leaders are arrested, works are suspended, the companies are prevented from participating in other bids and workers are laid off in the thousands. A national patrimony is destroyed, formed by companies over decades and holding important technological assets and teams of experienced professionals. This has to stop.
The present moment is extremely serious. The future of Brazil is threatened with the dismantling of Brazilian engineering. In order to overcome this, there is an urgent need to mobilize representatives of engineering professionals under the leadership of CONFEA / CREAs to build a strong alliance in defense of national engineering involving engineers, workers in general, the companies committed to the generation of employment, besides universities and technology centers. This struggle should not be taken only by the engineering professionals, but also by the entire Brazilian people.
* Fernando Alcoforado, 78, member of the Bahia Academy of Education, engineer and doctor in Territorial Planning and Regional Development by the University of Barcelona, university professor and consultant in the areas of strategic planning, business planning, regional planning and planning of energy systems, is the author of 13 books addressing issues such as Globalization and Development, Brazilian Economy, Global Warming and Climate Change, The Factors that Condition Economic and Social Development, Energy in the world and The Great Scientific, Economic, and Social Revolutions that Changed the World.
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