Brazil as Emerging Actor in Development Finance A CLOSER LOOK AT BRAZIL’S GROWTH, INFLUENCE AND THE ROLE OF BNDES
Topics Context and Framing Focus of our work in Brazil WRI’s Work & Influence Strategy Discussion
Introduction South-South financial flows are changing the nature of development finance and assistance. Between 2009 and 2010, two Chinese state-owned banks lent more money to other developing countries than the World Bank.[1] During the recent financial crisis, Brazil invested $10 billion in International Monetary Fund bonds, a striking example of the country’s transformation from a debtor to creditor.[2]
Expanding South-South trade and investment provides welcome and needed sources of capital for countries in Africa, Asia, and Latin America. At the same time, these financial flows – coupled with the emergence of powerful financial actors from China, India, Brazil, and other economies – may pose new challenges for environmental and social sustainability.
A New Geography of Growth Projected shifts in Country Rankings by GDP (PPP), 2010‐2020
Relative shifts in economic power and political influence are reconfiguring the global context for sustainable development policy. We are currently witnessing what the OECD terms “the new geography of growth” – “a 20-year structural transformation of the global economy in which the world’s economic centre of gravity has moved towards the East and South.” Trends indicate that developing economies will “account for 57% of world GDP by 2030.” [3] Despite sharp differences among members, the G-20 is supplanting the G-8 as the primary vehicle for global economic policy coordination.[4] Large emerging market economies are defining their own approaches to development cooperation, governance issues, and environmental and social sustainability outside of many existing normative frameworks.
Source: Euromonitor International
Expanding SouthSouth Trade South-South trade is clearly a dynamic force in the global economy. While world trade expanded four-fold between 1990-2008, South-South trade grew more than ten times. Developing countries now account for around 37% of global trade, with South-South flows making up about half of that total (19% of global trade).[5] In 2009, for example, China surpassed the US as Africa’s largest trading partner. [6] SinoAfrica trade volumes exceeded 166 billion US dollars in 2011. [7]
Brazil Takes Off 2001: Per Capita GDP: US$ 3,133[1] FDI Inflows: US$ 22,500 billion[2]
2011: Per Capita GDP: US$ 11,600 FDI Inflows: US$ 66,700 billion[3]
2007 & 2010: Brazil adopted Growth Acceleration Programs (PACs), major multiannual stimulus packages to accelerate economic growth, reduce poverty, and counter the global economic recession. 2011: President Rousseff launched Plano Brasil Maior, her administration’s growthoriented industry, technology and foreign trade policy
Brazil Becomes an International Player Brazil Outward FDI (US$ billion) 35 30
28.38
25 20
20
15 10 5 0
2.5
2.3 -2.2
0.2
11.6
10.81
9.8 2.5
-1
-5 -10 -15
-10
Some Drivers of Brazil’s Foreign Policy • Regional integration enables Brazil to reach new markets, expand exports, incorporate the Amazon into Brazil’s productive space, and increase its regional influence. • IIRSA Initiative (Initiative for Integration of Regional Infrastructure in South America, 2000-2010): joint program of South American governments to promote integration through the modernization of transportation, energy and telecommunication infrastructure. • Financial Institutions, including BNDES, CAF, FONPLATA, BANDES, KfW, JBIC, EIB, IFC, IDB, Caribbean Development Bank, and private financial institutions support IIRSA projects. • Transnational corporations played a critical role in this initiative, facilitated by governments through supportive policies, laws, agreements and low interest loans from public financial institutions • UNASUR and COSIPLAN (South-American Council on Planning and Infrastructure): , responsible for making the selection of high-impact infrastructure projects for South-America’s integration and development.
