A CLOSER LOOK AT BRAZIL’S GROWTH, INFLUENCE AND THE ROLE OF BNDES

Emerging Actors in Development Finance

Introduction

The Changing Global Landscape Brazil Takes Off

BNDES Promotes Brazil, Inc.

BNDES Safeguards and Laws A More Detailed Look at BNDES

WRI’s Work & Influence Strategy

Topics

IntroductionSouth-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.

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 .”

Introduction

Introduction

The Changing Global Landscape Brazil Takes Off

BNDES Promotes Brazil, Inc.

BNDES Safeguards and Laws A More Detailed Look at BNDES

WRI’s Work & Influence Strategy

Topics

A New Geography of GrowthProjected shifts in Country

Rankings by GDP (PPP), 2010‐2020

Source: Euromonitor International

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.

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] Sino-Africa trade volumes exceeded 166 billion US dollars in 2011. [7]

Expanding South-South Trade

Introduction

The Changing Global Landscape Brazil Takes Off

BNDES Promotes Brazil, Inc.

BNDES Safeguards and Laws A More Detailed Look at BNDES

WRI’s Work & Influence Strategy

Topics

Brazil Takes Off

2001:

Per Capita GDP: US$ 3,133[1]

FDI Inflows: US$ 22,500 billion[2]

2011:

Per Capita GDP: US$ 11,600FDI 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 growth-oriented industry, technology and foreign trade policy

Brazil Becomes an International Player

20002001

20022003

20042005

20062007

20082009

20102011

Major 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.

Topics

Introduction

The Changing Global Landscape

Brazil Takes Off

BNDES Promotes Brazil, Inc.

BNDES Safeguards and Laws

A More Detailed Look at BNDES

WRI’s Work & Influence Strategy

State-Owned Banks: Money for GrowthMain State-Owned Financial Institutions in Brazil

Multiple functions. Focus on urban infrastructure, housing and sanitation

Multiple functions. Focus on rural credit, agri-business, foreign commerce

Development of the Amazon region and reducing inequalities

Development of the Northeast region and reducing inequalities

National Development Bank

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.

Source: BNDES Annual Report 2011

BNDES Promotes Brazil, Inc.

Examples of BNDES offshore financing

Argentina: Hydroelectrics,

Gasoducts, Mining

Uruguay: Thermoelectric,

Gas LineChile:

Metro Expansion,Transantiago

Peru: Hydroelectrics,

Roads

Paraguay: Transmission

Lines

Bolivia: Roads

Ecuador: Hydroelectric

Colombia: Urban TransportTransmillenium

Venezuela: Hydroelectric, Metro, Steel Industry

Guyana: Road, Port, Hydroelectric

Suriname: Port

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

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Introduction

The Changing Global Landscape Brazil Takes Off

BNDES Promotes Brazil, Inc.

BNDES Safeguards and Laws

A More Detailed Look at BNDES

WRI’s Work & Influence Strategy

Topics

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

6) Developed financing lines and programs for social and environmental investment projects. 7) 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.8) Energy, water and office supplies consumption reduction; recycled paper; internal

sustainable consumption policy.9) Environmental analysis preparatory course for new employees. 10) 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

FRAMINGDept. 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)

ANALYSISSelected Operation Area

- Assesses the project’s main environmental and social impacts, applies the sectoral guidelines- Structures project and formulates the conditionings.

APPROVAL/CONTRACT• Upon compliance to tax, labor, social and

environmental laws• Installation License required • Conduct Adjustment Term• Meeting of all conditionings

The FRAMING AND CREDIT COMMITTEE approves the project and sends back to client with recommendations. Chooses the Operation Area.

The Board of Directors approves the Operation Area’s Analysis Report

Projects outside of Brazil now undergo an environmental screening, observing the specificities of the sector and of the host country’s legislation.

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.

Constitutional Provisions: Right to ecologically balanced environment. Federal, state and municipal levels of government can define environmental standards and grant environmental permits.

Brazil has a solid environmental legislation framework

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.

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 during the monitoring phase.

The fact that not all sectoral policies are ready does not impede the Bank to - in 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.

Example of Stakeholders’ ConcernsHigh 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 projects5. Increased lending for micro and small businesses6. Pro-active role for BNDES in financing investments that diversify Brazil's energy

matrix and its production structure

Introduction

The Changing Global Landscape Brazil Takes Off

BNDES Promotes Brazil, Inc.

