productivity: an agenda for long- term growth · 3 3 ministério da productivity as the key to...
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![Page 1: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/1.jpg)
João Manoel Pinho de Mello Secretary Secratariat for Promotion of Productivity and Competition Advocacy Ministério da Fazenda
Ministério da
Fazenda
Productivity: an agenda for long-term growth
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Ministério da
Fazenda Productivity as the key to sustainable growth
Background
• Looking backwards to set up the context for looking forward
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Fazenda Productivity as the key to sustainable growth
Brazil v. USA (Relative GDP per capita, PPP in US constant dollars)
0,5
0,6
0,7
0,8
0,9
1
1,1
1,2
1,3
1,4
1,5
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Fazenda Productivity as the key to sustainable growth
Brazil v. USA (Relative GDP per capita, PPP in US constant dollars)
0,5
0,6
0,7
0,8
0,9
1
1,1
1,2
1,3
1,4
1,5
25% of the US
25% of the US
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Fazenda Productivity as the key to sustainable growth
Background
- No convergence
• Why?
• Looking at the mechanics…
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Fazenda Productivity as the key to sustainable growth
Four ways to grow
1. Increase the number of people working (labor force)
2. Increase human capital
3. Increase the stock of capital
4. Improve the mix of 1, 2 and 3 (so-called Total Factor Productivity or TFP)
Four sources of growth
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Fazenda Productivity as the key to sustainable growth
60
80
10
01
20
14
0
1995 2000 2005 2010year
GDP per capita Human Capital
TFP Stock of Capital
Labor Force
Relative to the US
GDP per capita
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Fazenda Productivity as the key to sustainable growth
Factors’ v. TFP contribution to growth De Mello, Duarte and Dutz (forthcoming)
-4
-2
0
2
4
6
8
10
1961 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 2013
Figure 4.1.: Brazil's Economic Performance (1960–2014) (Percent)
Decomposition of output-side real GDP at current purchasing power parity
Production Growth Capital Growth Labor Growth TFP Growth
Source: Fernandez-Arias (2017) Note: TFP = total factor productivity
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Fazenda Productivity as the key to sustainable growth
0
0,1
0,2
0,3
0,4
0,5
0,6
0,7
0,8
1980 82 84 86 88 90 92 94 96 98 2000 02 04 06 08 10 12 14 16
Figure 4.2.: Labor productivity - Output per Employed Person (2016 US$)
Brazil Chile Mexico China India Colombia Korea, Rep. Of
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Fazenda Productivity as the key to sustainable growth
Brazil v. Emerging Countries Synthetic Control Group Exercise
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Fazenda Productivity as the key to sustainable growth
The diagnosis
• The first three factor contributed to growth. Relative to the US
1. We put people to work, especially after 2002
2. We increased human capital
3. We increased physical capital
• But the mixture (TFP) did terribly …
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Fazenda Productivity as the key to sustainable growth
Source: Caselli (2015) and author’ calculations. Note: counterfactual refers to output per worker that countries would have had if their TFP were equal to that of the US
0%
10%
20%
30%
40%
50%
60%
70%
Brazil LAC Mexico Colombia Chile
Actual Counterfactual
World Bank: Brazil productivity flagship report:
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Fazenda Productivity as the key to sustainable growth
Diagnosis
• The productivity issue: inter sector or intra sector?