Development Finance in Brazil • BNDES – the National Development Bank • Government-guided policy bank • Investments, equity, export financing, new areas • Investments by regions • Domestic • Overseas
• Key player and prime influence target
• Other national development banks • Much smaller • Local importance: e.g. BASA, BNB
• MDBs in Brazil • WB: IBRD, IFC – focus on “smart finance” • (Concept stage: BRICs’ Bank) • (IDB – no main target) 9
Why BNDES? Why Focus on Brazil’s National Development Bank (BNDES)? • Financial engine behind the country’s domestic boom • Pivotal role in Brazil’s growing international economic presence • Key player in South-South focused development • BNDES Mission: “To foster sustainable and competitive development in the Brazilian economy, generating employment while reducing social and regional inequalities .”
State-Owned Banks: Money for Growth Main State-Owned Financial Institutions in Brazil
Multiple functions. Focus on urban infrastructure, housing and sanitation
Development of the Amazon region and reducing inequalities
National Development Bank
Multiple functions. Focus on rural credit, agri-business, foreign commerce
Development of the Northeast region and reducing inequalities
BNDES Promotes Brazil, Inc. Total lending comparison of public financial institutions 2011 (US$ billions)
Source: 2011 Annual Reports
BNDES Promotes Brazil Inc. BNDES Volume of Loans Over Time (R$ billion)
Source: BNDES Annual Report 2011
BNDES Promotes Brazil, Inc. Distribution of Loans into Sectors in 2011 (%) Infrastructure
1
Industry
7 21
BNDES Total Disbursement in 2011: R$ 139.7 billion
40
6% Big Enterprises
20%
Trade & Services
Medium Enterprises
Agriculture 10%
31 Others (including environment)
Source: BNDES Annual Report 2011
64%
Small and Micro Enterprises Persons
BNDES Promotes Brazil, Inc. Examples of BNDES offshore financing
Colombia: Urban Transport Transmillenium
Venezuela: Hydroelectric, Metro, Steel Industry Guyana: Road, Port, Hydroelectric Suriname: Port
Ecuador: Hydroelectric Peru: Hydroelectrics, Roads Bolivia: Roads
Chile: Metro Expansion, Transantiago
Paraguay: Transmission Lines Uruguay: Thermoelectric, Gas Line Argentina: Hydroelectrics, Gasoducts, Mining
BNDES backs Brazilian companies that participate in international public biddings for infrastructure projects. In 2003 BNDES created a specific credit line for the internationalization of Brazilian companies. The goal is that they contribute to the social and economic development of Brazil by reaching new markets, learning new technologies and promoting Brazil.
Source: Lissardy, Gerardo, “BNDES impulsiona maior presença brasileira na América Latina”, BBC Brasil, November 9, 2011
Scale of Brazil’s Growing Investments in Africa •
Main Interest: Market expansion. Oil, minerals, construction, agribusiness, biofuels.
•
Africa is Brazil’s 4th largest trading partner (behind China, Argentina, USA)
•
Trade with Africa in 2010: USD 20 billion
•
The bulk of Brazil’s investment in Africa has been financed by BNDES and carried out by national champions or state enterprises
•
Construction: Odebrecht, Camargo Correa, Andrade Gutierrez , Queiroz Galvão
•
Oil and Mining: Petrobras and Vale
Brazil – Africa Trade (in US$ billion)
Source: Ministry of Trade and Development website. Available at: http://www.mdic.gov.br/sitio/interna/interna.php?area=S&menu=2477&refr=576
BNDES Promotes Brazil, Inc.
Source: “Bridging the Atlantic” Report, World Bank. December 2011. Available at: http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/0, ://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/0, ,contentMDK:23061951~pagePK:146736~piPK:226340~theSitePK:258644, 00.html
Initial BNDES Power Map Media Congress Political Groups
GOB
MDIC Private Sector BB CEF Bradesco Itaú HSBC Santander
Treasury
BNDES
BNB BASA
Development Finance BR BACEN IFC
CMN
IBRD
FAT FGTS
A Brazil‐ China “strategic partnership”? BRICS Bank?
Public Prosecutors
Civil Society BR
WRI
Other foundations: FES, Böll, Avina …
Donors: Moore, Ford, ClimatWorks, Packard, Mott, …
Plataforma BNDES AdT ISA FASE IR Ibase +Democracia …
BNDES Strategy Map Perspectives
Strategic Orientations
Sustainable and a. Emphasize productive capacity, regional development, creation of employment, corporate governance and internationalization competitive b. Act comprehensively, with specific focuses in each area of the Bank development c.
