Os Investimentos no Brasil nos Anos 90: Cenários Setorial e Regional

Investment in Brazil in the 1990s: Sectorial and Regional Views
DENISE ANDRADE RODRIGUES*
ABSTRACT
Changes taking place in Brazil's economy are well illustrated by the increase in the levels
of foreign direct investment (FDI), BNDES disbursements and plans for investments.
There is no precedent in Brazil’s recent history for such large volume of funds injected
into the economy as FDI and BNDES disbursements in the 1990s. For the 1996-99
period, investors have demonstrated a preference for investments in the consumer goods
sectors, followed by petrochemicals, chemicals, steel, and paper and pulp, creating a
base for a sustaining economic growth in the future. Intended investments also show a
clear trend of the geographical deconcentration of production away from São Paulo state,
especially in the direction of six other states: Paraná, Rio de Janeiro, Minas Gerais,
Bahia, Ceará and Rio Grande do Sul.
*
Head of the Southern Representative Office of the BNDES. The author would like to thank Lídia Goldenstein and
Walter Rodrigues for their comments, two anonymous coworkers for their suggestions, and Claudia Alledo, Gustavo
Rosa, Iraci Gruba, Luciane Melo and Maria do Carmo Rego for their technical support.
-2-
1.
Introduction
The 1990s drew to a close leaving the clear impression that the changes occurred in
Brazilian economy have been so drastic that the previous period now appears as if in the
very distant past. On one hand, the many years of protection of domestic industry
allowed for a huge expansion in the manufacturing industry, which grew from 19% of
GDP in 1955 to about 30% of GDP in 1990. This policy, however, impeded the
competitiveness of entire industries and promoted the inefficient allocation of inputs along
the production chain.
When it began to open its economy to foreign trade in the late 1980s, Brazil’s industry
was in general lagging behind its international competitors. Infrastructure was virtually in
ruins due to the lack of public-sector investment, which was consumed in managing debt
and inflation. Retailing and services sectors, also under protection, maintained its
traditional secondary role to industry. And all indications showed that modern agriculture,
in its early stages, was not yet ready to survive in a moderate size market.
The changes that occurred in this period were largely a response to the increasing trends
worldwide of privatization of public services, globalization of markets, and the diffusion of
new information and content technologies. Most of all, however, these changes
represented a response to the end of the inflationary spiral and a reduction of
uncertainties, including uncertainties as to the strength of institutions. Brazilian
companies seek to adapt to the new scenario of tough competition while the country
sought increasing international projection so as to attract a higher volume of foreign
direct investment.
The period of transition was very arduous and there are still no clear signs that the
process is finished. Many Brazilian companies succumbed to the competition. The
international merger and acquisition process advanced in important sectors of Brazilian
economy, mainly those sectors directly connected to the consumer market, such as food
and beverages, supermarkets and electronics. The process went so far as to cause
many analysts to signal the de-industrialization and denationalization of Brazilian
economy. In addition, several profound financial crises occurred on a global scale that
-3-
negatively affected the economies of developing countries, such as the Mexican crisis of
1994, the Asian crisis of late 1997, the Russian crisis in August 1998, soon to be followed
by Brazil’s crisis.
However, within this problem-ridden international scenario, Brazil ended 1999 boasting a
stronger internal market and a certain degree of independence from international crises,
mainly due to Brazilian companies’ relatively low level of external debt. Even the fragility
of the Argentinean market, which increased in late 1999, did not cast new doubts on the
ability of Brazilian economy to overcome another crisis.
Moreover, the necessary adjustment to the exchange rate in January 1999 did not cause
a return to inflation and the reindexation of prices did not take place, mainly because
interest rates remained at extremely high levels. In fact, the year emerged as an
adjustment period for the new exchange rate regime, with the last two months of the year
and early 2000 showing higher growth in production, although still incipient.
This paper seeks to analyze some of the significant changes that have taken place in the
Brazilian economy from the viewpoint of the investments made in the period and the
indications provided by investment plans for the short and medium term. Due to the
limited availability of statistics on investment in Brazil, the paper is based on a select
group of variables, even though this provides only a partial view of the investments
actually made.
-4-
2.
The Resumption of Investments
Major changes took place in the level of investments in two important sources of
financing: inflows of foreign direct investment (FDI) and Brazilian Development Bank
(BNDES) disbursements. Direct investments increased significantly beginning in 1996
(see Table 1). In 1995, the total stock of FDI in Brazil was US$ 115.5 billion, with 65%
going to industry, 31% to services and 4% to agriculture.
TABLE 1
Foreign Direct Investment: Breakdown by Sector – 1995-99
STOCK
NET INFLOWS
(1995)
1996
1997
1998
1999
1996-99
(Cumulative)
Agroindustry and Mining
4
1
3
1
1
2
65
23
13
12
28
19
Automotive
7
4
1
5
8
5
Chemicals
13
3
2
2
5
3
Food and Beverages
7
2
2
1
4
3
Electronic and Communication Materials
2
1
1
1
2
1
Non-Metallic Minerals
3
3
1
0
1
1
Computers and Office Equipment
1
0
0
0
2
1
Other
32
10
6
3
5,5
5
Services
31
76
84
88
71
79
Outsourcing
12
26
35
27
12
23
Telecommunications
1
8
5
11
27
16
Electricity, Gas and Water
1
21
23
9
10
14
Financial Intermediation
5
5
10
25
6
13
Wholesale and Intermediaries
4
3
5
5
5
5
Retailing and Repair
2
5
1
5
4
4
Other
6
8
5
6
7
4
100
100
100
100
100
100
115,516.4
7,665.4
15,311.1
23,270.7
28,479.6
74,726.9
Industry
Total (%)
Total (US$ Millions)
Source: Foreign Capital Department (Firce) - Central Bank.
Until 1995, sectors that especially attracted direct investment to industry were chemicals,
automotive, food and beverages, and machinery and equipment, in this order. In
-5-
services, the main destinations for direct investment were outsourcing1 and wholesaling
activities. FDI inflows’ allocation begins to shift in 1996. In the 1996-99 period, FDI
movements already reflect a higher percentage of flows directed to the services sector.
First, industry did not attract investment in the same proportion each year, receiving
22.7% of foreign direct investment in 1996, 13.3% in 1997, 11.9% in 1998 and 27.6% in
1999. Second, the services sector greatly increased its share of total FDI inflows, mainly
due to the privatization of public services. An average of 79% of total inflows was
directed to services, mainly in telecommunications, financial intermediation, outsourcing
and wholesaling. Lastly, beginning in 1997 FDI flows grew dramatically from US$ 7.7
billion in 1997 to US$ 23.2 billion in 1998 and US$ 28.5 billion in 1999. A substantial
portion of these amounts went to mergers and acquisitions, but another portion
represented pure investment plays. Data on the subject are incomplete, but even
investment to mergers and acquisitions, which initially does not generate new
investment, generates growth indirectly and with some lag time in production or other
activities.
FDI for the acquisition of state-owned companies was estimated at US$ 2.6 billion in
1996 and US$ 5.2 billion in 1997 [Siffert Filho (1999), Laplane and Sarti (1999)]. This
accounts for 28% of total FDI in the two-year period. FDI for mergers and acquisitions in
general, including private companies, was responsible for 30% and 32.5% of the total in
1995 and 1996, respectively.
BNDES disbursements have grown every year since 1994 except for in 1999 (see Chart
1), when FDI increased to industry, but not to other sectors (in constant dollars). The
BNDES has changed the level of its operations, becoming one of the largest
development banks worldwide. Since the BNDES was founded in 1952, the most
significant years for disbursements were 1978 and 1979 (R$ 13.8 billion and R$ 13.6
billion), which were vastly surpassed by 1997, 1998, 1999 (R$ 22.1 billion, R$ 23.7
billion, and R$ 20 billion, in constant 1999 reais).