BNDES Safeguards and Laws A More Detailed Look at BNDES

WRI’s Work & Influence Strategy

Topics

BNDES within the Structure of the Brazilian Government

Brazilian Federation

Legislative Executive

Ministry of Development, Industry and Foreign

Trade

BNDES

Other Ministries

Judiciary

Overview of the BNDES System

BNDES System

BNDESDirect financing

Indirect financingMixed financing

FINEM Internationalization of

companies; capital goods(projects > R$10 million)

BNDES AutomaticExpansion, modernization

of companies(projects < R$ 20 million)

BNDES Card

Project Finance

Exim BrasilInternational operations through pre shipping and

post shipping

BNDES Ltd. LondonSubsidiary that helps with

internationalization of Brazilian companies

FINAMEIndirect finance of

acquisition of machines and equipment

BNDESparInvestment arm through private equities, venture capital and debentures

Board of Directors

Administrative Council

Overview of the BNDES System

31

Ministry of Development, Industry

and CommerceBNDES System

BNDESDirect financing

Indirect financingMixed financing

Exim BrasilInternational operations

through pre-shipping and post-shipping

BNDES Ltd. LondonSubsidiary that helps

with internationalization of Brazilian companies

FINAMEIndirect finance of

acquisition of machines and equipment

BNDESparInvestment arm through private equities, venture capital and debentures

Workers’ Fund (FAT)

Amazon Fund

Federal Treasury (L11948 and

12249)

Funding SourcesFunds for

environmental and sustainable projects

National Court of Audit

(congress)

Organs BNDES is accountable to

National Monetary Council

Central BankNational

Comptroller’s Office

BNDES Technology Fund

(FUNTEC)

BNDES Mata Atlantica

Caixa Ambiental Fund

Vale Florestar Fund

Climate Fund(Fundo Brasil

Sustentabilidade)

BNDES (International)

Operations

ECOO11

Others

BNDES Non-Reimbursable Funding

32

Amazon Fund

BNDES Mata Atlantica

Forests and Protected Areas in

the Amazon

Sustainable Activities in the

Amazon

Scientific and Technology

Development

Institutional Development and Improving Control

Mechanisms

Forests and Protected Areas in the Mata Atlantica biome

BNDES Technology Fund (FUNTEC)

Energy Environment Health New Materials

Chemistry Transport Petroleum and Gas

BNDES Participation in Private Equity Funds

3333

Climate Fund(Fundo Brasil

Sustentabilidade)50% Desertification Alternative

EnergyEnergy

Efficiency Urban Mobility

Caixa Ambiental Fund

Sanitation Solid Waste Treatment Clean Energy Biofuel17%

Vale Florestar Fund Deforested land in Carajas region20%

ECOO11

ECOO11ETF 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.

Who is who: focus on environmental and social divisions Director: Guilherme

Narciso de Lacerda

Agriculture, Cattle-Raising and Social Inclusion Division

Social Infrastructure Division

Environmental DivisionSERGIO WEGUELIN

Dept. of Environmental Policies and Studies

MARCIO COSTA

Dept. of Environmental Operations

OTAVIO VIANNA LEÃO

Amazon Fund

Legal Dept.

• 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

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.

Introduction

The Changing Global Landscape Brazil Takes Off

BNDES Promotes Brazil, Inc.

BNDES Safeguards and Laws A More Detailed Look at BNDES

WRI’s Work & Influence Strategy

Topics

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

Investor Country (China & Brazil) Strategy

Engage policymakers to develop environmental and social guidelines to govern overseas investments.

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

Enhancing the roles of emerging actors in international and bilateral investment standards setting

Host Country Strategy

Work with host country governments and local civil society organizations to facilitate stronger environmental and social performance among foreign companies

Inform decision-makers of potential environmental and social impacts on the ground

Create enabling

conditions for local

communities to raise

concerns directly

with decision-

makers

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 BallesterosDirectorInternational Financial Flows and Environment ProjectWorld Resources Instituteaballesteros@wri.org

Roland WidmerSenior AssociateInternational Financial Flows and Environment ProjectWorld Resources Instituterwidmer@wri.org

Thank You

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