Support initiatives and investments in modernization of institutions, companies and public agencies d. Prioritize investments in innovation, socio-environmental development, infrastructure and surroundings of projects
Financial sustainability
a. Increase total assets and strengthen equity structure b. Develop, expand and diversify sources of funds domestically and internationally c. Improve management methodologies, risk assessment and pricing of projects and companies
Internal processes
a. Use financial instruments seamlessly (corporate integration) b. Support formulation and implementation of government policies c. Strengthen relationships with Congress, resource providers, control agencies and banking regulation and supervision d. Deploy the integrated management of resources, processes and assets of the Bank
Learning and competencies
Value people, promote analytical and operational knowledge and capabilities of the BNDES workforce
Strategic corporate projects • Oriented toward development of Brazil • “Low Carbon” • “Innovation”
• Oriented toward improvement of BNDES management practices • Sustainability Management Note: descriptions of these projects are not available.
External sources of funding • Japan Bank for International Cooperation (JBIC) • GREEN – Global Action for Reconciling Economic Growth and Environmental Preservation • US$ 300 million, 10 years • 2011. To be disbursed within two years • Funded projects: na
• Kreditanstalt für Wiederaufbau (KfW) • • • •
Objective: Implementation of small hydropower plants US$ 68 million, 12 years 2011. To be allocated by end of 2012 Funded projects: na
• European Investment Bank (EIB) • • • •
“Projects that favor env. sust. and mitigate climate change effects” US$ 500 million, 20 years To be used within three years upon signature of contract (Oct 2011) Not disbursed yet?
BNDES Environmental and Social Policies 1976: Partnership with Special Secretary for the Environment (old Ministry of Environment) and adoption of checklist for environmental and labor legislation as a policy for socio-environmental assessment 1989: first Environmental Unit created in BNDES (develop knowledge, provide technical support for operational areas, propose programs and credit lines). Environmental requirements start to be applied 1994: BNDES signs UNEP-FI’s letter of Principles on Sustainable Development for Banks 1995: BNDES signs Green Protocol 1996: BNDES Resolution 874: BNDES will only finance projects that obey environmental and labor legislation and are energy efficient 1999: BNDES adopts environmental policy signaling that credit risk is directly proportional to risk of damage to be caused by a project 2003: Environmental Guides for a systematic environmental analysis of projects during framing, analysis, risk assessment and monitoring (Environmental Unit inoperable between 2003-2004) 2006: New Environmental Policy 2008: Green Protocol revised 2009: Environmental Area to report directly to the Board of Directors (analyzes operational, credit and investment activities) 2010: There are two policies: “Social and Environmental Corporate Responsibility” and “Socioenvironmental Policy”. The socioenvironmental policy applies to the entire BNDES system replacing previous environmental policy.
BNDES Sector Guidelines • Currently, BNDES is preparing environmental and social guidelines – detailed studies of all social and environmental implications and considerations of a specific project type • It remains to be seen whether these guidelines address all implications • These guidelines form the basis of the policies BNDES will apply to its entire direct investment portfolio • Provide comprehensive information relevant to the sector in the Brazilian context • The following three sector guidelines have been published • Meat-packing • Sugar and ethanol • Energy generation from fossil fuels • More in the pipeline or not disclosed: solid waste; water and sewage, biomass thermopower; hydropower; coal; silviculture • Future sector policies to be drafted after approval of corresponding guidelines
The Green Protocol The Brazilian financial system started its actions in support of sustainability through the Green Protocol, signed by public banks in 1995 (revised in 2008). Principles 1) Offer credit lines and programs that support life quality of the population and the sustainable use of natural resources; 2) Consider socioenvironmental costs and impacts on the risk analysis of projects; (ie: safeguards); 3) Promote the rational use of natural resources and its products on internal processes; 4) Continually inform and engage stakeholders on sustainable policies and practices; 5) Promote cooperation and integration of efforts between the Protocol signatory institutions
What BNDES did for each 1) Developed financing lines and programs for social and environmental investment projects. 2) New Operational Policy that determines that the environmental risk of projects should be included on the calculation of the total project risk, which happens at the framing phase. 3) Energy, water and office supplies consumption reduction; recycled paper; internal sustainable consumption policy. 4) Environmental analysis preparatory course for new employees. 5) Meetings with the Ministry of Environment, the Central Bank and the Federation of Banks (Febraban) to set a series of sustainable practices, criteria and operations.