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Fazenda Productivity as the key to sustainable growth
Source: Bazzi, Muendler and Rickey (2014)
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Fazenda Productivity as the key to sustainable growth
Distribution of Firms by Labor Productivity
Source: Barbosa Filho & Corrêa (2016)
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Fazenda Productivity as the key to sustainable growth
The diagnosis
• Decomposition exercise (De Mello, Duarte et Dutz, forthcoming):
1. Holding intra-sectoral productivity constant, replicate other country’s structure
2. Holding the structure constant, replicate the other country’s sectoral productivity
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Fazenda Productivity as the key to sustainable growth
The diagnosis Counterfactual exercise 1: reproducing other countries’ sector structure
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0
20
40
60
80
100
Counterfactual 1 - Productivity Growth (%) Value added per person employed in 2014 (PPP)
Data: WIOD Socio Economic Accounts
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Fazenda Productivity as the key to sustainable growth
The diagnosis
Counterfactual exercise 2: reproducing other countries’ productivity per sector
-100
-50
0
50
100
150
200
250
300
Counterfactual 2 - Productivity Growth (%) Value added per person engaged in 2014 (PPP)
Data: WIOD Socio Economic Accounts
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Fazenda Productivity as the key to sustainable growth
Diagnosis
• Forensic economics: productivity issue mainly an intrasectoral problema
• Calls for horizontal policies
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Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Centralized (mis)allocation of capital • Bad de facto institution (Bankruptcy Law, for example)
• Labor market legislation distorting business decisions
• Excessive protection, captive demand , excessive local content
• Lack of infrastructure
• Tax system distorting business decisions • Excessive bureaucracy
• Excess of state ownership of assets
• Closed economy
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Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Centralized (mis)allocation of capital: earmarked credit
• Some figures from Pazarbasioglu et al (2016)
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Fazenda Productivity as the key to sustainable growth
Government interventions
Central Bank interventions
Public Admin
Public Admin
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Fazenda Productivity as the key to sustainable growth
Quantities
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Fazenda Productivity as the key to sustainable growth
BNDES Outstanding credit
R$ 680 bi * (21%)
Households
Firms
The fiscal sector
Households
Firms
Savers Borrowers
Public owned commercial
banks (Caixa, Banco do
Brasil, etc.)
Special funds (FGTS, FAT,
Constitutional funds etc.)
Private Commercial
Banks
16% 9%
9% 5%
9% 5%
13% 7%
9% 5%
37% 20%
24% 13%
Public Admin
% of outstanding
credit
% of GDP
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Fazenda Productivity as the key to sustainable growth
Cost of Funds and Interest Rates
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Fazenda Productivity as the key to sustainable growth
TJLP
SELIC rate
TR rate + fixed rate
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Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Centralized (mis)allocation of capital
• The perennial and the recent increase
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Fazenda Productivity as the key to sustainable growth
BNDES Outstanding credit
R$ 680 bi * (21%)
Households
Firms
The fiscal sector
Households
Firms
Savers Borrowers
Public owned commercial
banks (Caixa, Banco do
Brasil, etc.)
Special funds (FGTS, FAT,
Constitutional funds etc.)
Private Commercial
Banks
1.5% 0.5%
14% 5%
15% 5%
9% 2%
9% 3%
24% 8%
30% 10%
Public Admin
% of outstanding
credit
% of GDP
2007
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Fazenda Productivity as the key to sustainable growth
BNDES Outstanding credit
R$ 680 bi * (21%)
Households
Firms
The fiscal sector
Households
Firms
Savers Borrowers
Public owned commercial
banks (Caixa, Banco do
Brasil, etc.)
Special funds (FGTS, FAT,
Constitutional funds etc.)
Private Commercial
Banks
16% 9%
9% 5%
9% 5%
13% 7%
9% 5%
37% 20%
24% 13%
Public Admin
% of outstanding
credit
% of GDP
2015
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Fazenda Productivity as the key to sustainable growth
Source: Brazilian Central Bank Time Series (August/2016)
0
10
20
30
40
50
60
mar
-07
jun
-07
set-
07
dez
-07
mar
-08
jun
-08
set-
08
dez
-08
mar
-09
jun
-09
set-
09
dez
-09
mar
-10
jun
-10
set-
10
dez
-10
mar
-11
jun
-11
set-
11
dez
-11
mar
-12
jun
-12
set-
12
dez
-12
mar
-13
jun
-13
set-
13
dez
-13
mar
-14
jun
-14
set-
14
dez
-14
mar
-15
jun
-15
set-
15
dez
-15
mar
-16
jun
-16
PER
CEN
T O
F G
DP
Distribution of credit between Earmarked and Non-earmarked
68% Non-earmarked
32% Earmarked
49.9% Earmarked
50.1% Non-earmarked
Sep/08
