World Cup Elevates BNDES’ Role in Supporting Infrastructure Development

CEIC Brazil Data Talk - May 2, 2014 - The BNDES is Brazil's key financing agency for development. The bank's stated mission is to foster sustainable and competitive development in the Brazilian economy, generating employment while reducing social and regional inequalities. The bank fulfils a crucial role in supporting investment projects that will contribute to the growth of the country, which include granting long-term loans at subsidized interest rates. In February 2014, the funds disbursed through the BNDES System increased by 34.5% year-on-year (YoY) to BRL 28.5 billion. This growth was mainly driven by the disbursements to Commerce and Services activities, which increased by 48.6% to BRL 16.8 billion, followed by that to the Manufacturing Industry (26.9% YoY) and Agriculture (3.9% YoY), although disbursements to the Extractive Industry declined (by 23.5% YoY). Many sectors under Commerce and Services saw large increases, particularly infrastructure activities. Among them, telecommunications experienced the largest growth of 552% YoY, followed by Air Transport and Auxiliary Activities of Shipping and Delivery at 402.5% and 264.5% YoY respectively. Large capacity directed to the infrastructure sector demonstrates the commitment to organizing the FIFA World Cup in twelve different cities across Brazil, which is to be held in June and July 2014. From the BRL 28.5 billion disbursed in the first half of 2014, 51.21% comprised disbursements to large companies, totaling BRL 14.6 billion, and rising by 54.9% compared to the previous year. In terms of Micro, Small & Medium enterprises, BNDES earmarked BRL 11.5 billion or 40.5% of the total disbursements of the bank. Besides that, smaller companies will also benefit from a programme recently created by BNDES to stimulate investments in innovation that boost their competitiveness. This will direct BRL 500 million to these companies at either a fixed (4% per year) or variable interest rate. The date to submit the financing requests is December 31st, 2015. It also comes as no surprise that the Southeast Region, where the state of So Paulo is located, received the lion's share (50.4%) of the loans granted by BNDES during the first two months of 2014, a 73.7% YoY increase. The Southeast Region has been the biggest beneficiary of disbursements by BNDES since 1999. In 2013 BNDES announced that it will direct the cheaper and longer term loans to some specific sectors, such as the capital intensive companies, projects that bring technological innovation, the Infrastructure Sector and also Machinery and Equipment, due to its importance in Gross Fixed Capital Formation. Other sectors like Services and Foreign Trade will have to bear a higher cost of loans - lower than market rates, but above that offered to targeted sectors. The targeted disbursement of loans seeks both to allocate necessary funds to these favoured sectors and to reduce the reliance on the higher cost of capital (along with shorter loan periods) offered by commercial banks. Despite the upward trend of the disbursements in the past months, the process has started to slow. The loans consultations involved, which dictate the trend of investments and the development of new projects have been decreasing for seven consecutive months since August 2013. The consultations value for the period ended February 2014 hovered at around BRL 29.4 billion, 20.98% less than in February 2013. The fall in consultations is attributed with the slowdown of the Brazilian economy and at a time when the government is being hard-pressed to cut costs to meet its fiscal savings target of 1.9% of GDP in 2014. By Bruno Vasconcelos Google+ Author Profile - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
5th May 2014 World Cup Elevates BNDES’ Role in Supporting Infrastructure Development

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