BNDES Environmental Screening FRAMING Dept. of Priorities & Credit Area • The Loan Requester fills out a Questionnaire that includes business location and characteristics; environmental visions and practices of Company; Environmental License status; Existence of Environmental Debentures. • Credit Area classifies the Project according to the Environmental Risk in: A(high): dams, hydro and thermoelectric; roads,… B (presents risk): recuperation/modernization of existing infrastructure C (no risk)
The FRAMING AND CREDIT COMMITTEE approves the project and sends back to client with recommendations. Chooses the Operation Area. ANALYSIS Selected Operation Area - Assesses the project’s main environmental and social impacts, applies the sectoral guidelines - Structures project and formulates the conditionings.
The Board of Directors approves the Operation Area’s Analysis Report APPROVAL/CONTRACT
Projects outside of Brazil now undergo an environmental screening, observing the specificities of the sector and of the host country’s legislation.
• Upon compliance to tax, labor, social and environmental laws • Installation License required • Conduct Adjustment Term • Meeting of all conditionings
Brazil has a solid environmental legislation framework Constitutional Provisions: Right to ecologically balanced environment. Federal, state and municipal levels of government can define environmental standards and grant environmental permits. National Environment Policy: Defines polluter as responsible directly or indirectly for causing environmental harm. Requires environmental licenses for activities that use natural resources and may cause environmental degradation. Environmental Information Law: Access to public documents on environmental quality, programs impact, and results from environmental monitoring. Public authorities may require private entities to provide information on potential environmental impacts of their activities. National Policy on Climate Change: Addresses emissions, deforestation, energy. Funded in part by Amazon Fund, managed by BNDES. Environmental Licensing Law: Requires Environmental Impact Assessment and Environmental Impact Report for the issue of licenses. 3 stage licensing process: preliminary license (approving location/design), installation license (authorizes installation according to environmental mitigation measures) and operation license (confirms previous requirements were met). Brazil also has Access to Information Law, Environmental Crimes Law, and is a member of OAS, and a party of ILO Conventions, the Washington Convention on the Settlement of Investment Disputes, GATs and TRIMs Agreements, etc.
BNDES Monitoring of Compliance with Environmental Requirements The Bank uses different mechanisms to monitor the project’s compliance to environmental clauses and conditionings in the contract: 1) Company’s duty to be accountable on their environmental performance to BNDES 2) On-site visits The Bank acknowledges that there is significant room for improvement especially on the monitoring phase. The fact that not all sectoral policies are ready does not impede the Bank to - on the project analysis phase - draft specific demands for the project in order to avoid environmental and social problems.
In addition, in 2003 BNDES created an ombudsman to channel complaints and suggestions from third parties. However, 2010 data indicates a response to only 11.3% of the total messages received.
