Industrial Policy, Competitiveness and Innovation - 15/07/10 · 100% State-owned company under private law Institutional funding 2,500 employees Instruments Direct operations Indirect

July, 2010

Woodrow Wilson International Center for Scholars

Brazil - U.S. Business Council - U.S. Chamber of Commerce

Luciano Coutinho

Challenges for Industrial Policy, Innovation Challenges for Industrial Policy, Innovation and Competitiveness in Braziland Competitiveness in Brazil

OutlineOutline

• Brazilian assets & challenges

• Brazilian growth trends and prospects

• The State: acting for the short and for the long term

• The profile of a strategic agent: BNDES

• Summary and implications

Brazilian assets & challenges

4

Setting the scene: international trendsSetting the scene: international trends

• Growth in check... for some time… New and old poles of growth.

• Negative externalities associated with climate

change.

• Fierce competition in markets.

• Rapid pace of technical progress.

• States actively defending national interests.

Brazil: assets and challengesBrazil: assets and challenges

• Institutional & political stability

• Sound economic policy

– Inflation and public debt

– Reserves

• A complex and diversified economic base

• Infrastructure in need of expansion

• More innovation efforts are needed

• Economic inclusion n the making

• The best performance: job creation

Brazilian growth trends and prospects

Source: Ipeadata

Domestic market explains 2004Domestic market explains 2004--2008 growth 2008 growth cycle and 2010 recoverycycle and 2010 recovery

Contribution to GDP ( in percentage points)

9.17.47.5

5.32.75.0

-0.50.2 -0.3

-2.6-2.2-1.4-1.4

0.5

0.7

1.72.5

0.1

2.7

4.0

6.1

5.1

6.55.7

3.2

1.2

-0.2

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

2002 2003 2004 2005 2006 2007 2008 2009 2010*

Domestic Demand Net External Demand GDP

* Forecast

Source: IBGE, BNDES

An average 5% p.a. growth is feasible over An average 5% p.a. growth is feasible over the next 5 years...the next 5 years...

Brazil: GDP Annual Growth Rate

(%)

5.2%

6.5%6.1%

3.1%

5.7%5.2%

5.1%

3.9%

-0.2%

-2%

0%

2%

4%

6%

8%

10%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Estimates

Investment/GDP (%)

21.4%22.2%

20.4%19.7%

19.0%

16.8%

18.7%

17.3%

15.3%14.7%

10%

12%

14%

16%

18%

20%

22%

24%

26%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Forecast

Source: IBGE, BNDES

... with investment leading the way...... with investment leading the way...

... as investment plans are robust and rising... as investment plans are robust and rising... as investment plans are robust and rising

Sectors Growth

2005-8 (observed)

2010-13 (forecast)

Implicit p.a. 2010-13 (%)

Infrastructure 111 172 9.3

Industry 174 305 11.8

Housing 191 258 6.3

Total 476 736 9.1

US$ billionUS$/R$ = 1.80

Source: BNDES Forecast

Based on Corporate Investment Plans from 13 sectors – Last Forecast: April 2010

Sample features:

• 10% of GDP

• 52% of Gross Fixed Capital Investment

• 60% of Manufacturing investments; 90% of Infrastructure investments

Industry

Infra struc ture

Electricity

Oil & Gas

Investments in Energy stand outInvestments in Energy stand out

Energy

50.3%

39.6%

10.7%

25.4%

24.3%

Petrobras’ Annual Investments: US$ 45 billion (2010- 2014)

The State:

acting for the short and for the long term

The short term: managing crisis, but with an The short term: managing crisis, but with an eye on keeping growth momentumeye on keeping growth momentum

• Strong financial regulation in place and liquidity ensured

• Effective counter-crisis policies, at low cost (1.2% of GDP)

– Tax relief on durable goods to maintain household consumption (Incentives have been delivered!!!)