1
Investments made by large international groups through their Brazilian holding companies are included in this item.
-6-
BNDES Disbursements
600
500
400
300
200
100
0
1990
1991
1992
1993
1994
US$
1995
1996
1997
1998
1999
Constant US$
Table 2 shows a breakdown of BNDES disbursements by sector. The greater part of
disbursements between 1990 and 1995 was directed to the manufacturing industry; after
1996, the majority of disbursements went to the services industry. Both disbursements
and FDI to energy and telecommunications grew substantially. Among the industrial
sectors that receive BNDES support, disbursements in the first phase (from 1990 to
1993) went principally to the pulp and paper, basic metals and oil refining industries.
Disbursements to agriculture and foods and beverages remained at high levels for the
entire decade. In the second phase (after 1994) the changes that took place were much
more profound.
TABLE 2
BNDES System Disbursements, by Industry Sectors and Subsectorsa – 1990-99
(US$ Million)
1990
1991
SECTOR
AMOUNT
AMOUNT
Agroindustry
Mining, Oil, Forestry
Manufacturing
Food and Beverages
Tobacco
Textiles
1992
%
%
473,251 15
4
228,431
7
49,040
2
27,751
1
2,371,645 73 2,059,238 67
221,446
7 223,361
7
0
1994
199
5
1996
199
7
1998
199
9
AMOUNT
%
129,750
0
199
3
54,322
2
1,564,282 49
296,032
9
AMOUNT
% AMOUNT
595,413 18
50,907
2
1,538,341 48
279,020
9
%
1,094,285 20
51,319
1
2,240,339 41
522,575
9
AMOUNT
%
799,636 10
77,404
1
4,327,159 56
1,050,174 14
AMOUNT
%
726,306
8
146,508
2
AMOUNT
%
1,285,394
8
703,350
4
AMOUNT
%
1,158,332
7
235,408
1
AMOUNT
%
714,896
7
143,447
1
4,214,937 44
856,271
9
5,564,262 34
1,243,224
8
6,264,335 38
1,008,569
6
4,472,363 45
818,868
8
40,496
1
476
0
5,618
0
3
0
37,306
0
1,189
0
2,381
0
4,347
0
1,567
0
109,652
3
92,429
3
95,712
3
101,751
3
152,144
3
316,129
4
136,881
1
297,433
2
324,991
2
202,856
2
Clothing and Accessories
10,513
0
11,023
0
8,612
0
7,249
0
9,349
0
23,570
0
15,977
0
25,490
0
42,771
0
61,992
1
Leather and Leather Goods
16,818
1
17,910
1
7,133
0
10,431
0
28,227
1
57,543
1
129,905
1
105,880
1
50,170
0
25,167
0
Wood Products
38,242
1
16,458
1
15,328
0
28,546
1
84,001
2
66,568
1
76,716
1
138,267
1
103,136
1
57,289
1
378,860 12
298,657
9
196,869
4
369,357
5
508,676
5
495,554
3
347,162
2
163,064
2
Pulp, Paper And Derived
Products
Publishing, Printing and
Reproduction
Refining of Oil, Coke and
Alcohol
Chemicals
788,317 24
11,927
0
236,444
621,259 20
11,391
0
18,225
1
14,717
0
24,445
0
35,709
0
36,267
0
33,864
0
83,661
1
18,958
0
7
311,861 10
79,025
2
42,103
1
56,189
1
209,660
3
165,646
2
91,391
1
235,368
1
65,709
1
120,025
4
125,671
4
98,419
3
69,365
2
85,546
2
248,129
3
357,724
4
269,714
2
263,624
2
210,356
2
Rubber and Plastic Articles
88,728
3
79,248
3
56,828
2
71,277
2
150,869
3
233,620
3
170,397
2
249,899
2
232,406
1
106,863
1
Non-Metallic Mining
Products
Basic Metals
60,737
2
36,988
1
54,606
2
99,817
3
105,518
2
243,420
3
233,877
2
269,411
2
152,899
1
56,202
1
294,606
9
166,020
5
158,620
5
189,215
6
206,809
4
337,702
4
541,832
6
879,953
5
603,211
4
511,593
5
Metal Products
51,611
2
35,492
1
40,492
1
54,198
2
81,166
1
137,771
2
107,754
1
116,187
1
143,358
1
113,635
1
Machinery and Equipment
73,547
2
66,182
2
83,699
3
124,055
4
216,118
4
389,400
5
264,159
3
371,737
2
652,173
4
269,610
3
Office and Computer
Equipment
Electrical Machinery,
Appliances and Materials
Electronic and
Communication Material
Medical, Precision and
Industrial Automation
Equipment
25,589
1
16,026
1
20,771
1
2,984
0
6,594
0
11,462
0
11,354
0
4,404
0
2,020
0
3,333
0
11,378
0
10,452
0
15,574
0
17,633
1
53,555
1
89,996
1
148,303
2
101,418
1
130,103
1
74,288
1
25,265
1
10,903
0
17,809
1
25,572
1
25,641
0
39,045
1
56,631
1
80,051
0
91,492
1
89,430
1
4,094
0
2,170
0
2,097
0
1,124
0
6,974
0
12,452
0
16,554
0
3,970
0
16,868
0
701
0
-8Automotive Vehicles
Other Transport Equipment
Furniture and Other
Industries
Recycling
42,650
1
34,686
1
28,915
1
30,991
1
129,411
2
245,257
3
248,553
3
173,400
1
675,932
4
693,272
7
120,269
4
92,675
3
69,564
2
52,012
2
65,975
1
120,267
2
80,896
1
526,289
3
1,027,454
6
903,463
9
19,313
1
11,279
0
8,790
0
11,588
0
28,518
1
44,482
1
42,029
0
77,523
0
71,325
0
23,426
0
475
0
25,258
1
8,693
0
417
0
3,844
0
8,139
0
7,347
0
6,824
0
1,294
0
718
0
Retailing and services
687,280 21
757,405 25
Electricity, Gas and Hot
Water
Water Catchment, Treatment
and Distribution
Construction
114,658
4
107,263
3
216,393
7
245,870
8
340,446
6
678,779
9
0
0
1,343
0
0
0
0
0
2,469
0
2,119
0
111,545
1
12,805
0
29,255
0
17,656
0
40,884
1
64,627
2
160,201
5
111,934
3
107,887
2
108,716
1
238,362
2
237,995
1
514,761
3
247,177
3
17,725
1
32,479
1
33,110
1
38,618
1
118,532
2
202,184
3
368,035
4
706,216
4
893,475
5
506,898
5
33,908
81,301
1
122,840
75,484
0
42,527
0
2,042,195 12
509,105
5
Retailing and Repair
Lodging and Food
20,340
1
12,951
0
Ground Transportation
179,710
6
182,288
6
Water Transportation
222,214
7
313,760 10
9,174
0
4,196
Transport-Related Activities
28,575
1
Postal Services and
Telecommunications
Financial Intermediation
26,099
1
3,170
Real Estate and Outsourcing
Public Administration and
Social Security
Education
1,084,306 34
1,039,181 32
2,125,198 39
2,473,939 32
4,518,532 47
8,908,849 54
8,691,352 53
4,551,159 46
1,421,599 15
5,281,373 32
3,467,855 21
1,069,265 11
1
43,636
1
2
119,017
1
123,510
1
364,684 11
279,780
9
703,634 13
790,892 10
827,787
9
1,197,065
7
217,505
7
250,531
8
275,076
5
176,309
2
195,810
2
144,892
1
126,838
1
80,840
1
0
9,280
0
656
0
9,290
0
127,501
2
2,425
0
4,600
0
63,224
0
171,924
2
21,948
1
13,880
0
13,511
0
38,595
1
70,884
1
56,885
1
250,648
2
127,805
1
97,871
1
66
0
8,538
0
8,190
0
394,947
7
37,549
0
166,573
2
370,964
2
767,558
5
0
461
0
515
0
13,953
0
3,132
0
23,799
0
714,165
7
242,426
1
166,543
1
8,914
0
3,299
0
7,230
0
9,416
0
7,681
0
23,599
0
30,048
0
27,097
0
72,934
0
25,346
0
3,490
0
1,086
0
3,097
0
8,319
0
6,910
0
15,749
0
82,602
1
47,401
0
19,053
0
18,478
0
2,064
0
2,620
0
3,013
0
2,044
0
3,130
0
18,533
0
43,870
0
63,808
0
102,896
1
93,429
1
Health and Social Services
3,585
0
4,916
0
7,990
0
8,106
0
17,089
0
34,274
0
47,731
0
59,792
0
120,420
1
86,052
1
Other Social Services for
Groups and Individuals
International Organizations
6,677
0
4,102
0
4,962
0
4,618
0
15,080
0
40,004
1
92,079
1
138,053
1
100,847
1
70,735
1
0
0
0
0
0
0
0
0
0
0
207
0
0
0
207
0
207
0
0
0
10,306
0
4,551
0
2,299
0
208
0
0
0
0
0
0
0
0
0
0
0
0
0
Air Transportation
Other
Total
3,248,021 100 3,077,377 100
3,178,460 100
3,224,049 100
5,511,141 100
7,678,137 100
9,606,283 100 16,461,854 100 16,349,426 100
Source: BNDES.