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Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Centralized (mis)allocation of capital
• Direct and implied fiscal cost of credit subsidies in 2015: 3.5% of GDP (Pazarbasioglu et al, 2016)
• Total government expenditure in
• education: 5% of GDP
• health: 4% of GDP
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Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Centralized (mis)allocation of capital
• National Champions (meatpacking giant JBS just the leading example), both through equity and debt
• Subsidized credit for service exports (Brazilian contractors in LAC and Africa)
• Programa de Sustentação do Investimento (PSI): ProCaminhoneiro with 2.5% nominal rates
• FINAME and local content
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Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Centralized (mis)allocation of capital
• Policy intervention: Taxa de Longo Prazo, which changes in the funding costs of FAT to a market-based rate with less implicit subsidy
• Bill signed by the president
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Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Centralized (mis)allocation of capital
• Policy intervention: acceleration of BNDES’ repayment to treasury
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Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Centralized (mis)allocation of capital
• Consequences of policy: crowd-in of private markets
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Fazenda
Treasury transfers to BNDES (billion R$)
Data: BNDES * Except for MP nº505/2010 (Petrobras capitalization)
22,5
105
82,3
50,25 55 41
60
(15,77)
(113,22)
(50,00)
(30,00)
-150
-100
-50
0
50
100
150
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
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Capital Markets: Recent Performance
0
50.000
100.000
150.000
200.000
250.000
2012 2013 2014 2015 2016 2017
Capital Market Performance (million R$) Domestic Market
Corporate Bonds (non financial sector) Promissory Notes Corporate Bonds (financial sector) CRA CRI FIDC IPO Offering Follow-on Offering
Data: Anbima
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Fazenda
Capital Markets: Recent Performance
0
20.000
40.000
60.000
80.000
2017 2018
Capital Market Performance (million R$)* Domestic Market
Corporate Bonds (non financial sector) Promissory Notes
Corporate Bonds (financial sector) CRA
CRI FIDC
IPO Offering Follow-on Offering
FII
Data: Anbima *Jan-May 2017 and Jan-May 2018
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Fazenda
33
GRÁFICO 20
Fonte: ANBIMA, BNDES e B3 - Elaboração CEMEC
Como se observa no Gráfico 21, a soma dos desembolsos do BNDES e dos recursos captados no
mercado de capitais (ações e dívida) teve crescimento da ordem de 40% no ano terminado em
2018 (R$ 285 bilhões) em relação ao observado em 2016 (R$ 203 bilhões), dado que o aumento
de recursos do mercado de capitais (R$ 105 bilhões) mais que compensou a redução dos
desembolsos do BNDES (-R$ 23 bilhões). No período mais longo, a partir de 2014, observa-se
uma queda de 15,4% nesse total, caindo de R$ 337 bilhões para R$ 285 bilhões. Trata-se de um
resultado da atuação de vários fatores, que combinam a queda de demanda de recursos de
médio e longo prazo associada com à redução dos investimentos, a redução do crédito
subsidiado e aumento das taxas do BNDES, compensados parcialmente pela forte redução do
custo de capital no mercado de capitais que ocorreu ao longo de 2017 e até o primeiro trimestre
de 2018.
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Capital Markets: Recent Performance
0
2
4
6
8
10
12
14
16
18
20
jan
-12
abr-
12
jul-
12
ou
t-1
2
jan
-13
abr-
13
jul-
13
ou
t-1
3
jan
-14
abr-
14
jul-
14
ou
t-1
4
jan
-15
abr-
15
jul-
15
ou
t-1
5
jan
-16
abr-
16
jul-
16
ou
t-1
6
jan
-17
abr-
17
jul-
17
ou
t-1
7
jan
-18
Aggregate Cost of Funding - Corporate Bonds (non-financial sector) (% a.a.)
Weighted Average
Data: Cemec – Fipe
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47
Ministério da
Fazenda
Data: Anbima
Corporate Bonds (non financial sector) - Average Length Domestic Market
Data: Anbima
Capital Markets: Recent Performance
Corporate Bonds (non financial sector) - Average Length Domestic Market
0,0%
20,0%
40,0%
60,0%
80,0%
100,0%
120,0%
jan-may 2017 jan-may 2018
less than 3 years 4 to 6 years
7 to 9 years more than 10 years
4,53
5,81
0,00
1,00
2,00
3,00
4,00
5,00
6,00
7,00
jan-may 2017 jan-may 2018
![Page 42: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/42.jpg)
48
48
Ministério da
Fazenda
Funding Costs (% a.a.)
Cemec/Fipe
18
GRÁFICO 07
No Gráfico 08 é possível observar que um movimento análogo ao do mercado de debêntures
ocorreu com as taxas médias de emissão das notas promissórias. Essas taxas que se
aproximavam de 7,5% a.a., com spread pouco superior a 100 b.p. em relação ao CDI, saltaram
para 9,3% a.a. Entretanto as taxas de juros de notas promissórias continuam em nível que
equivale praticamente à metade das taxas de juros médias cobradas em operações de crédito
para de capital de giro, que aliás também apresentam alguma elevação no final desse período.