– Credit expansion thanks to State-owned banks

– Strong incentives for investment

The long term: investment related policiesThe long term: investment related policies

Investment policies

Education- PDE

Health Housing

Industrial PolicyPDP

S&T &Innovation

InfrastructurePAC

The challenge: to have them as permanent State poli cies

Growth Acceleration Program Growth Acceleration Program ––PACPAC--

Planned investments - US$ billion

811.6479.6332.0Total

325.3194.5130.8Social & Urban development

384.6232.8151.8Energy

101.752.349.4Logistics

TotalPAC 2

2011-2014

PAC 1

2007-2010

BNDES in PAC 1: 331 projectsFinancing US$ 76 bn for US$ 138 bn of investments (70% � energy)

Effective management by Minister of Coordination and Internal Affairs, close to Presidency

Industrial Policy Industrial Policy –– PDPPDP –– launched May 2008launched May 2008

Highlights

• Political priority : President leadership

• Direct involvement & partnership with relevant acto rs : Ministry of Industry and Trade, Ministry of Finance, Ministry of S&T, BNDES

• Policy focus: Investment, Innovation, Exports, SMEs .

• Systematic interaction with private sector

• Effectiveness : over 95% of proposed measures are operational

Strengthening CompetitivenessAutomotive

ComplexCapital Goods

Textile& Garments

Wood and Furniture

Hygieneand Cosmetics

HousingServices Complex

Bio-dieselNaval & Shipping

Industries

Leather & Footwear

Agribusinesses Plastics

Consolidating and Expanding Leadership

AeronauticsOil, Gas and

Petrochemicals MeatBio-ethanol

Fostering Knowledge

Industrial Health Complex

Nuclear EnergyInformation and Communication

Technologies

Defense Complex

Nanotechnology Biotechnology

Electronics –consumer

Toy Industry

Mining SteelPulp and

Paper

Strategic Issues

Expanding Exports

Productive Integration with

Latin America

Strengthening SMEs

Integration with Africa

Regionalization and production decentralization

Clean Production and Sustainable

Development

Wheat

17

A complex policy framework for a complex A complex policy framework for a complex productive structureproductive structure

General CoordinationIndustry and Trade (MDIC)

Ministerial CouncilChief Cabinet,

Finance, Planning, S&T, Education

Executive SecretariatIndustry and Trade Agency (ABDI), BNDES, Finance Mi nistry (MF), S&T Ministry (MCT)

FosteringKnowledge

Coord.: MCT

6 Executive Committees

StrengtheningCompetitiveness

Coord.: MDIC


Consolidating Leadership

Coord.: BNDES


Strategic Themes

Coord.: ABDI


Systemic Actions

Coord.: MF

1 Executive Committee

Governance: hierarchical structure and well Governance: hierarchical structure and well defined terms for relevant agenciesdefined terms for relevant agencies

The challenge: coordinating 500 civil servants; over 6 0 public agencies

BNDESThe profile of a strategic agent

� Main provider of long-term financing in Brazil

� 100% State-owned company under private law

� Institutional funding

� 2,500 employees

� Instruments

� Direct operations

� Indirect operations

� MSME (financing & guarantee)

� Exim

� Project finance

� Equity investments

� Grants

Scale and scope mattersScale and scope matters

Development Banks

Assets Equity Disbursement

World Bank 275.4 40.0 18.6

BNDES 222.0 15.9 68.8

IADB 84.0 20.7 11.4

Source: BNDES, IADB (Dec./09) and World Bank (June/09).World Bank as of June 30.

US$ billion

Non-performing Loans 2009: 0.20% of total outstanding debt

21

Source: BNDES

The importance of BNDES’ financingThe importance of BNDESThe importance of BNDES’’ financingfinancing

Financing sources for Investment in Manufacturing and Infrastructure (%) (2004-2009)

49.3%57.0% 57.0%

42.0%51.0%

45.3% 43.6%

26.1%19.0% 21.0%

21.0%

26.0%30.0%

39.6%

10.7% 13.0% 10.0%

17.0%

9.0%6.1%

8.9%8.1%

9.0% 10.0%

15.0%7.0%

3.1%

4.2%5.9% 2.0% 2.0% 5.0% 7.0%

15.6%3.7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Average 2004 2005 2006 2007 2008e 2009p

