Nordic-Light-Jun2014-Aug2014

Finance Committee
BNDES – A new role
By Marcelo Pires*
The state-owned Brazilian development
bank BNDES’ essential role in
the development of the country’s
industry and infrastructure is unmatched
and unquestionable. Nevertheless,
reflections have recently
arisen regarding the new role of the BNDES, at
a time when the country has major companies
with full access to the capital market and one
witnesses the federal government’s budget
limitations involving the tremendous needs for
investments in areas that are strategic for the
country’s growth.
Given the current scale of large domestic
companies, new investment projects are reaching
astronomic amounts and require equal fund
allocations by the BNDES. Furthermore, the
growth and competitiveness of local industry
depend very much on significant investments in
infrastructure and education, which allow for
the development of cutting-edge technology, an
increase in productivity and a drop in various
indirect costs that create a considerable burden
on local products.
Curiously enough, the same institution
which successfully paved the way
for the formation of the country’s
industrial park has today somewhat
become a limiting factor for Brazilian
industry’s migration to a new stage of
its development, which requires other
sources of financing, as an alternative
to the BNDES, which is starting to show
signs of exhaustion in its lending capacity.
After all, the BNDES’ omnipresence in
the financing of long-term investment projects,
at subsidized interest rates, impairs
the development of a private long-term
credit market.
Apparently, the federal
government and private
initiative have already noticed that the current
scenario presents major challenges to the continuity
of a sustainable industrial policy and have been
heading towards adapting the current structure
involving fostering long-term investments (banks
and capital market) to the country’s new needs.
And, under new guidelines, it would certainly be
up to the BNDES to concentrate its efforts on the
following items:
a) Support for the development of a domestic capital
market, with liquidity for private debt securities
and motivating investors to allocate funds in longterm
investment projects;
b) Financing for growing businesses, still with little
access to long-term financial resources, with a consequent
reduction of support to large companies
with ample access to the capital market;
c) Offering incentives to strategic segments for the
country that do not attract initial or enough interest
from private investors;
d) Stimulate industries and companies that really
seek an increase in productivity and efficiency,
which are so important for the competitiveness of
local industry.
However, it is of the utmost importance that the
BNDES’ strategic redirection be gradual—so that
the institution only reduces or removes its share
in the financing of segments in which the private
sector has assumed the role previously occupied
by the national development bank. Otherwise, it
would jeopardize the advances achieved so far in
the development of Brazil’s industrial park.
*Marcelo Pires is Head of Corporate Coverage
– Brazil at SEB and one of the coordinators of
Swedcham’s Finance Committee.
Author’s note: the opinions expressed in this article
are the author’s and do not necessarily reflect
SEB’s opinions.
58 JUNE - AUGUST 2014