a
Based on the Classificação Nacional de Atividades Econômicas (CNAE - National Classification of Economic Sectors).
1,417,821 14
96,032
1
9,881,866 100
In addition to the shifts in the levels of disbursements, the resumption of investments in
the infrastructure sector became essential for the sustainability of privatization programs
of railroads, telecommunications and energy sectors, and of the private highway
concessions. From 1996 to 1999 the volume of disbursements to the services sector
surpassed those made to industry, with disbursements among the industrial sectors
remaining uniform in the 1994-99 period. These factors may indicate a disassociation
between long-term conditions and the short-term macroeconomic scenario created by the
newfound price stability.
Restructuring and levelling with external competition patterns became a critical need in
almost all industries, which were able to make plans in an environment of greater
economic stability. One should note that the nature of investments in the period was not
cyclical. Instead, they were part of a broad movement throughout the entire production
chain, largely consisted of upgrading technology and equipment in production processes
that were made possible by the introduction of electronics and information technology.2
3.
Sector and Regional Development Views
Sector View
Investment plans announced in the leading Brazilian newspapers3 in the 1996-99 period
signaled accurately the investments made over the next few years within a five-year time
horizon. This has proven to be a reliable indicator of the major investments to be made in
the Brazilian economy.
2
Effects from the modernization of production lines and processes through the use of information technology are not
captured by Gross Fixed Capital Formation as published by the IBGE (Brazilian Geography and Statistics Institute),
which is basically made up of machinery and equipment and construction.
3
Investments in excess of the US$ 5 million announced in routine articles in the Gazeta Mercantil, O Estado de
S.Paulo, Folha de S.Paulo, O Globo and Jornal do Brasil newspapers. These investments mainly represent
investments made by large companies. Some sectors in which small and medium-sized companies are predominant
are practically excluded, such as agroindustry, retailing and services, and others.
- 10 -
Unfortunately, no data are available for prior to 1996. However, both the level of BNDES
disbursements and similar studies show that, since the beginning of the 1990s,
significant changes have been occurring in the level of investment in Brazil.4
The transformation through which the Brazilian economy passed is illustrated in Table 3.
In infrastructure, intended investments in telecommunications sector expanded sharply,
growing 251% from 1996 to 1999. This confirms the Ministry of Communication’s defense
of the privatization process in 1995, based on the economic stranglehold on the sector
and the government’s low capacity for investment. The long waiting lists to buy both fixed
and mobile telephone lines reflect the level of pent-up demand in the sector. At one point,
more than 1.2 million people in São Paulo were waiting for a fixed line from Telesp.
The program to privatize telephone services included the new operators’ commitments to
invest in the expansion of telephone lines over the next few years. However, the plans to
invest US$ 34.6 billion in the sector, as published in the press, are a clear signal that
these investments will be made earlier than expected, due to tighter competition with the
aim of gaining larger market share.
According to the Urban Infrastructure Division of the BNDES, in November 1999, Tele
Centro-Sul had already met all of the targets established by the Brazilian
Telecommunications Agency (Anatel) for the year. Telemar was only 120,000 lines short
of meeting its target. From July to November 1999, the number of fixed telephone lines
increased by 34% nationwide.
4
According to the series of investment announcements of the Simonsen & Associados consulting, the inflection curve
took place in 1994.
- 11 -
TABLE 3
Intended Investments in 1996, 1997 and 1998, by Sector
INVESTMENT ANNOUNCEMENTS
SECTOR
1996
US$
Million
Telecommunications
%
1997
US$
Million
%
1998
US$
Million
%
1999
US$
Million
Growth Rate
(%)
1997-96
1998/-97
1999-98
%
9,851
9.2
8,531
7.0
18,492
17.2
34,615
29.7
-13.4
116.8
87.2
Infrastructure
27,097
25.2
46,667
38.1
27,547
26.0
29,497
25.3
72.2
-41.0
7.1
Mechanical/Metallurgy
15,539
14.5
12,234
10.0
12,653
11.2
13,952
12.0
-21.2
3.4
10.3
Petrochemicals
8,980
8.4
11,186
9.1
11,064
10.4
9,831
8.4
24.6
0.0
-11.1
Industry: various
2,788
2.6
3,748
3.1
3,838
3.6
4,048
3.5
34.4
2.4
5.5
Food, Beverages &
9,559
8.9
6,754
5.5
5,184
4.8
3,851
3.3
-29.3
-23.2
-25.7
4,063
3.8
4,033
3.3
5,778
5.5
3,510
3.0
-0.7
43.3
-39.2
Steel
5,897
5.5
5,928
4.9
4,500
4.2
3,261
2.8
0.5
-24.1
--27.5
Chemicals, Plastics,
3,791
3.5
4,157
3.4
3,611
3.4
3,038
2.6
20.5
-13.1
-15.9
Mining
2,721
2.5
1,776
1.4
1,951
1.8
2,337
2.0
-34.7
9.9
19.8
Pulp and Paper
4,067
3.8
4,770
3.9
2,240
2.1
2,304
2.0
17.3
-47.0
2.9
Financial
2,860
2.7
2,471
2.0
610
0.6
1,724
1.5
-13.6
-75.3
182.6
Electrical/Electronics
3,741
3.5
2,218
1.8
1,513
1.4
1,609
1.4
-40.7
-31.8
6.3
Retailing
1,911
1.8
3,574
2.9
1,755
1.6
1,499
1.3
87.0
-50.9
-14.6
Services
2,917
2.7
1,946
1.6
1,954
1.8
944
0.8
-33.3
0.0
-51.7
Transportation
696
0.6
1,235
1.0
4,391
4.1
299
0.3
77.4
255.5
-93.2
Textiles & Apparel
654
0.6
921
0.8
118
0.1
110
0.1
40.8
-87.2
-6.8
Agroindustry
117
0.1
55
0.0
90
0.1
101
0.1
-53.0
63.6
12.2
Footwear
146
0.1
155
0.1
88
0.1
25
0.0
6.2
-43.2
-71.6
107,395
100.0
122,359
100.0
107,377 100.0
116,555
100.0
13.9
-12.2
8.5
Tobacco
Tourism, Shopping
Malls & Leisure
Fertilizers &
Pharmaceuticals
Total
Sources: Gazeta Mercantil, O Estado de S. Paulo, Folha de S. Paulo, O Globo, Jornal do Brasil.