Retained Earnings BNDES External Sources Bonds Stock Market - Brazil

e-estimated p-forecast

Approvals and disbursements

The BNDESThe BNDES’’ performance is associated with performance is associated with BrazilBrazil’’s investments investment--led growth processled growth process

U$ billion

10.913.1 13.6 12.9

19.322.3 23.5

34.1 33.1

50.6 50.5

66.368.8

85.2

71.5

88.2

0

10

20

30

40

50

60

70

80

90

2003 2004 2005 2006 2007 2008 2009 2010*

Disbursements Approvals

* 2010: projected

Source: BNDES. R$/US$: average exchange rate for each year

2009: BNDES financed US$ 46.8 bn for US$ 93 bn in fixed investments. This generated or maintained 4.5 million jobs

(direct/indirect and income effects)

Summary and implications

Accomplishments and trendsAccomplishments and trends

� Success in facing the international financial crisis

� Brazil may grow 5% p.a. over the next few years

� Domestic market will lead growth:

� Consumption: emerging middle class

� Investments: oil & gas, electricity, logistics, large

events (World Cup, Olympic Games), housing

Coming up: Large number of high-return & low-risk projects

Ingredients to ensure sustained developmentIngredients to ensure sustained development

� State: permanent and effective investment policies

� Financing: institutional investors, capital markets, domestic savings, public institutions supporting investment

� Social: more and better jobs; quality education

� Infrastructure: more and better projects; more complex finance/insurance solutions

� Industry: innovation and competitiveness capabilities

Private sector mobilization and foreign investors are essential!

Innovation: the way aheadInnovation: the way ahead

• Priority for investment, innovation & competitivene ss . Challenges: clean production; competent labor force; renewable energies; health; urban infrastructure; e-gov.

• Industrial policy as a permanent State policy . The need to strengthen Intra-State cooperation in Industrial, S&T, Infrastructure and Education policies

• Public-Private interaction: essential for success

Strategic partnership : In a challenging and competitive world, the US & Brazil - private and public domains - should develop project-based cooperation to develop each others’ capacities

July, 2010



Luciano Coutinho


July, 2010




ANNEX – Tables and Figures

Brazilian assets & challenges

54,1

72.9 France

56,9

76.2 Germany

101,3

117.0 Italy

80,4

115.0 Japan

38,3

75.1 UK

42,3

66.8 US

43,438,8

43,942.0 Brazil

30,0

40,0

50,0

60,0

70,0

80,0

90,0

100,0

110,0

120,0

2003 2004 2005 2006 2007 2008 2009 2010

Forecast

Source: IMF and Brazilian Central Bank.

Interest Rate and Public DebtInterest Rate and Public Debt

Public Sector Net Debt (%) GDP

Net debt is low & under control

0

5

10

15

20

25

30

jan

/00

jun

/00

no

v/0

0a

br/

01

set/

01

fev/

02

jul/

02

de

z/0

2m

ai/

03

ou

t/0

3m

ar/

04

ago

/04

jan

/05

jun

/05

no

v/0

5a

br/

06

set/

06

fev/

07

jul/

07

de

z/0

7m

ai/

08

ou

t/0

8m

ar/

09

ago

/09

jan

/10

jun

/10

Interest Rate (SELIC) % per year

Decreasing interest rate

Strong defenses against external vulnerabilityStrong defenses against external vulnerability

High levels of international reserves…

Reserves/GDP

6.25.1

6.57.5

8.98.0

6.18.0

13.711.9

15.9

0

2

4

6

8

10

12

14

16

18

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

External Debt/Reserves6.2 6.65.8 5.6

4.43.8

3.1

2.01.0 1.0 0.8

0

1

2

3

4

5

6

7

8

19992000200120022003200420052006200720082009

…reduced external debt (vulnerabilities)

Foreign Debt and International ReservesForeign Debt and International Reserves

Source: Brazilian Central Bank

Source: IBGE.

