Brazil’s Big Projects: more bust and fizzle than boom and fortune

Last year former President Luiz Inácio Lula da Silva signed a contract with the New York Times as an op-ed columnist. So, it’s been with no small amount of interest that I’ve watched a steady stream of content critical of Brazil appear in The Times in recent months.

Much of it is fair criticism – Brazil can be fairly criticized for a great may things. Some is, of course, off the mark as well. In the former category is a pair of articles that appeared last week.

If you spend much time in Brazil, you will notice a number of large abandoned projects: railways, buildings, canals, parks, you name it. They can be found in urban areas as well as rural ones.

They have been abandoned for various reasons, but the vast majority were canned because of cost overruns. Those overruns come from a combination of corruption, overwhelming bureaucracy, technical incompetence and mismanagement. In many cases, with minimal compensation, people were displaced and fields turned into roads to make room for construction that never happened.

Worse still, while these sometimes much-needed infrastructure projects languished, others with less overall worth to society – for example upgrades to stadiums for the World Cup – have plowed ahead despite their cost overruns. At the same time, critical investments in, for example, the educational system and infrastructure never get off the ground. (You are perhaps seeing some of the reasons behind the massive protests during the Confederations Cup last year.)

I should admit that once it became obvious these projects were over-budget and likely to go several times over if completed, stopping them was best thing to do. All too often we succumb to the “sunk-cost fallacy”, where the thinking becomes that because so much has been invested a project must be completed even if the final cost greatly exceeds the amount already sunk into it. But, what tends to happen when such a project is seen through to completion is that the additional money needed exceeds both the original budget as well as the alleged benefits of the project. It’s not uncommon for the final cost to be several times the initial estimate and for that cost to be borne by the public.

However, and this is important, this in no way excuses the factors I listed earlier (corruption, bureaucracy, etc.) that contributed to the initial cost overruns. Until those are addressed, expect most large projects like the ones described in the article to run over budget and then either be cancelled or finished with a still larger overrun paid from public coffers.

Rather than say more, I’ll direct you to the two articles which give an excellent overview of the situation (along with some great photographs) as well as some interviews with people directly affected.

Link summary:

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