Development prospects and challenges for Brazil

III Brazil Infrastructure Investments Forum October 2012 Joo Carlos Ferraz Vice President

Setting the scene: the Brazilian past

Almost 25 years of investment growing below to GDP rate.

12 years of total uncertainty and volatility 12 years of price stability and institutional reconstruction Since 2005 investments moving ahead of GDP

Short economic horizon, unstable rules, low confidence, no investment, no infrastructure

Cost Costof oflogistics: logistics: 12% 12%GDP GDP(2010) (2010)
Source: ILOS Source: ILOS

The heritage: sand on the wheel or where is the wheel?

Hardships of extending the economic horizon:
Steady consolidation of democracy and slow upconstruction of institutions State capabilities very weakened (but in some islands of competence) Slow unwinding of business sector Basic financial capacity to support long term investments. But, with BNDES dependence

Are the Chinese from outer space? Or, just keep growth steadily for 30 years and
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Setting the scene: lights and shadows in the world economy

Increasing diversity and a crisis of long duration Economic inclusion of many, new poles of dynamism but advanced economies will be there Fierce competition in all markets Extremely rapid rhythm of technical change and increasing investments in innovation by countries and corporations Climate change as a source of concern and opportunities. State activism but a role model does not exist. A scenario of slow (hopefully undisturbed) growth: the best we can wish for.
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Brazil: an emerging model on the way?

Consolidated democracy and strengthening of institutions Solid fundamentals and economic stability Expanding internal market: social and economic inclusion Advantages in much valued goods (food and energy) Upcoming: wide and attractive investment frontier The model: Modicidade tarifria The action: PAC and the return of the Phoenix Financing: strengthening of BNDES and an emerging interest of private industry Currently, a rare and most interesting consensus: investment (infrastructure) must lead the way to sustained growth
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Economic stability
Real interest rates (% per year)

(*) Accumulated in 12 months up to Aug. 12

(*) forecast by Brazils Central Bank

IPCA = Broad consumer price index

Gross and Net Debt (% GDP)

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Sources: Brazils Central Bank, Ministry of Finance and IBGE. Produced by BNDES

Income distribution

BRAZIL Stratification of social groups (millions of persons)

200 180 160 140 120 100 80 60 40 20 0

22.5 13.3 8.8 45.6 12.9 65.9 55.4 105.5

A&B

55% of population

92.9

83.3

96.2 63.6

DeE

1993
Source: FGV

1995

2003

2011
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Investment plans and prospects

US$ billion % (B)/(A) -1,8 52,6 40,8 8,9 24,8 195,1 64,4 29,8 106,7 289,1 44,2 33,0 2013-16 annual growth -0,4 8,8 7,1 1,7 4,5 24,2 10,5 5,3 15,6 31,2 7,6 5,9
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Source: BNDES

Sectors
(A) 2008-2011 Industry (ex Oil & Gas) Oil & Gas (B) 2013-2016

Infrastructure
Electric Power

Telecom
Railroads

Roads
Sanitation

Ports
Airports

Housing
Total

135 133 171 73 41 13 21 16 6 1 298

603

132 202 240 79 51 38 34 21 11 4 430

802

BNDES at a glance
BNDES annual disbursements
180 160 140 120 100 80 60 40 20 0 2003 2004 2005 2006 R$ Billion 2007 2008 US$ Billion 2009 2010 2011 35,1 11,7 40 13,8 47,1 19,8 52,3 34 24,1 64,9 49,8 92,2 71,6 96,3 82,3 137,4 139,7 168,4

2011 Financial performance - ROE: 23.1% - Assets: US$ 340 billion - Equity: US$ 32.8 billion

Gross Fixed Capital Formation (GFCF) & BNDES disbursements (US$ Billion)
500 90 80 450

2011 Prudential behavior - Basel Index: 20.6% - NPL/total loans: 0.14%

GFCF
400 350 300

70 60 50 40

250 200 150 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

BNDES disbursement for GFCF (*)

30 20 10 0

(*) exc. BNDES Exim; working capital, M&A and Equity Financing.

Policy framework: eye on the short and long terms

Short term cost cutting measures: Monetary easing of 500 basis points over the past 12 months TJLP reduction Tax cuts on indirect labor costs Low cost programs for capital goods acquisition Cut in energy costs Long term investment driven PAC and Minha Casa Minha Vida PAC Equipments + PAC urban mobility Logistics: Highways, Railways, Harbors and Airports 2012. BNDES loans for infra: US$ 32 billion

Yearly investments in infrastructure

90,9 92,6
US$ bn, at 2011 prices

98,2
Basic Sanitation

80,1 70,1 57,4

3,5 11,9 11,4 14,7 10,6 4,7 10,9 13,0

4,7 10,3 16,4

4,2 11,7

Telecommunications
16,4

45,2 48,2 33,8

2,5 8,0 3,4 7,1 12,8 2003

37,9
2,4 10,9 4,8 6,8 13,0 2004

2,5 10,7 7,4 8,0 16,6

3,2 8,7 8,5 9,7 18,2

2,8 9,3 9,3 10,6

17,8

21,1

Transport

Electric Energy
32,7 36,7 41,8 39,2

25,3

Oil & Gas

2007 2008 2009 2010 2011 2012*

2005

2006

Source: ABDIB and Ministry of Finance. *ABDIB projection

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The map: demand driven, policy induced development

The internal market agenda Mass consumption: serve the aspirations of emerging middle classes. The external markets agenda Commodities for the inclusion of many

Infrastructures:
much needed resource and a source of demand

The government has the capacity to adapt plans, regulations and financial modes to societal needs and aspirations Plans: tenacity for effective implementation Regulations: evolving to provide welfare and investment security Financing: BNDES there but private sector crowd in is a must!

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Challenges

Institutions: kaizen Efficiency: at all levels Competences: of all Savings and long term financing Infrastructure: much more & better

Unbalanced growth

Societal management of tensions, arising from unbalanced growth will be decisive

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Development prospects and challenges for Brazil

III Brazil Infrastructure Investments Forum October 2012 Joo Carlos Ferraz Vice President

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