A complex private sectorA complex private sector

Industrial Production, 2009

Labor

Intensive

9.7%

Natural

Resources

intensive

39.8%Scale

intensive

35.1%

Engineering

intensive

15.5%

FDI/GDP2004 2006 2008

Brasil 2.7 1.7 2.7China 2.8 2.9 3.4Índia 0.8 2.2 3.2

Source: IMF

An attractive economy

Underdeveloped infrastructureUnderdeveloped infrastructure

Area

(million km2)

Paved Roads

(1,000 kms)

Railroads

(1,000 kms)Brazil 8.5 212 29

Russia 17.0 755 87India 3.0 1,570 63

China 9.3 1.572 77Source: Institute of Logistics and Supply Chain, COPPEAD, UFRJ

1,500 unpaved

Immediate opportunity: Sâo Paulo – Rio de Janeiro High Speed Train

• Inv: US$ 19 billion - BNDES financing: US$ 10 bn – Exim: US$ 3.5 bn

• Call to bid: from 7/14/2010 to 11/29/2010

• Emphasis: development of local capacity and transfer of technology

Source: Innovation Surveys, various countries

R&D/Sales (most recent available data)

0.09%

0.21%

0.37%

0.42%

0.50%

0.66%

0.87%

0.97%

1.25%

2.20%

2.60%

0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00%

Mexico

Argentina

Portugal

Czech Republic

Hungary

Brazil

Spain

Norway

UK

France

Germany

Innovation capabilities are not strongInnovation capabilities are not strong

Mass markets are being expandedMass markets are being expanded

Social Groups (% of total population)

4744

4238

3632 32

4446

4850

52 53

11 12 12 13 14 15 15

42

2003 2004 2005 2006 2007 2008 2009

Class D/E (up to R$1,115)

Class C (between R$ 1,115 & R$4,807)

Class A/B (as of R$4,807)Data in : % of population

* Values in December 2008

Source : FGV and Finance Ministry

Group C: 26% growth 2003-2009

Social Groups monthly earnings

A&B: US$ 2,700 +

C : US$ 620 –2,700

D&E: up to US$ 620

GDP (2009): US$ 1.6 trillionPer capita: US$ 8,200

Net job creation per year (thousand workers net)

50

2 12

35

96

1 14

94

86

1 18

63

18

31

19

17

24

52

18

34

99

5 20

00

38

7

27

4

88

75

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

(*)

Source: MTE/Caged (*) estimated

An outstanding performance: job creationAn outstanding performance: job creation

Despite 0.2% negative growth in 2009, almost 1 million jobs created

The State:

working for the short and for the long term

The cost of keeping the economy runningThe cost of keeping the economy running

Anti-crisis policy measures R$ billionTotal 312.6

Loan to BNDES 100.0Freeing retained reserves to banks 100.0Tax relief 15.0

Popular Housing Programme 1.6

Loans to States and Cities 2.0

Loan to Caixa Econômica Federal 6.0

Withdrawing Petrobrás from primary surplus target 15.0

Reduction of primary target 24.0

Minimum wage increase 20.0Wage increase for public servants 29.0

Source: Finance Ministry

During crisis, StateDuring crisis, State--owned banks sustained owned banks sustained credit expansioncredit expansion

Source: Bacen.

Contribution to Credit Growth (Sept/08-Jan/10)

Credit Growth(September 2008 = 100)

Private Banks 27%

BNDES37%

Other State-owned Banks 36%

100

109.0113.9

118.3121.2

100

106.9

132.9

150.1

144.6

141.2

138.8

109.5

105.6103.2

103.3

102.4

102.9102.6

90

100

110

120

130

140

150

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-0

9Sep

-09Nov-0

9Ja

n-10

Public BanksPrivate Banks

Source: BNDES

Sept./08

85.0

July/0933.6

150,0

Mar./10122.7

0

50

100

150

200

250

dez

-07

jan

-08

fev-

08

mar

-08

abr-

08

mai

-08

jun

-08

jul-

08

ago

-08

set-

08

ou

t-0

8

no

v-0

8

dez

-08

jan

-09

fev-

09

mar

-09

abr-

09

mai

-09

jun

-09

jul-

09

ago

-09

set-

09

ou

t-0

9

no

v-0

9

dez

-09

jan

-10

fev-

10

mar

-10

PSI launched

BNDES daily disbursement for acquisition of Capital Goods- Direct and 2nd tier operations (US$ million)