Developed by author.
The process of technological convergence currently impacting telecommunications
technology on a global scale is also likely to be responsible for a portion of these
intended investments. The main characteristic of this convergence is the disassociation
of information and communication services from their original infrastructure support.
Telephone services can now make use of coaxial cable and data services and the
- 12 -
Internet can be accessed over telephone lines. Further, radio stations can be heard over
the Internet, and cable TV can be transmitted via satellite directly to a home.
The vast importance of technological convergence in communications, information and
content can not yet be fully appreciated in Brazil, since the greater part of investments
have been made in meeting the pent-up demand due to years of low levels of
investment. However, developing countries can take advantage of the direct access to
technological innovations, thus avoiding the utilization of currently widespread
technologies that will soon be outdated.
The forces that led to the globalization, and consequently the expansion, of markets have
the primary need of spreading technology in ever-larger scales. This leads to the
increasingly faster amortization of investment spending, since new technologies are
constantly
being
developed.
So,
developing
countries
may
adopt
cheaper
communications systems and connect to the global economy, while also taking
advantage of technological opportunities to realize huge advances, sometimes
eliminating entire phases.5
The sanctioning in Brazil of the General Telecommunications Act (Act 9472 of July 1997)
established a new organization of the sector with the privatization of telecom services.
The act also made the government state the sole regulator for the sector, creating the
Brazilian regulatory agency for telecommunications, Anatel. This landmark legislation in
Brazil provided for funds to promote the universalization, the technological development
and the protection of domestic industry.6 The priority given to this segment and its
interface with other sectors are subject of strategic and protective policies around the
world. There is a consensus that these policies cannot be decided based on investment
plans that have already been announced by companies or the market.
Intended investments in the infrastructure sector (including telecom) were the most
substantial in the period, varying from 34% of total investments announced in 1996 to
5
The selection by the government of which communications technology to implement is strategic to future economic
development. Interaction with education and research and development is a priority of the government in almost all
developing countries.
- 13 -
55% in 1997. However, the pre-privatization phase of the electricity generation sector has
taken longer than expected, paralyzing the activities in this segment, as shown by the fall
in intended investments in 1998 and 1999 from 1997 levels. The same occurred with the
telecommunications sector in 1996 and 1997. Substantial investments were announced
and made in the state-owned companies to make them more financially sound and, thus,
more attractive for privatization. This was followed by a period of reduced investments,
with investments resuming soon after privatization.
The favorable environment for the privatization of public services is somewhat eroded at
present because of the problems encountered by the operators of telecommunications
companies and the highway concessions. Several problems in providing telephone
services occurred, principally in the operators Telefônica and Telemar, which are
responsible for the states of São Paulo and Rio de Janeiro, and for the Amazon and
Northeast regions. Some of the problems were: telephone numbers exchanged without
previous notification of client, numbers that did not correspond to pre-recorded
messages, calls completed to incorrect locations, dead lines, delays in effecting repair
work and so on. Although it is natural to encounter obstacles during the startup of
operations, companies seemed to be ill-prepared to provide customer service.
Similarly, the highway concession operators encountered problems in the collection of
tolls. The level of the toll fees charged was rejected on an almost nationwide basis, in
large part promoted by cargo transport companies. Truckers brought important highways
to a standstill, affecting the distribution of goods. This occurred on the Presidente Dutra
Highway, which connects Rio de Janeiro to São Paulo, and on highways throughout São
Paulo state. The concept of charging a toll for highway use is a somewhat recent event in
Brazil. Until a short time ago, both federal and state governments were responsible for
the construction and maintenance of highways. This became one of the most important
factors in the high “Brazil Cost”, due to the government’s inability to incur the cost of
adequate maintenance. The situation also led to a higher fiscal deficit, especially in the
pension system caused by the astounding number of car accidents on Brazilian
highways. The use toll was seen as the best way to allocate the costs to those that
6
Congress is currently debating the creation of the Universalization of Telecommunications Services Fund (Fust) and
Telecommunications Technology Development Fund (FDTT).
- 14 -
should most pay for this service, which in this case are the heaviest users, who are
responsible for a greater share of the deterioration of roadways. The use of tolls
obviously reflects on the price of transported goods, and the reaction of the new payers
was immediate and to some degree expected.
Some highway concession contracts stipulated rises in tolls linked to price indexes,
possibly a legacy of the period of a high level of inflationary uncertainty. However, these
clauses were not needed, since the Law of Concessions7 provided for increases in tolls,
within the specified review period, when economic imbalances came to light. The
relationship between a price index and a concession contract to operate a public service
is not exactly clear to many, causing a feeling of fragility and injustice among the
economic agents involved (most of which do not have their services indexed).
The lack of confidence in privatized services arose a fundamental distrust of the ability of
regulatory agencies to effectively carry out their responsibilities to the sector, which is
also leading to reevaluate the privatization program for the energy sector.
According to the Ten-Year Development Plan for 1999-2008 for the electricity sector,
energy generation will need to grow by 71% in the period to absorb the average annual
growth of 4.7% in energy consumption over the next ten years. The system is already
operating close to maximum capacity [BNDES (1999d)].
The Mining and Energy Ministry, seeking to prevent energy limitations from becoming an
obstacle to economic development, has promoted the expansion of capacity through
measures that give security to investors. These include purchase guarantees by
Eletrobrás of energy generated by new projects, the passing on of higher energy
generation costs, a reduction in the average price of natural gas, the regulation of the
purchase of energy from independent energy producers, easy access to credit and so
forth.
Investment announcements in the energy sector have not yet reflected these incentives,
falling from US$ 23.5 billion in 1997 to US$ 19.5 billion in 1998, and recovering slightly to
- 15 -
US$ 22.4 billion in 1999. In 1999, the most important investments announced were for
thermal electric plants throughout Brazil by the companies British Gas, Copel, Enron,
Gaspetro, General Electric, Iberdrola, Marubeni, PSEG, and Rolls Royce.
At the end of the period analyzed, lackluster investment announcements were made in
transportation and logistics. Planned investments in the two sectors fell from US$ 1.8
billion in 1997 to US$ 386 million in 1999. A significant increase in the use of railroads for
cargo transportation was expected following the privatization of the sector, which did not
occur because the concession holders encountered more problems than initially
expected with financial deterioration and management and commercial issues. Even
though the companies have not met all of the targets established in the privatization
contracts, a slight increase in use has already occurred when compared to the former
federal network Rede Ferroviária Federal S.A. [BNDES (1999c)].
The privatization of the port system did not advance significantly in the period 1996-99,
although some of the administrative and institutional obstacles have been removed. The
improvements have created a favorable environment at least for private investment in
port terminals. In 1997, US$ 649 million in investments to modernize and expand port
terminals were announced. This figure rose slightly in 1999 to US$ 790 million.
Announcements of investments in industry have been falling as a percentage of the total
of investments announced, from 53.9% in 1996 to 44% in 1997, 41.9% in 1998 and 38%
in 1999. In 1996, producers of consumer goods, especially in mechanical industry,
household appliances, foods and beverages, stood out in term of investment
announcements, mainly due to the improvement in the level of consumption provided by
the stabilization of the economy. In 1997, announcements of investment were especially
concentrated in the petrochemicals, chemicals, steel, and pulp and paper industries,
principally to expand capacity.
As a result of investment announcements of previous years, 1998 saw a high number of
installations of new plants. The larger of these were the Renault automobile plant in
Greater Curitiba (Paraná State), the vehicle body plant of the Fiat-Stola joint venture in
7
Act 8987 of February 13, 1995, complemented by Act 9074 of July 7, 1995.