Example of Stakeholders’ Concerns High impact projects financed by BNDES (e.g. Jirau and Santo Antonio, and Belo Monte dams, numerous others in the past) and questions over the effectiveness of development finance have raised concerns among many civil society organizations and networks. Example: Plataforma BNDES coalition • Network of civil society organizations created in 2007 • Complains BNDES socio-environmental policies are being drafted without civil society consultation, existing policies are ineffective because of insufficient control and monitoring from the Bank, and BNDES lacks transparency and participation. •
Specific demands1 1. Information on potential environmental risks of Bank projects; project framework for each line of financing; project approval criteria; risk assessment methodology; companies and projects that benefit from BNDES investment outside Brazil. 2. Adoption of social and environmental criteria in the loan analysis and approval process with participation of civil society representatives; rigorous monitoring on compliance. 3. Development of policy to remedy social and environmental liabilities of BNDES- financed projects 4. Rigorous application of social clauses in BNDES financed projects 5. Increased lending for micro and small businesses 6. Pro-active role for BNDES in financing investments that diversify Brazil's energy matrix and its production structure
BNDES within the Structure of the Brazilian Government Brazilian Federation
Legislative
Executive
Ministry of Development, Industry and Foreign Trade
BNDES
Judiciary
Other Ministries
Overview of the BNDES System FINEM Internationalization of companies; capital goods (projects > R$10 million) BNDES Automatic Expansion, modernization of companies Direct financing BNDES
Administrative Council
(projects < R$ 20 million)
Indirect financing Mixed financing BNDES Card
Exim Brasil
International operations through pre shipping and post shipping Project Finance
BNDES System
BNDES Ltd. London
Subsidiary that helps with internationalization of Brazilian companies
FINAME
Indirect finance of acquisition of machines and equipment
BNDESpar
Investment arm through private equities, venture capital and debentures
Board of Directors
Overview of the BNDES System Funding Sources Workers’ Fund (FAT)
Funds for environmental and sustainable projects
Federal Treasury (L11948 and 12249) Direct financing
BNDES (International) Operations
BNDES
Others
Mixed financing
Exim Brasil
Ministry of Development, Industry and Commerce
BNDES System
BNDES Ltd. London
National Monetary Council
Central Bank
National Comptroller’s Office
International operations through pre-shipping and post-shipping Subsidiary that helps with internationalization of Brazilian companies
BNDES Technology Fund (FUNTEC) BNDES Mata Atlantica Vale Florestar Fund
FINAME
Indirect finance of acquisition of machines and equipment
Caixa Ambiental Fund
BNDESpar
Investment arm through private equities, venture capital and debentures
Climate Fund (Fundo Brasil Sustentabilidade)
Organs BNDES is accountable to National Court of Audit (congress)
Indirect financing
Amazon Fund
ECOO11 31
BNDES Non-Reimbursable Funding Forests and Protected Areas in the Amazon
Sustainable Activities in the Amazon
Scientific and Technology Development
Institutional Development and Improving Control Mechanisms
Amazon Fund
BNDES Mata Atlantica
Forests and Protected Areas in the Mata Atlantica biome
Energy
Environment
BNDES Technology Fund (FUNTEC)
Chemistry
Transport
Health
New Materials
Petroleum and Gas
32
BNDES Participation in Private Equity Funds Climate Fund (Fundo Brasil Sustentabilidade)
50%
Caixa Ambiental Fund
17%
Vale Florestar Fund
20%
ECOO11 ECOO11
Desertification
Sanitation
Alternative Energy
Solid Waste Treatment
Energy Efficiency
Clean Energy
Urban Mobility
Biofuel
Deforested land in Carajas region
ETF administered by BNDES with shares that can be acquired by companies that publish their CO2 emissions. The ICO2 index will show the companies that are more efficient in the CO2 emission and their revenue, and these companies will have a bigger share in the fund.
33 33
Who is who: focus on environmental and social divisions Director: Guilherme Narciso de Lacerda
Agriculture, CattleRaising and Social Inclusion Division
Social Infrastructure Division
• Drafts the sectoral guidelines • Environmental evaluation, analysis and monitoring of projects • Institutional training on environmental policies and corporate environmental governance
PROESCO, Reforestation, BNDES Forest Compensation, Carbon Credits Securitization and other environmental operations
Environmental Division SERGIO WEGUELIN
Dept. of Environmental Policies and Studies MARCIO COSTA
Dept. of Environmental Operations OTAVIO VIANNA LEÃO
Amazon Fund
Legal Dept.
Decision Making for Infrastructure Projects The Government, through one of its Ministries, defines a project whose implementation will be transferred to the Private Sector. A Company is hired to structure the project, assessing the technical, environmental, legal and economic feasibility.
