Fernando Alcoforado*
The impact of Brazil’s economic crisis on national engineering has been devastating since 2014. The crisis led 253 contractors to judicial reorganization (bankruptcy) in 2015, whose number grew 25% compared to 2014. The bankruptcy process of the contractors resulted from 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. The construction industry in Brazil was affected, not only by delays in government transfers, but also by Lava Jato Operation, which led a number of companies involved in Petrobras’ corruption scheme to the courts, especially the large construction companies. Indebted, without credit to its operations and with contracts canceled or suspended, several companies followed this way to renegotiate the debts.
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 country’s 500 largest managed to grow in 2014. Odebrecht, the largest of them, dropped by 32 % in sales. In 2014, the construction sector was responsible for about 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 R$ 63 billion in debt. Due to Lava Jato Operation, contractors find legal restrictions to enter into bids. Petrobras, the main client of the contractors investigated at Lava-Jato Operation, planned to cut about 30% of the investments until 2019. Without cash and without new contracts, the last resort of these companies was to enter with judicial recovery to renegotiate the debts.
Odebrecht, the largest Brazilian engineering company, was destroyed by Lava Jato Operation. The largest Brazilian construction company loses successive contracts abroad, faces tremendous credit difficulties in Brazil and abroad, faces 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 drastically reduced, while middle managers, with different areas of expertise who in the past represented the soul of the company’s business 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.
The participation of large construction projects in the GDP of Brazilian construction decreased 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 the 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 amounted to R$ 67.04 billion, more than triple that of 2016. In the last three years, the Brazilian economy slowed down. Political uncertainties led to a drop in investment affecting all sectors, especially the construction industry. With less money, large construction companies being dismantled by Lava-Jato Operation and still works, in addition to other conjunctural factors, such as the fall in oil price in 2015, the construction market has been 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 microenterprise opening for the provision of engineering services, which made the environment even more competitive, leading to deterioration in the fees of already established companies and consolidated. The current balance of the civil construction sector indicates the existence of 5,000 paralyzed works and more than 50,000 unemployed engineers.
It is important to note that the Brazilian Engineering is a fundamental piece in the effort to promote the resumption of the country’s economic growth since, through it, it will be possible to overcome the weaknesses of Brazil in economic and social infrastructure. The country will have to invest an additional 2.5 trillion reais to achieve investments in the infrastructure sector of 4% of GDP, the minimum needed to reach a reasonable level of modernization. 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 million, basic sanitation (R$ 270 billion) and telecommunications (R$ 19.7 billion) totaled 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) and social infrastructure (education, health, sanitation and housing) would total R$ 1,869.5 billion, that is, almost R$ 2 trillion. The economic and social infrastructure program that may be adopted in the short term could achieve these objectives. Brazilian engineering would certainly be rebuilt with the implementation of this infrastructure program.
The rebuilding of Brazilian engineering should also contemplate the adoption of measures that will make the Brazilian justice in its fight against corruption to seek to penalize 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. Regrettably, the Brazilian government did not create a recovery plan that would help engineering firms get out of the crisis. Even with the signing of leniency agreements, there is no resumption of works, and the damage already reaches R$ 50 billion.
It can be said that Brazilian engineering is experiencing the greatest crisis in its history. Companies of recognized technical capacity, with significant contribution in works and services for our engineering, are paralyzed before the legal processes to which they are responding. We see the destruction of our largest engineering companies. The professionals, especially their engineers, are fired in the thousands, works are suspended, while waiting to see to what extent these companies will be hit by the Lava Jato Operation penalties. Some major projects were interrupted, some of them already at 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.
Urgent measures must also be taken to prevent Petrobras from contracting only foreign companies to tender for the resumption of works in COMPERJ. What is being done in Brazil with Brazilian engineering companies is not happening in other countries that act against corruption as happened with Volkswagen in Germany that falsified data of pollution of their cars and was applied very high fines while company leaders were dismissed and imprisoned. At Volkswagen, there was no stoppage of car production 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, these companies are prevented from participating in other bids and workers are laid off in the thousands. A national patrimony is destroyed, formed by companies formed over decades and holding important technological assets and teams of experienced professionals. This has to stop.
The present moment is serious. 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, companies committed to job creation, the union movement, as well as universities and technological centers.
* Fernando Alcoforado, 79, awarded the medal of Engineering Merit of the CONFEA / CREA System, 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 14 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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