- 16 -
Greater Belo Horizonte (Minas Gerais State), the Volkswagen motor unit in São Carlos
(São Paulo State), the Glaxo Wellcome pharmaceuticals plants in Greater Rio de Janeiro
(Rio de Janeiro State), the Lucent switching devices plant in Campinas (São Paulo
State), and the Vonpar canned soft drinks unit in Greater Porto Alegre (Rio Grande do
Sul).
However, 1998 was an extremely troublesome year in terms of expectations for
economic growth, which continued into 1999. The period later became characterized as
an adjustment to the international financial crisis and the change in the exchange rate
regime. The change was from a fixed trading band to the free float of the currency, until a
level deemed acceptable by the market was found. This also helped to promote growth in
exports. A inflation targets system was implemented to avoid the return to inflation by
influencing the expectations of economic agents. The system proved to be very
successful: the inflation target established for 1999 was met.
In 1998 and 1999, intended investments in the consumer goods industry maintained its
downward trend in its share of total investment announcements. Intended investments in
foods, beverages and tobacco fell from 16.5% of the total to 8.7% in 1999, as shown in
Table 4. Losses in the share of total intended investments also occurred in the
electronics, textile, apparel and footwear industries. However, intended investments to
the mechanical sector increased from US$ 12.2 billion in 1997 to US$ 13.9 billion in
1999. The sector played a key role, with companies continuing with their project activities
in the most uncertain months of 1998, and creating long-term strategies independent of
the macroeconomic situation.
- 17 -
TABLE 4
Investment Plans Announced in 1996, 1997 and 1998 in the Industrial Sector
(in %)
INDUSTRY
Mechanical
Petrochemicals
Food, Beverages & Tobacco
Steel
Chemicals (Plastics, Fertilizers and
Pharmaceuticals, Hygiene and
Cleaning Products)
Mining
Pulp & Paper
Electrical/Electronics
Steel
Textiles & Apparel
Footwear
Various
Total
1996
21.0
15.6
16.5
10.2
5.2
1997
20.1
20.7
12.6
11.0
7.7
1998
23.7
23.7
11.1
9.6
7.7
1999
29.0
22.2
8.7
7.3
6.8
4.6
7.1
6.5
5.9
1.1
0.2
4.8
100.0
3.3
8.9
4.1
2.5
1.7
0.3
7.0
100.0
4.2
4.8
3.2
3.4
0.2
0.2
8.2
100.0
5.3
5.2
3.6
2.5
0.2
0.1
9.1
100.0
Sources: Gazeta Mercantil, O Estado de S. Paulo, Folha de S. Paulo, O Globo, Jornal do Brasil.
Developed by author.
In 1998 announcements were made of investments in projects to build new assembly
plants and to expand the production chain through investments in new engine units (such
as Renault and the Chrysler/BMW partnership) and in the auto parts and electronic
components units near the new assembly plants of Mercedes Benz, Fiat, Renault,
Peugeot, Ford and General Motors. On the heels of these investments came the
announcements to invest in new capital goods production units, such as the Case do
Brasil plant in Sorocaba (São Paulo state) to produce agricultural machinery, the Tyssen
elevator plant in Juiz de Fora (Minas Gerais), and WEG engine plant in Jaraguá do Sul
(Santa Catarina).
The effect of higher investments in the mechanical and capital goods sector on
equipment imports has been cited as extremely damaging to the domestic machinery and
equipment industry, due to the high degree of internationalization of the equipment
imported. Nevertheless, a detailed study by Moreira (1999) not only singles out the
penetration coefficients8 of imports in the durable goods and capital goods sectors as the
8
The author states both imports in relation to apparent consumption and imports in relation to production.
- 18 -
highest among the entire industrial sector, but also identifies the same sectors as those
with the highest export coefficients. The study also calls attention to the fact that in 1998
more capital goods were imported into Brazil than were produced in the country.
In addition, in the principal OECD (Organization for Economic Cooperation and
Development) countries, except for Japan, import penetration coefficients in the
consumer durable goods and capital goods sectors (or in sectors with technologyintensive goods) are higher than the average for industry. Moreira concludes that the
indicators of the sector disappearance are fragile, but that there are still gains in
efficiency and scale to be made, even though the sector has led in the reduction in markups (47% from 1990 to 1998).
The electronics sector, especially the components segment, merits special attention.
Changes in information and content technologies have pressured, and continue to
strongly pressure, imports, which have grown 287% in the 1992-99 period. Broken down,
growth in the period was 162% in computers and computer equipment, 168% in
consumer electronics, 275% in components and 559% in telecommunications [Melo
(1999)]. The lack of a significant components industry in Brazil prevents the final product
from becoming more competitive. In addition, these products cannot take advantage of
the opportunities that other countries have of increasing, through the consumer
electronics sector, the viability of local production of generic components for the entire
industry. As such, Brazil has not fully tapped its potential for growth in the most important
sector of the “new industrial revolution”. The investments announced for the sector have
fallen every year since 1996, strongly impacted by the excess capacity of some
segments of the consumer electronics sector.
The sector’s inclusion in the Competitiveness Forum, an initiative of the Development,
Industry and Foreign Trade Ministry, shows the level of the federal government’s
concern. Foremost on its list are: finding solutions for the intricate situation in the sector
due to dissemination, throughout the entire economy, of the high costs of maintaining the
- 19 -
Manaus Duty Free Zone, and consolidating rules to attract new plants and develop
incentives, in accordance with the stage of the Basic Production Process.9
Investments to the intermediate goods sector are expected [Rodrigues (1997)] to resume
in the petrochemical, steel, pulp and paper and chemicals industries, based on
investments announced in 1996 and 1997. The vast majority of these investments are
destined to expand capacity, a constant factor since 1986 [Chami (1998)].
The petrochemical sector expanded its share of intended total investment to industry
from 15.6% in 1996 to 22.2% in 1999. The rise was mainly due to Petrobras’ investment
program, which also impacted on investments to Rio de Janeiro State (to be discussed in
the next section). The investments were directed toward the expansion of the Duque de
Caxias Refinery in the Rio de Janeiro metropolitan area and toward oil exploration in the
Campos Basin in Rio de Janeiro state.
The proximity to the end of the monopoly on oil exploration also motivated
announcements to invest by other groups in 1998 and 1999. Amenada Hess, the Exxon
and Texaco consortium, Shell, YPF and Mobil announced investments in various basins
(Campos, Santos and Amazônia) and Thyssen announced the construction of a new
refinery in Pecém in Ceará State. Progress has been made on the plans for Rio
Polímeros, a gas-chemical complex in Rio de Janeiro State, in spite of the complexity of
assembling the engineering partnership and attracting financing.
The restructuring of the petrochemical industry, which has received continuous coverage
in the Brazilian media, is extremely complex. The difficulty lies in the mosaic of crossover
stockholdings in Brazilian basic chemical producers, which tends to obstruct decision
making at strategic level. This also leads to the sector’s financial fragility due to the
extremely fragmented market, resulting in small companies by international standards
with little integration. The main features of the sector, such as mono-production plants
and the lack of verticalization, impede growth and gains in efficiency, resulting in a lack of
competitiveness. The low scale of companies limits the capacity for R&D investments,
reduces sales, and limits the ability to attract financing. Times of idle capacity require a
9
Act 8248 of 1991, regulated by Decree 792 of April 2, 1993.
- 20 -
great effort of companies to adapt since they are mono-producers [Borges and Mesquita
(1999)].
Integration within the industrial chain would make possible efficiency gains through
partnerships and alliances [Montenegro, Monteiro Filha and Gomes (1999)] and would in
the long term serve to eliminate the price instability, which is a feature of the sector.