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49
49
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Centralized (mis)allocation of capital
• Policy intervention: list of interventions to improve the performance of non-earmarked credit markets and capital markets
• Agenda BC+ (portability, increasing competition on means of payment, extension of access to SCR to two years, European covered bonds for mortgages, etc)
• Positive information credit bureaus
• Infrastructure for a guarantee central for receivables and and financial assets; reform of the receivables’ law)
![Page 44: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/44.jpg)
50
50
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Bad de facto institutions
• Example: Bankruptcy Law
![Page 45: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/45.jpg)
51
51
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Bad de facto institutions (Bankruptcy Law, for example)
• Bankruptcy Law (2005): good law, room for improvement in the judiciary. From the Doing Business:
• Recovery rate (cents on the dollar)
• Brazil: 16. LAC average: 31
• Time to resolve
• Brazil: 4 years. LAC average: 2.4 years
• Cost (% of the estate)
• Brazil: 12%. LAC average: 14.5%
• Position in the DB: 67th (but de facto probably worse)
![Page 46: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/46.jpg)
52
52
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Policy intervention: overhaul of the Bankruptcy Code
• Bill proposal in Congress
![Page 47: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/47.jpg)
53
53
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Labor market legislation distorting business decisions
• Labor legislation from the 1940s, inspired by Mussolini’s labor law
• State regulates and mediates almost all dimensions of the employee-employer relationship
![Page 48: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/48.jpg)
54
54
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Labor market legislation distorting business decisions
• Social security design incentivizes early termination of labor relationship
• Judicialization and ex-post negotiation before judges
![Page 49: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/49.jpg)
55
55
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Labor market legislation distorting business decisions
• Gerard and Gonzaga (2016)
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56
56
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Labor market legislation distorting business decisions
• Camargo and Gonzaga (2015)
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57
57
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Labor market legislation distorting business decisions
• Camargo and Gonzaga
![Page 52: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/52.jpg)
58
58
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Labor market legislation: excessive judicialization
• 2017: 2.8 million new labor lawsuits (740,000 executed)
• US: in 2015, 91,000 law suits (statistic from the Equal Employment Opportunity Commission)
![Page 53: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/53.jpg)
59
59
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Policy intervention: Labor Code Reform, outsourcing law, migration code
![Page 54: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/54.jpg)
60
60
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Policy intervention: Labor Code Reform
• Consequences
![Page 55: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/55.jpg)
61
61
Ministério da
Fazenda Productivity as the key to sustainable growth
Fonte: CNJ
Elaboração: Casa Civil/PR
![Page 56: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/56.jpg)
62
62
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Excessive protection, captive demand
![Page 57: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/57.jpg)
63
63
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Excessive protection, captive demand. Two examples:
1. Local content policies in O&G and Petrobras
2. Automotive Regime (Inovar – Auto)
3. Finame (local content for the machinery industry through BNDES financing)
![Page 58: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/58.jpg)
64
64
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Excessive protection, captive demand: local content in O&G
15% 15% 15% 15%
40% 40%
20% 20% 20% 20% 20% 20%25%
42%
28%
39%
79%
86%
74%69%
79%
62%
73% 73%
27%
48%
40%
54%
86%89%
81%77%
84%
76%
84%80%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Rodada1 Rodada2 Rodada3 Rodada4 Rodada5 Rodada6 Rodada7 Rodada9Rodada10Rodada11Rodada12Rodada13
PesodoCL ConteúdoLocalMédioExploração ConteúdoLocalMédioProdução
![Page 59: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/59.jpg)
65
65
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Excessive protection, captive demand: local content in O&G
27 23 53 54
908 913
1134
271
130
289240 266
56%
09%
36%
61%
89%83%
79%
60%
69%
58%
74%
86%
00%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
200
400
600
800
1000
1200
Ro
da
da
1
Ro
da
da
2
Ro
da
da
3
Ro
da
da
4
Ro
da
da
5
Ro
da
da
6
Ro
da
da
7
Ro
da
da
9
Ro
dad
a1
0
Ro
dad
a1
1
Ro
dad
a1
2
Ro
dad
a1
3
BlocosLicitados PercentualdosBlocosNãoArrematados
![Page 60: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/60.jpg)
68
68
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Excessive protection, captive demand: local content in O&G
• The O&G sector paid a heavy cost
• Petrobras’s production increased much less than expected
• Expected by Petrobras in 2015: 3.07 million barrels/day. Actual production: 2.13
• Frequent delays in delivering platforms
• Since 2010, Petrobras commissioned 10 platforms from local suppliers. None on time. Delays over three years are common.