Policy action for investment & Private Sector reaction: Policy action for investment & Private Sector reaction: interest rate reduction and growth in demandinterest rate reduction and growth in demand

PSI: Interest rate equalization program

BNDESThe profile of a strategic agent

42Source: BCB/BNDES

67.0

%

11.6

%

8.4

%

3.8

%

2.5

%

1.2

%

1.2

%

0.8

%

0.5

%

0.9

%

0.1

%

2.0

%

0%

10%

20%

30%

40%

50%

60%

70%

80%BN

DES

CEF BB

Bra

des

co

Santa

nder

BN

B

Itau

BRDE

HSB

C

Voto

rantin

BDM

G

Dem

ais

dec-09

Banks’ revenue from loan portfolio with duration of over 5 years (% of total revenue)

LongLong--term credit in Brazil: the BNDES and term credit in Brazil: the BNDES and commercial bankscommercial banks

The BNDES is practically alone in providing (and profiting from)long-term loans

23,2%26,7%

17,8% 17,5%

0%

5%

10%

15%

20%

25%

30%

2006 2007 2008 2009

Basel Index (%)67% 66%

53%40%

8% 6%16% 38%

8% 7% 6%4%

7% 9% 16%12%

10% 12% 9% 6%

0%

20%

40%

60%

80%

100%

2006 2007 2008 2009

Institutional Nacional Treasury Foreign Others Equity

Funding Composition

Prudential behavior is an asset of credibility

Source: BNDES

Institutional fundingInstitutional funding

Recent expand in demand Recent expand in demand required support from the required support from the

National Treasury National Treasury

Institutional Funding (Workers’Assistance Fund)

Institutional Funding (Workers’Assistance Fund)

80% of the BNDES80% of the BNDES’’ loans goes to industry loans goes to industry and infrastructureand infrastructure

Disbursements by business sector (%)

52%

30%

11%

7%

46%

35%

12%

7%

48%

30%

14%

8%

40%

38%

17%

5%

50%

36%

9%

5%

53%

33%

7%

7%

40%

40%

8%

12%

43%

39%

6%

12%

46%

35%

5%

14%

2001 2002 2003 2004 2005 2006 2007 2008 2009

Industry Infrastructure Agriculture Trade and Services

Source: BNDES

Half the disbursements are through Half the disbursements are through commercial bankscommercial banks

Disbursements per type of operation (%)

46

54

46

54

58

42

46

54

45

55

47

53

43

57

41

59

47

53

57

43

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Direct Operation Indirect Operation

Source: BNDES

2009 Number of Operations

Total: 304,843

Disbursements per size (% total)

225,296

58%

28,725

7%

23,711

6%

112,997

29%

micro and small medium-sized

individuals large

Number of operations & disbursement per Number of operations & disbursement per size: a contrastsize: a contrast

Source: BNDES

Export finance is increasing steadily in the Export finance is increasing steadily in the recent pastrecent past

US$ billion

Converted to US dollar on the disbursement dates

2.100

3.083

2.603

3.948 4.007

3.861

5.8626.376 6.595

8.309

4.190

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: BNDES

Export finance from the BNDES

48

A large and diversified equity portfolioA large and diversified equity portfolio

Total Equity Portfolio:

US$ 47.5 billion (Dec.’09 )

Sectorial distribution of BNDES equity portfolio (%)

July, 2010



Luciano Coutinho


Documents

Industrial Policy, Competitiveness and Innovation - 15/07/10 · 100% State-owned company under private law Institutional funding 2,500 employees Instruments Direct operations Indirect