Partnerships, adjustments to production capacity, and levelling of financial conditions
would improve predictability of demand, thus reducing the effect of the price fluctuations
– and consequently the sector’s periodic crises. Above all, the opportunity could be taken
to integrate the sector and at the same time reduce the number of crossover
stockholding, as has been stated by the BNDES.
Investments announced for the chemicals sector were 16% lower in 1999 than in 1998,
although the sector maintained its significant share of total investment plans. Important
events in 1998 included the increase in vertical integration in the production chain (Basf,
Degussa, Dow Chemical, DuPont, Elekeiroz, Glaxon, Merial, Novartis, Prodome), the
increase in diversification of products (Akras, Fortilit, GPC, Procter&Gamble, Shell,
Votocel), and some construction of new units to capitalize on location advantages (Dyno
do Brasil at Araucária, Fairway Filamentos at Alfenas, Glaxo Wellcome in Rio de Janeiro,
Medobil in Porto Alegre, Monsanto at Camaçari, Perez Companc at Triunfo, Roche in Rio
de Janeiro, and White Martins in Imperatriz, Belém and Manaus). In 1999, major
investments were announced for the fertilizer sector, including the expansion of
Copebrás plants in Catalão and Cubatão and Ultrafértil’s sea port terminal in Santos.
The Brazilian steel industry has been undergoing a profound restructuring that began
with the privatization of the sector (from 1988 to 1993), but the sector still needs to deal
with tougher international competition resulting from the opening of the economy,
increased production scale and the need to reduce costs. Until privatization, companies
benefited from a protected market, and a price control system that absorbed high costs
and inefficiency. To increase competitiveness the sector cut cost with administrative and
financial restructuring and raised productivity and efficiency. Investments began to be
announced in 1996, follow the international rational of specializing production. The
majority of intended investments were directed to new production lines, technological
- 21 -
upgrade and environmental improvements. Investment contracted in 1998 and 1999 from
1997 levels. The construction of two new units was announced: Galvasud, a steel
galvanization plant in Porto Real (Rio de Janeiro state), and a new steel mill using minimill10 technology in Pecém (Ceará), both built by steelmaker CSN. However, similar to in
petrochemicals, the Brazilian steel industry has significant level of crossover
stockholdings which hinders the strategic positioning of companies.
Intended investments in the pulp and paper sector fell sharply in 1998 and 1999 in
comparison to 1997. In 1999 not one single installation project was announced and only
Aracruz announced sizable investments in expansion of plant. The lull was in large part
due to the Asian crisis of late 1997, which led in 1998 to a reduction in world
consumption of printing/writing, newsprint and packaging papers. However, the greatest
obstacle has been the sector’s reduced capacity for leverage, given its fragmented
production structure. The merger of companies in the pulp industry will make significant
gains possible, since industrial plants are located near one another and some even share
ports and make use of adjacent forests [Mattos and Valença (1999)].
The Brazilian paper production industry is made up of a large number of small companies
that are incapable of attracting financing for expansion. The trend in the international
market is of higher concentration and increases in scale. The level of imports has grown
due to higher internal consumption, especially of coated paper. Excess production of
plain paper is exported.
Equipment and scale of production among board producers is far behind that of the
competition. Meanwhile, Brazilian consumption of board products in the 1990s has
boasted annual average growth of 9%. Many companies have been unable to invest,
making them poor competitors for international markets. Newsprint and packaging paper
producers also have not taken advantage of opportunities in the past decade to make
investments, restructure and modernize. To the detriment of producers, local newsprint
producers are still hindered by legislation allowing duty-free imports, which acts as a
disincentive for the installation of new plants to supply the market.
10
This technology enables the blast furnace stage to be eliminated by the use of pre-reduced pellets (sponge iron).
- 22 -
Regional Scenario
As shown in Table 5, a breakdown by Brazilian state of intended investments points to
future growth in five states: São Paulo, Rio de Janeiro, Santa Catarina, Pará and Espírito
Santo.
São Paulo state continues to be a strong magnet for new investment. The principal areas
for such a performance from the state are: the São Paulo metropolitan area, with its hotel
chains, computer services, telemarketing and financial services; the coastal city of
Santos, with projects in port-related infrastructure logistics; and the cities of São José dos
Campos
and
Campinas,
with
their
modern
technology
industries,
including
mechanical/automotive, telecommunications and electronics industries.
TABLE 5
Intended Investments in 1996, 1997, 1998 and 1999, by State
Growth Rate (%)
INVESTMENTS ANNOUNCED (US$ Million)
STATE
1996
1997
1998
1999
1997-96
1998-97
1999-98
23,681
24,534
19,154
19,418
3.6
-21.9
1.4
Rio de Janeiro
7,407
10,650
12,915
10,319
43.8
21.3
-20.1
Minas Gerais
12,935
11,451
8,583
6,088
-11.5
-25.0
-29.1
Bahia
3,858
7,270
5,791
4,883
88.4
-20.3
-15.7
Paraná
5,119
13,116
4,092
4,751
164.0
-68.8
16.1
Pará, Rondônia,
3,099
219
214
3,506
-92.9
-2.2
1,538.3
Rio Grande do Sul
5,164
8,420
7,930
2,188
63.1
-5.8
-72.4
Ceará
1,915
2,382
3,702
2,067
24.4
55.4
-44.2
Espírito Santo
2,770
845
1,734
1,970
-69.5
105.2
13.6
Santa Catarina
4,104
768
662
869
-81.3
-13.8
31.3
Pernambuco
1,948
440
1,160
824
-77.4
163.6
-29.0
Alagoas,
1,510
569
903
792
-62.3
58.7
-12.3
1,061
1,037
1,791
698
-2.2
72.7
-61.0
1,231
915
1,961
624
-25.7
114.3
-68.2
2,125
424
446
61.1
-80.0
5.2
São Paulo
Roraima, Acre and
Tocantins
Maranhão, Paraíba,
Sergipe and Rio
Grande do Norte
Goiás and Brasília,
Federal District
Mato Grosso and
Mato Grosso do
Sul
Amazonas
1,319
- 23 Multi-State
24,109
27,969
22,464
44,529
16.1
-19.7
98.2
8,643
9,649
13,497
12,583
11.6
39.9
-7.0
50,957
60,207
52,262
40,025
18.1
-13.2
-17.1
107,390
122,359
107,377
116,555
13.9
-12.2
8.5
Projects
Undefined
Total (excluding
São Paulo)
Total
Sources: Gazeta Mercantil, O Estado de S. Paulo, Folha de S. Paulo, O Globo, Jornal do Brasil.
Developed by author.
Municipalities located along the Presidente Dutra Highway that connects Rio de Janeiro
and São Paulo states are extremely attractive in this current scenario, a feature of which
has been the economic recovery of Rio de Janeiro. In 1999, Greater São Paulo and
Santos, the municipalities of São José dos Campos, Taubaté, Guaratinguetá, Rezende
and Volta Redonda and Greater Rio de Janeiro were responsible for US$ 14.9 billion, or
12.8%, of investments announced for Brazil. Together these areas form the principal
development axis for Brazil’s Southeast.
However, these investments do not necessarily indicate renewed concentration centered
around São Paulo. Globalization has shown that there are advantages to gain from
locating production in smaller cities that have favorable conditions in terms of economic
infrastructure, social environment, supply of raw materials, proximity to consumer
markets, and lower wages. The advantages offered by state and local governments, such
as tax relief, free land and a friendly environment to outside investors, are another
positive factor.
Diseconomies resulting from agglomeration - a serious problem, especially in Greater
São Paulo - are in large part responsible for the relocation of industries to the state’s
interior, which local leaders of the ABC region have so often warned of. These
diseconomies also lead to higher unemployment and migrations to the informal labor
market. The trends of attracting technology and specialized services and displacing
physical production increase in severity the social exclusion and the disintegration of
prevailing institutions [Dupas (1999)]. These factors should be targeted by specific
government policies, in view of the rapid deterioration in the standard of living, especially
in the Rio de Janeiro and São Paulo metropolitan regions.