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69
69
Ministério da
Fazenda Productivity as the key to sustainable growth
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70
70
Ministério da
Fazenda Productivity as the key to sustainable growth
0
10000
20000
30000
40000
50000
60000
70000
80000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Employment: Shipbuilding Industry Construction, Maintenance and Repair of Floating Structures
Source: RAIS
33 thousand jobs
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71
71
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples • Excessive protection, captive demand: local content in O&G.
• Difference in projected and actual Petrobras’s production between 2012
and 2017 • Example: for 2015 3.07 million barrels/day. Actual: 2.13
• Attribute half the shortcoming to the LC policy
• Unit cost per barrel: USD35
• Jobs in the shipbuilding industry: 33,000
• Cost per job: USD 422,000
![Page 64: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/64.jpg)
72
72
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Excessive protection, captive demand: local content in O&G.
• Policy intervention: reduce and rationalize the local content policy in O&G
• Four categories, local content between 25% and 40%
• Consequences:
![Page 65: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/65.jpg)
73
73
Ministério da
Fazenda Productivity as the key to sustainable growth
0
100
200
300
400
500
600 ja
n-1
6
fev-
16
mar
-16
abr-
16
mai
-16
jun
-16
jul-
16
ago
-16
set-
16
ou
t-1
6
no
v-1
6
dez
-16
jan
-17
fev-
17
mar
-17
abr-
17
mai
-17
jun
-17
jul-
17
ago
-17
set-
17
ou
t-1
7
no
v-1
7
dez
-17
jan
-18
fev-
18
mar
-18
abr-
18
mai
-18
jun
-18
jul-
18
ago
-18
set-
18
ou
t-1
8
Petrobras (PETR4; índice 100=jan/16) S&P Óleo e Gás (Índice 100=jan/16)
![Page 66: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/66.jpg)
74
74
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples • Excessive protection, captive demand: auto sector policy
• Inovar-Auto: a 30 p.p. increase in “tariff” (starting from 30p.p. tariff)
• Useless the assembler has a certain level of local content in auto-
parts
• Number of assemblers increased to 22 (World Bank study suggests 7 at most in Brazil)
• Innovation and energy efficiency have improved less than in peers
• August 2017: several features of program deemed illegal under WTO rules
![Page 67: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/67.jpg)
75
75
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Excessive protection, captive demand: auto sector policy
• Policy intervention: overhaul the program
• Rota 2030
• Cut additional 30p.p. protection
• Reduce (almost to zero) the local content component
• Only direct taxation-based R&D incentives (50% lower than Inovar-Auto)
• Reduce import tariffs on auto-parts
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76
76
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Excessive protection, captive demand: FINAME and local content for the machinery industry
• Policy intervention: TLP and TJLP
• Reduction of local contents for FINAME in the new BNDES operational policy
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77
77
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Tax system distorting business decisions
![Page 70: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/70.jpg)
78
78
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Tax system distorting business decisions
• Brazil has four taxes (or “contributions”) on production and consumption of goods and services
• Imposto sobre Produtos Industrializados (IPI), Imposto sobre Circulação de Bens e Serviços (ICMS), Imposto sobre Serviços (ISS) and PIS/Cofins (firms’ revenues)
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79
79
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Tax system distorting business decisions
• ICMS is a IVA-type like, state-level tax
• Very imperfect, depends on the origin of production
• “Tax wars” distort location decisions
• PIS/Cofins has two different regimes (cumulative and non-cumulative)
• Multiplicity of rates and no less than 40 Special Regimes
• Produces major distortions
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80
80
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Tax system distorting business decisions
• The construction sector is illustrative
• If value is added at site, tax incidence is ISS (5% maximum), PIS/Cofins cumulative (3.65%)
• If value is added at a plant (prefabricated): ICMS (12% in SP), PIS/Cofins cumulative (9.75%) and IPI (rates varies a lot)
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81
81
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Tax system distorting business decisions
• Huge judicialization
• R$ 4 trillion in tax litigation
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82
82
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Tax system distorting business decisions
• Policy intervention: agenda on simplification
• Revision of tax compliance procedures
• Local-level, federally supported revision of procedures to open and close firms
• Trade facilitation
