// 1

João Carlos Ferraz Executive Director

February 18th - 20th, 2014 Osaka, Nagoya, Tokyo

Japan-Brazil 3.0

Fostering economic relations based on common interests

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World trends: where to, Japan and Brazil?

The evolution of Brazil

BNDES: a mission oriented institution

Investment trends in Brazil

The way ahead and a strategic proposition

Agenda

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World trends

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Where to, Japan and Brazil?

4

World leadership: negotiated or conflictive multipolarity?

Economic inclusion in emerging countries: a new frontier but high demand for public goods.

Very fierce competition based on innovations. In all grounds.

Pressure on resources will increase. Are we doomed?

Activism by States: protection against chaos; defence of national interests. But no role model.

Japan: the challenges of maintaining conquered wealth in a dynamic and contrasting neighbourhood

Brazil: the challenges of unbalanced development and growth in tranquil geographical surroundings

World Japan and Brazil

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The evolution of Brazil

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A development model on the making

Democracy and predictable institutions

Macroeconomic stability

Inclusion: economic,

social, cultural

Diversification of sources of dynamism

// 7 // 7

0

50

100

150

200

250

300

350

400

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

*

17

21

28

54 8

6

18

0

20

7 23

9 28

9 35

2

37

9

37

6

37

5

21 28 25

IMF Loans

International Reserves

*Position on 01/21/2013

Macroeconomic stability

12.5

9.37.6

5.7

3.14.5

5.94.3

5.9 6.5 5.8 5.9

0

2

4

6

8

10

12

14

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

IPCA Lower Bound Center of the Target Upper Bound

Gross Debt (as % of GDP)

Source: Brazilian Central Bank

CPI Inflation (IPCA index, % YoY)

International Reserves (US$ billion)

58

41

35

40

45

50

55

60

65

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Gross Debt Gross Debt (ex-Int Reserves)

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Economic inclusion: a revolution! … but capabilities … high demand

Source: IBGE/PNAD

% Workers with at least completed high schooling (2008)

Source: ILO

R&D/GDP (2011) - %

2003 – 2012

Middle class: from 67 to 120 million

Per capita household $: + 51%

Income of poorest 10%: + 106%

2007 – 2012

Public sewage: 26 to 33 million households (57% total)

Computer w/internet: 9 to 22 million households (40% total)

Source: Brazil - MCTI

0

10

20

30

40

50

60

70

80

90

100

0

1

2

3

4

5

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BNDES: a mission oriented institution

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Credit and corporate bonds , % of GDP, 2011

10

Long term financing in Brazil is scarce

2003-2012: Investment and Savings/GDP: between 15% and 19%

Since 2008, Savings at around 3% below Investment

-

50,0

100,0

150,0

200,0

- 5,0 10,0 15,0 20,0 25,0 30,0 35,0 40,0

Cre

dit

/GD

P

Corporate Bonds/GDP Source: BIS and World Bank, 2011

BRAZIL

MEXICO

CHINA

NETHERLANDS

JAPAN

USA

KOREA

SPAIN

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2/3 of long term loans in Brazil

100% Publicly owned

Stable institutional funding

Instruments

Direct Operations

Indirect Operations

MSME (financing and guarantee)

Exports (Pre and Post shipment)

Project finance

Grants

Investment bank

BNDES: scale and scope matters

BNDES KFW CDB JFC

Assets 367.8 657.3 1,191.6 318.4

Outstanding Loans

254.0 526.4 1,016.9 272.4

Net Profit 3.0 3.1 9.9 -3.6

ROA (%) 0.90 0.47 0.92 -1.13

NPL (%) 0.06 0.21 0.30 2.98

2012 (in US$ billion)

Source: BNDES

Source: Banks' balance sheets.

Estimated market value (US $ b.) 45.4

Nº firms with direct support 203

Nº Investment Funds 44

Equity Portfolio Average annual disbursement: US$ 85 billion

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Public financial institutions, as BNDES, very relevant when credit crunch prevails

Fonte: BNDES

GFKF

BNDES Disbursement

0

20

40

60

80

100

120

140

400

450

500

550

600

650

700

750

800

850

2004 2005 2006 2007 2008 2009 2010 2011 2012

Gross Fixed Capital Formation (GFCF) and BNDES' Disbursement(US$ billion)

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Beneficiary

Basic Proposal

Project Preparation

Project

Development

Eligibility

Managing Directors Committee

Prioritization

Credit Risk Evaluation

Project Analysis Approval Contracting Disbursement

Executive Directors Board

BNDES principles: collegiate decisions, project quality, segregation (operation vs credit risk)

Operational Area Operational Area

Contract

Final decision

BNDES financing process and relations with beneficiaries

All Brazilian based corporations are eligible. BNDES discriminates only bad projects!