- 24 -
Just as the new investments were concentrated in the Rio de Janeiro-São Paulo axis,
physical production has undergone deconcentration. Industries relocated in the direction
of states neighboring São Paulo and other states that knew how to take advantage of
changes in the pattern of Brazilian development following the trade liberalization and the
new era of price stability. The most important of these states were Ceará and Bahia, but
Minas Gerais and Paraná also played a significant role.
The rise in investment plans in 1997 was the result of higher international competition,
fewer uncertainties on the horizon, and the creation of a more attractive environment for
investment. Intended investments in the year were focused on seven states: São Paulo,
Rio de Janeiro, Rio Grande do Sul, Paraná, Bahia, Ceará and Amazonas. However, Rio
de Janeiro has been the only state to maintain continuous growth in the level of intended
investments since 1997. In Minas Gerais and Rio Grande do Sul states, the crisis in
institutions resulting from the changes in each state’s administration in late 1998
conveyed instability to new investors and caused anxiety to the old ones.11 The
controversy over the establishment in Rio Grande do Sul of an auto-assembly plant by
Ford, became an example of the newly elected government’s fight against the
extravagant advantages granted to the company to the detriment of an extremely fragile
fiscal situation of the state’s finances. The previous state administration had promised
Ford to build a patio at the Rio Grande Port, build and deepen the canal at the Guaíba
Port, expand the highways from two lanes to four, build schools, daycare centers and
install telecom infrastructure. An environment hostile to investment set in and
commitments were broken off based on arguments that the automotive sector did not
create as many jobs as in the past and as such did not merit so many benefits.
The example is emblematic because it highlights the canceled agreements and a
breakdown in institutional rules.12 Regardless of the merit of the controversy, from that
point forward the state government had a difficult time in maintaining its attractiveness to
investors. Consequently, announcements of new investments tumbled from US$ 8.4
billion in 1997 to US$ 2.2 billion in 1999.
11
In 1999, both the Rio Grande do Sul State Industry Federation and the Minas Gerais State Industry Federation
were engaged in open conflict with the newly elected governors.
- 25 -
The Minas Gerais state government landed in a similar situation by declaring a
moratorium on the servicing of its international loans and starting a dispute with foreign
stockholders in Cemig (partially privatized by the government the previous year) over the
company’s strategic decisions. Early in the new administration’s term there was a brief
attempt to review the agreement with Mercedes Benz, which had installed in the city of
Juiz de Fora, but the government’s lawyers advised them to withdraw. The previous
governor had established, with complete transparency, rules to attract companies that
had been widely accepted by the community through approval of the measure by the
state legislative assembly. In 1999, substantial investments were announced, including
investments by Fiat to build two new assembly plants (one for commercial vehicles the
other for trucks) and by Stola to build an auto-parts plant - all to be located in Greater
Belo Horizonte. Among other important investments in the year, were the plans by
Camargo Corrêa to build a new cement factory in Ijaci and the investments announced
by Alcoa to install a forged wheel plant in Poços de Caldas.
Rio Grande do Sul and Minas Gerais were not the only states to suffer a reduction in
intended investments in 1999. Investments announced in Rio de Janeiro and Ceará
contracted by 20.1% and 44.2%, respectively, from 1998 levels. Intended investments
peaked in both states in 1998. Rio de Janeiro ranked second in both 1998 and 1999 in
terms of attractiveness to investors. The most important investments were made in the
following sectors: steel (Companhia Siderúrgica Nacional in Volta Redonda and
Galvasud in Porto Real); petrochemicals (Duque de Caxias Refinery and Rio Polímeros
in Duque de Caxias, Shell/Royal partnership for oil exploration in Campos Basin);
pharmaceutical (Knell, Servier and Smithkline Beechan in Rio de Janeiro); services and
telecom infrastructure; mechanical/automotive and auto parts (Michelin and Pirelli in
Greater Rio de Janeiro and Peugeot and Volkswagen in Porto Real and Resende,
respectively).
Rio de Janeiro is showing unmistakable signs of economic recovery, as highlighted in a
previous study [Rodrigues (1998a)]. The restructuring of the state government, with
12
In an interview granted to Veja magazine on March 22, 2000, David Landes commented on investing in China,
saying that the area was a high-risk region and that investors should invest where they have security: “investments
- 26 -
centralization of activities and efforts made by the Rio de Janeiro State Industry
Federation to build partnerships, helped to create a favorable environment for
investment. However, some industries that in the past had been important to the state did
not regain their momentum in terms of future investments. These included the shipping
industry, which has suffered a serious crisis in demand and obtaining financing, and the
financial sector, which in recent years has experienced the relocation of important head
offices to the city of São Paulo. Apparently the state is in a transition process moving
towards high-tech production and engineering industries. Examples are pharmaceutical
companies, Petrobras and its group of suppliers and telecom services (Atento, ATL,
Newbridge, Telefônica Celular, Telerj, Vésper, TV Globo and O Dia).
Growth over 1996 levels in the volume of investments announced in the states of Paraná
and Bahia in 1997, and in 1998 in Ceará and Goiás, illustrates the efforts of policies
aimed at economic development implemented by these state governments. These
include actions by sector associations, labor associations and other group organizations
integrated with action by the state’s industrial, trade and tourism, employment, economic
development and financial secretariats, and coordinated with research institutions and
other forums for discussion of development.
Paraná state made huge efforts in attracting companies in 1996 and 1997, but it was
unable to maintain investment in the following years. In 1997 large investments were
announced for the machine/automotive sector: BMW/Chrysler (engine plant), Chrysler
(pickup truck plant), the association between Volkswagen and Audi, Volvo (truck plant)
and the Multibrás group (household appliances plant). In 1999 more new investments
were announced for the mechanical/automotive sector (new plant construction by
Renault and Volkswagen) and auto-parts (Volvo engine milling plant, Sofedit and
Iracome). Although these investments were on a much smaller scale, they provided the
added benefit of expanding the production of inputs for the mechanical/automotive
industry. Unfortunately, the state may have lost the best opportunity to promote the
deconcentration of production, since almost all of the larger projects were installed in the
Curitiba metropolitan area.
should be made in a country governed by laws, not by men”.
- 27 -
Bahia and Ceará have managed to maintain a relatively consistent level of intended
investments. Bahia’s efforts to develop were crowned with the announcement of the
establishment of an automotive assembly plant by Ford (the one that previously had
been planned for Rio Grande do Sul) and a fertilizer plant by Monsanto. Important
investments were also announced for the hotel sector: the new Club Mediterranée resort
in Trancoso; and a new project by Costa do Sauípe.
Goiás state received confirmation of many significant investments in the 1996-99 period,
with important projects announced in the textile sector (Vicunha, Hering and Pingo de
Gente), the food sector (Perdigão, Parmalat, Sakura, Bombril and Unilever), the
mechanical/automotive sector (Mitsubishi, Thermodec and Haier), fertilizers (Copebrás),
and tourism (Pousada do Rio Quente and White Water). The state was paid particular
attention by private-sector projects in the farming/food industry, with opportunities
emerging for the machinery, farm equipment, and fertilizer industries, and transportation
and warehousing logistics.
Santa Catarina was, along with Pernambuco State, under intense pressure by the media
because of the financial scandals linked to previous governors.13 The state managed to
regain composure and in 1999 announced investment rose from 1997 (peak of the crisis)
and 1998 levels. Santa Catarina’s traditional companies resumed investment plans,
especially in the ceramic (Cecrisa, Eliane and Portobello) and engine industries (WEG),
in line with the trend of deconcentration away from the state capital.