![Page 75: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/75.jpg)
83
83
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Excessive bureaucracy
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84
84
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Excessive bureaucracy • Tax system extremely hard to comply with (judicialization)
• Excessive difficulty in opening and closing firms
• Burdensome notary system
• Burdensome patenting system (judicialization)
• Burdensome licensing system (judicialization)
• Burdensome expropriation system (judicialization)
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85
85
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Excessive bureaucracy
• Policy interventions: agenda on simplification and reducing bureaucratic burden
• Notary certification of signatures, Electronic drivers’ licenses, etc
• Trade facilitation
![Page 78: Productivity: an agenda for long- term growth · 3 3 Ministério da Productivity as the key to sustainable growth Fazenda Brazil v. USA (Relative GDP per capita, PPP in US constant](https://reader033.vdocuments.us/reader033/viewer/2022041611/5e3809ad842b747c405bc490/html5/thumbnails/78.jpg)
86
86
Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Trade openness
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Tariffs on Capital Goods – Comparação Internacional Economias Emergentes – “EAGLES” (Média Ponderada “MFN”)
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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Brasil China Indonésia México Turquia Índia África do Sul
Fonte: WITS
BRASIL
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Tarifas sobre Bens de Capital – Comparação Internacional Países Desenvolvidos – membros da OCDE (Média Ponderada “MFN”)
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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Austrália Brasil Canadá Chile Coréia, Rep.
Estados Unidos Islândia Israel Japão Noruega
NovaZelândia Suíça União Européia
Fonte: WITS
BRASIL
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O custo de aquisição de bens de capital é 44% mais alto no Brasil do que nos pares emergentes
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Brasil Chile China Colômbia Índia Coreia do Sul México
Índice de Preços para Bens de Capital Mundo = 100 (em 2011)
Fonte: ICP – Banco Mundial Elaboração: Seprac/MF
Média dos emergentes (99)
Brasil: 44% mais alto
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Ministério da
Fazenda
O custo de aquisição de bens de capital é 44% mais alto no Brasil do que nos pares emergentes
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60
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140
160
Brasil Chile China Colômbia Índia Coreia do Sul México
Índice de Preços para Bens de CapitalMundo = 100 (em 2011)
Fonte: ICP – Banco MundialElaboração: Seprac/MF
Média dos emergentes (99)
Brasil: 44% mais alto
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Além de elevado, o custo de aquisição de bens de capital no Brasil subiu muito em relação aos pares emergentes
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Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Trade openness
• Slow but steady reduction on the (ab)use of trade defense mechanisms
•
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Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Excessive state ownership of assets
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Ministério da
Fazenda Productivity as the key to sustainable growth
Why has productivity stalled?
Mechanisms/Examples
• Excessive state ownership of assets
• Policy intervention
• Energy transmission
• Airports
• Lottery
• Eletrobras
• Mint
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Ministério da
Fazenda Productivity as the key to sustainable growth
Good news
Privatization and Concessions
• Energy transmission
• Airports
• Lottery
• Eletrobras
• Mint
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Ministério da
Fazenda Productivity as the key to sustainable growth
Productivity agenda
• Create conditions to compete
• Expose to competition
• Reduce factors that induce distortions
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Ministério da
Fazenda Productivity as the key to sustainable growth
Productivity agenda
• Change in the mindset of the private-public interactions
• From rent-seeking to problem solving
• “Off the table” at the margin: tax exemptions, subsidies, demand guarantees (e.g., local content), protection
• Scope for intervention is ample, but a different type
• Social returns > private returns (in line with BNDES new operational policy)
• Coordination and appropriation problem
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Ministério da
Fazenda Productivity as the key to sustainable growth
Productivity agenda
Long and hard road
• Resistance is concentrated
• Results accrue slowly overtime
• No silver bullet but a roadmap
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Deputy Finance Minister João Manoel Pinho de Mello
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Ministério da Fazenda