Economic perspectives in Brazil Export Development Canada Calgary, March 26, 2011 Luciano Coutinho President
Brazil begins a new development cycle The Brazilian economy may grow beyond 5% p.a. over the next five years; The domestic market will make the growth in demand feasible: basic household consumption, housing and durable goods; Investment will be driven by five main sectors: Oil & Gas, Electric Energy, Logistics, Residential Construction and Agribusiness; Main challenges: i) to increase the aggregate GDP/investment rate, and ii) to make the competitive advance of the manufacturing industry feasible. 2
Brazil resumes growth at expressive rates, above the world average Average: 1.7% 4.3 2.7 Brazil: GDP Growth Rates ( % ) Average: 3.6% 5.7 3.2 PAC 1 PAC 2 4.0 6.1 5.1 7.5 4.5 Average: 6.1% 5.5 6.5 6.5 0.0 0.3 1.3 1.1 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* 2012* 2013* 2014* -0.2 Source: Ministry of Finance 3
Domestic market is an engine for Brazilian growth Breakdown of GDP Growth (% p.a.) Internal Demand Net Foreign Demand Aggregate Demand 10.3 0.2 2.7 1.7 5.0 5.7 2.7 3.2 5.3 3.9 7.5 6.1 6.9 5.2 7.5 1.2 0.2 2.5-0.5 0.7 0.5-1.4-1.4-1.7-0.6-0.8-2.8 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: IBGE Elaborated by: Ministry of Finance *Estimates: Ministry of Finance. 4
Investment maintains a strong upward path of growth Forecast for Rate of Investment 2010-2014 2014 (% of GDP) 26% 24% Forecast 22.4% 22% 20% 18.7% 19.4% 18.4% 21.4% 20.3% 18% 16% 17.3% 16.8% 14% 14.7% 15.3% 12% 10% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: IBGE and APE/BNDES. 5
Investment perspectives: positive expectations Infrastructure projects are important stimulus instruments and guarantee public as well as private investment so as to reduce regional inequalities. Sectors Source: BNDES US$/R$ = 1.75 US$ billion Growth 2006-2009 2011-2014 % % year Industry 221 351 58.7 9.7 Oil & Gas 117 216 84.3 13.0 Mining 34 35 3.3 0.7 Steel 16 19 16.8 3.2 Petrochemical 13 23 81.2 12.6 Vehicles 14 19 31.4 5.6 Electronics 11 17 46.0 7.9 Pulp & Paper 10 16 51.6 8.7 Textile and Apparel 5 7 39.1 6.8 Infrastructure 141 217 53.8 9.0 Electric Power 59 79 34.0 6.0 Telecoms 35 41 15.0 2.8 Sanitation 15 23 56.9 9.4 Railroads 11 34 202.1 24.7 Roads 17 29 71.4 11.4 Ports 3 10 225.1 26.6 Buildings 202 347 72.0 11.5 TOTAL 564 915 62.2 10.2 Oil & Gas and the Domestic Market lead investments in Industry Electric Power leads investments in Infrastructure Investments in sanitation and logistics will grow at expressive rates 6
Pre-salt and impact from Petrobras investments on the production sector (2011-2014) Pre-salt - Great opportunity for Brazil: growing long-term demand for the complex goods and services supply industry; Oil & Gas sector will represent 14.7% of GFCF in 2014. Direct Effect Indirect Effect Total Machinery and Equipment 108.5 24.8 133.3 Metals 1.1 16.7 17.7 Other production sectors 1.6 34.7 36.3 Trade 0.1 9.6 9.7 Services 5.7 29.6 35.3 Total 117.0 115.4 232.4 Total investments represent 15% of the pre-salt. Therefore, such impacts are still underestimated and have room for growth. The BNDES will foster investments throughout the entire oil and gas production chain, aiming at building a competitive global supplier of goods and services in the Oil & Gas sector. Source: Petrobrás, IBGE and APE/BNDES. US$/R$ = 1.75 7
Challenges for the infrastructure sector PAC 2 (estimate: US$ 906 billion in investments); Hydroelectric plants in Belo Monte and TelesPires, later, the Tapajós Complex; Railways, highways, ports and airports; TAV- High-speed Train; 2014 World Cup (estimate: US$ 13.4 bn in investments); 2016 Olympic Games (estimate: US$ 7.2 bn in investments); Environmentally-sustainable projects and concerns for surrounding areas. Source: Federal Government US$/R$ = 1.75 8
Growth Acceleration Program 2 (PAC 2) PAC 2 Projects (US$ bn) 2011-2014 After 2014 Total PAC Better City Take on the main challenges in large urban centers, fostering a better standard of living. 32.6-32.6 PAC Citizen Community Governmental presence in low-income suburbs, increasing the coverage of services. 13.1-13.1 PAC My House, My Life PAC Water and Electricity for All PAC Transport PAC Energy Reduction in the lack of housing, stimulating the civil construction sector as well as generating jobs and income. 159.0-159.0 Universal access to water and electric energy. 17.5-17.5 Consolidate and expand the logistics network, connecting several modalities, guaranteeing quality and saftey. Guarantee supply from na energy grid based on renewable and clean sources. Develop the pre-salt layer. 59.7 2.6 62.3 263.8 358.2 622.0 Total 545.7 360.8 906.5 Source: Finance Ministry 9
Capital markets and banking systems must share long-term financing Financing Pattern for Investments in Industry and Infrastructure (2004-2009) 2009) 100% 90% 80% 70% 60% 50% 5.9% 8.1% 10.7% 26.1% 2.0% 2.0% 5.0% 7.0% 9.0% 10.0% 15.0% 7.0% 13.0% 10.0% 9.0% 19.0% 21.0% 17.0% 26.0% 21.0% 15.6% 3.1% 6.1% 30.0% 3.7% 4.2% 8.9% 39.6% 40% 30% 20% 49.3% 57.0% 57.0% 42.0% 51.0% 45.3% 43.6% 10% 0% Average 2004 2005 2006 2007 2008e 2009p Source: BNDES/APE Retained earnings BNDES Foreign fundraising Debentures Shares e-estimated p-projected 10
New measures to encourage long-term credit for infrastructure Tax incentives for primary issuance of and transactions with long-term private securities; The BNDES is coordinating several measures: Acquisition of debentures in primary issuance offers; Complementary participation in the Liquidity Fund for Private Securities; Issuance of Financial Bills; The BNDES will lend the securities in its portfolio to private institutional wishing to play the role of market-makers, aiming to create a secondary market; Elaborating and disseminating appropriate indexes for long-term financing; Technical cooperation accord with BM&F Bovespa. 11
Brazil s long-term challenges To resume and qualify long-term planning (energy, logistics, environment, IT infrastructure,...); To promote and stimulate domestic savings in order to provide long-term funds for investment (banks and capitals market); To increase opportunities for social mobility (job expansion, development/improvement in education) and reduction of inequalities in income distribution, both personal and regional; To develop capacity for innovation and competitiveness in the manufacturing industry, and promote global presence of Brazilian companies (vs. significant challenges stemming from exchange rate appreciation); To promote innovation and development, aiming at social and environmental sustainability. 12
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