Different project models are developed and presented for approval to the Ministry of Planning and the Ministry of Treasury. EIA reports give way to public consultation with stakeholders and the issuance of 3 sequential environmental licenses. Then, the National Court of Audit (legislative power) approves the project.
A public bidding takes place. The winning company and the Government sign a contract.
WRI’s Work WRI’s work on emerging actors in development finance is led by the International Financial Flows and the Environment objective. The goal of this research is to improve the environmental, social, and climate change policies that govern emerging actors’ investments, and to ensure that local communities and civil society organizations impacted by the investments are able to engage with “emerging actors” more effectively. This preliminary research focuses on Chinese and Brazilian overseas investments and begins to look at the growth drivers and geographic trends of those investments.
A WRI Influence Strategy Three-linked Influence Strategy Engage policymakers to develop environmental and social guidelines to govern overseas investments.
Inform decisionmakers of potential environmental and social impacts on the ground
Investor Country (China & Brazil) Strategy
Engage companies and financial institutions to develop and implement environmental and social risk management policies. Build the capacity of local civil society organizations to create demand for stronger environmental and social guidelines.
International Strategy Host Country Strategy
Enhancing the roles of emerging actors in international and bilateral investment standards setting Work with host country governments and local civil society organizations to facilitate stronger environmental and social performance among foreign companies
Create enabling conditions for local communities to raise concerns directly with decisionmakers
BNDES – WRI: Areas of shared interest BNDES Themes and Challenges
WRI Themes and Assets
Challenges regarding governance, Experience & expertise on development and legitimacy, transparency and accountability application of governance and E/S standards Development priorities; adaptation of financing priorities
Leverage tools: GHG Protocol Scope 3, Ecosystem Services Assessments, others
Climate finance
Climate finance
Not well connected internationally
International connections
“How to do it?”
Experience, ideas, research capacity
38
Objective, desired outcomes • Objective: BNDES and leading Brazilian commercial banks avoid harm and promote sustainability • Desired Outcomes – By 2015, BNDES on par with that of other NDBs on key governance subjects – By 2016, BNDES becomes a leading DFI with regard to climate finance – At least three top tier banks adopt GHGP Financial Sector guidance within 2 years of completion – The regulation of the Brazilian financial system provides new sustainability incentives by 2018 39
Strategy • Insider strategy – Provide support in the development of governance improvements – Leverage WRI offerings
• Outsider strategy: create enabling environment – Civil society demand: NGOs, public prosecutors – Thought leaders prepare terrain – At least: ensure social license to operate
40
Who are IFFE’s potential partners in this work? • Funding partners – Mott, Zennström • Civil society partners and relevant actors – Networks: Plataforma BNDES, Rede Brasil – Individual NGOs in Brazil and in host countries (pot. partners) – Public Prosecutors (synergistic actor rather than partner) • Organizations in finance system with pot. synergic interests – CMN & Central Bank regarding regulation and supervision • Research organizations – Universities: FGV, USP, other Federal Universities – (National/International) Think Tanks • Media and opinion makers 41
Near term activities • Basics – Finalize WRI finance strategy in Brazil – Scope CSO interests and synergies
• BNDES specific – “Hard wiring”, establish contacts, build trust – Define scope of work with BNDES
• Get going on the substance – Research on accountability mechanisms – Governance of climate finance –…
42
Thank You Information in this PowerPoint is drawn from a forthcoming WRI scoping paper on emerging actors in development finance. For more information or questions, contact Athena Ballesteros Director International Financial Flows and Environment Project World Resources Institute
[email protected] Roland Widmer Senior Associate International Financial Flows and Environment Project World Resources Institute
[email protected] Photo Credits (flickr creative commons license): “Construction-Equipment” by Ken Trout; “Reflexo” by Janos Graber; “Ventura” by Mirtes Ho; “Sao Paulo” by J Felipe; “Africa Tanzania Ngorongoro Crater” by Stephen McClung; “Forest Crystal Ball” by Chuck Rogers; “Rainforest” by Dominik Hofer