Lastly, special merit goes to Pará State, both for the resumption of intended investments
by Companhia Vale do Rio Doce in the mining sector and by Tucuruí, Cana Brava and
Lajeado in hydroelectric power. Also of note were the plans to invest in the construction
of an engine plant by Chrysler and Daimler Benz and the resumption of the Jari project
by Grupo Orsa.
13
Paulo Afonso in Santa Catarina, and Miguel Arraes in Pernambuco.
- 28 -
4.
“Global Cities” and Regional Deconcentration
The significant concentration of intended investments along the Rio de Janeiro-São
Paulo axis merits a more in-depth analysis as to the possibility of the two cities becoming
global cities.14 Information on intended investments is essential for dealing with the
complex nature of the subject. Essentially arguments exist to support expectations of
both renewed concentration of industry over the next few years and, with more careful
observation, deconcentration of production and concentration in strategic decisions
[Tolosa (1999)], and the provision of specialized services to companies.
This discussion is important because it points to the possibility that both cities could
become a point of entry and departure for Brazil on a global scale, which would
strengthen the ever-broader participation of Brazil’s markets abroad. And the state of
infrastructure is imperative for allowing the effects of this relationship to disseminate
geographically. The deconcentration of production could bolster the innovation of
regional “doors” to the rest of the world. However, the level of intended investments for
transportation infrastructure in 1999 (US$ 299 million) marked the first drop in this type of
investment since 1996.
The National Integration and Development Axes Study seeks to indicate which structural
projects would help to sustain decentralized development and integrate production from
the distant regions of the domestic market. However, the viability of many projects cannot
be guaranteed in a five-year time horizon. This analysis of intended investment is limited
to this period and is based on decisions that have already been made and are being
implemented. Projects thus must have a period between their conception, the economic
viability study and the building of partnerships.
Coordination by both public and private arenas, which cannot be attributed exclusively to
just one of these spheres due to the nature of the decisions that must be made (private
sphere) and the organization of institutions (public sphere), is required for this series of
events to take place. The continual search for partners - in order to make a project viable
14
The Instituto de Pesquisa Econômica Aplicada (IPEA - Applied Economic Research Institute) has studied the
subject and recently published a book that features the current stage of the discussion.
- 29 -
and find adequate financing – is typically carried out by development agencies [see
Macedo (1999)], which have been developed internationally over the last few years.
However they are still in their early phases in Brazil, where their success depends largely
on the entities actively involved. The common link between partners should be common
interest, in accordance with the view of the actual partners. In Brazil’s case, a national
agency to handle integrated projects cannot be essentially public, much less the
executive arm of ministries. Instead, it can take its inspiration from the successful
experiences of state governments in attracting private investment in partnership with their
industry-led federations.
5.
Conclusions
The IBGE (Brazilian Geography and Statistics Institute) has yet to detect meaningful
changes in the volume and geographical distribution of investments. However, other
“indirect” information points to the likelihood of sustainable economic growth in consumer
durable and non-durable goods, expansion and modernization of intermediate goods
producers, and resumption in investment in the recently privatized infrastructure sectors.
Foreign Direct Investment (FDI) has grown at dizzying rates, mainly due to the inflow of
funds to concessionaires of privatized public services and the mergers and acquisitions
that have mainly taken place in the foods, telecom and outsourcing sectors.
BNDES disbursements show that the past decade has been without precedent in its
history. Disbursements of less than US$ 3.2 billion in 1992 soared to US$ 5.5 billion in
1994 and US$ 7.7 billion in 1995, surpassing US$ 10 billion ever since. All indications
hold that a return to previous levels is highly unlikely and that disbursements will continue
at these high levels for quite some time. Since disbursements result in funding from the
private sector in the same proportion (the BNDES finances an average of 50% of the
total investment), the economy receives significant injections of investment funds. For
example, in 1998, net inflow of FDI was US$ 23.3 billion while BNDES funding totaled
US$ 32 billion (including internal funding by companies). Add to these figures the funds
made available by other banks for investment, funds from Finep and federal government
- 30 -
funding (which remains at high levels), and a picture emerges in which conditions have
been created for a rise in the level of GDP growth over the next few years.
Investment announced since 1996 have been providing signs of the future steps of
industry and infrastructure. However, these investments have not taken into account the
agriculture, retailing and services sector in sufficient measure. Investments announced
in 1996 highlighted projects in consumer goods, food and beverages and electronics
sectors, while in 1997 intended investments were more concentrated in petrochemicals,
chemicals, steel and pulp and paper. Investments announced in 1998 and 1999 reflected
the adjustment period to the new exchange rate regime and growing international
uncertainty. In these two years, only investments in the recently privatized public services
- and those that had been already established in concession contracts - helped to
maintain the level of investment commitments high. In the aftermath of the Russian crisis,
many companies maintained investment commitments but postponed new investments.
Lastly, 1999’s results exceeded expectations. Intended investments in the year totaled
US$ 116.6 billion, 8.5% more than in 1998. São Paulo State was responsible for 37% of
the investment projects announced, or 16.7% of the total value. The state continues to be
the most attractive destination for investment, although there are some signs of
deconcentration of production to other states. Minas Gerais in 1996, Paraná in 1997 and
Rio de Janeiro in 1998 and 1999 showed some hope for mitigating regional economic
disparity. As the borders of the “developed polygon” were extended, new regions were
enveloped that until then had been excluded from development plans.
A movement toward decentralization has proven possible in Minas Gerais’ development
project, with relation to its capital. Rio de Janeiro state is beginning a productive
reconversion in its industries, although at the outset it has been ill-coordinated by state
government and has been more influenced by the markets globalization. Paraná took
advantage of the impacts of globalization and its institutional stability to become the state
with the greatest potential for growth in the period, although excessively concentrated in
the Curitiba metropolitan region.
- 31 -
States in the Northeast, especially Ceará, have become examples of the reversal of preestablished dispositions. In spite of adverse conditions (climate, scarce water and high
levels of poverty), the region has been able to attract industrial companies. States in the
Center-West, which have received little fanfare in the press, now have the opportunity to
strengthen their role in the agricultural sector by attracting large foreign and Brazilian
agroindustrial companies. In addition, the region is making efforts to attract
complementary industries, such as farm machinery and fertilizers. Brazil’s North
(including the Manaus Duty-Free Zone) has not been able to capitalize on its strengths to
reverse the cyclical decline of its consumer electronics industry, which still relies on
protective measures. This goes against the globalization of markets and the search for
efficient allocation.
Almost all Brazilian states have created development forums to discuss local and
regional problems with public-private partnership. Underlying this reality is the consensus
that development should be achieved through actions to create a friendly environment for
investment, although this is often erroneously referred to as “fiscal war”. All levels of
government (federal, state and local) have a fundamental role in coordination and
private-sector organizations should assume responsibilities in finding solutions to
problems that have been identified.
In this context, a “national investment agency” - currently under discussion by the federal
government - once created could immediately locate a network of regional and local
support to interact and increase synergy with simple actions such as coordinating
information and the utilization of operating tools. Results could become visible very
quickly. Although the greater part of the agency’s predefined tasks is related to the
viability of structuring projects cited in the “National Integration and Development Axes”,
a whole other set of urgent actions exist for which it would be impossible for the agency
to shy away from. The opportunities created by globalization of industries should be
seized to advance policies for controlled development. Such actions will serve to speed
up the deconcentration of production and capitalize on location advantages, and to
transform deteriorated urban regions so that they may adapt to the new economic reality.
- 32 -
A national investment agency could channel projects to local forums and serve as an
entry point for foreign investors. Another important function would be to coordinate
projects to benefit specific sectors and regions. Brazil’s institutional and structural
conditions are favorable, and the stable macroeconomic environment could help to
benefit Brazil’s greater presence worldwide.
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