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Investment trends

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Investments: an positive trend but still a long road ahead

Source: BNDES

Gross Fixed Capital Formation

(% of GDP)

Every year BNDES forecasts

investments for the following four years.

2013 forecast: highest ever.

Increasing investments a

great Brazil challenge

Source: IBGE

350

400

450

500

2006 2007 2008 2009 2010 2011 2012 2013

365,5

412,2 410,4 392,3

478,8

444,3

495,2 506,5

Investment forecast of a sample of similar sectors U$ billion

constant prices

2007-2010

2008-2011 2009-2012

2010-2013

2011-2014

2012-2015

2013-2016 2014-2017

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2014-17: BNDES forecasts investments of US$ 1.9 trillion. Attractive, low risk opportunities abound

(*) Note: BNDES Investment Outlook direct research covers 66% of industrial investments and 100% of investments in infrastructure. totalizing about 58% of investments in the economy. Housing., agriculture and services investment estimates were based on queries to Sectorial entities and/or econometric forecast.

Forecast of (Total) investments (2014-17) (U$ billion - Constant prices)

Source: BNDES

Sectors 2009-2012 2014-2017 Δ%

Industry 421.4 523.9 24.3

Infrastructure 194.4 242.7 24.8

Housing 338.6 413.1 22.0

Agriculture & Services 547.6 716.7 30.9

Total 1,502.0 1,896.3 26.3

25 Production Platforms, 10 Drilling Ships and 75 Platform Supply Vessel (PSVs) Main

Projects

Oil and Gas exploration and production 2014-2017

US$ 190 billion Investments

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On going expansion of road system

2007-2010 (1.5 thous. kms)

2011-2014 Duplication existing roads

2011-2014 (3.3 thous. Kms)

2012-2014 New concessions and duplications (7.1 thous. kms)

Santarém

Manaus

Belém /

V. Conde

Rio Grande

Santos Itaguaí

Rio de Janeiro

Vitória

Ilhéus

Salvador

Suape

Pecém Itaqui

Aratu

S F. Sul

Paranaguá

Itajaí / Navegantes

Porto Velho

Concessions already operational to be

contracted

US$ 25 billion

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The way ahead and a strategic proposition

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Exports

Mass Consumption

+ Exports

Infrastructure +

Mass Consumption

+ Exports

Starting around…

2000 2005 2007 2009 2013

Housing +

Infrastructure +

Mass Consumption

+ Exports

Brazil: diversifying and accumulating sources of growth

Innovation

+

Housing +

Infrastructure +

Mass Consumption

+ Exports

The evolution of sources of growth: a demand led perspective

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Brazil: necessary ingredients to sustain dynamism

Economic policy: endurance and fiducia

Inclusion: expand supply and quality of public goods

Real economy:

Managing unbalanced growth

Innovation, innovation, ... and innovation

Productivity, productivity,… and productivity

Long term financing:

Engaging-in private industry

while public institutions remain relevant

Savings, savings, ... and savings

Brasília. Sketches for the columns of the Alvorada Palace

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Brazilian advantages and challenges

Open society

Negligible geopolitical risk

No structural political differences

A societal consensus: investment must go on

Regulatory orientation: balance between consumer welfare and + investment

Fair and attractive business opportunities for the private sector

From red … to minimum tape

Infant but fast advancing long term planning capacity of public sector

After 3 decades of scarce investments… not sand on the wheel but reinventing the wheel (not easy…)

A democratic society, based on consensus building yet open to challenges and disputes

Brasília, Congress

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Japan 1.0 and Japan 2.0

2009-2013. Announced investments: US$ 21.3 billion

Relatively to past, more diversification and search for internal market

Sectoral entry: automotive and shipbuilding

Japan 1.0. 1910s to 1950s: manpower for the expanding agriculture frontier

Japan 2.0. 1950s to 1970s: industrial and infrastructure investments to support commodity exports

2009 NAMISA (CSN) 2.100

CENIBRA 1.600

2010

SUMITOMO CORP /USIMINAS 1.928

PMCC Consortium (PETROBRAS/ MITSUI/ CAMARGO) 1.000

TOYOTA 600

HONDA 200

2011

KIRIN 3.700 NISSAN 1.494

VIA QUATRO (CCR/MITSUI/RATP/ROGGIO) 897

AGC GROUP 470

MITSUI 459

OJI 313 KIRIN 301

SUZUKI 200 AJINOMOTO 187 PANASONIC 120 MUSASHI DA AMAZÔNIA 99

MARUBENI 60

2012

KAWASAKI HEAVY INDUSTRIES 767 TOYOTA -- ENGINE PLANT 435 MIZUHO 380 SUMITOMO RUBBER INDUSTRIES 316

KIRIN 281 TAKEDA 246 JOHN DEERE /HITACHI CONSTRUCTION MACHINERY 180

KAWASAKI MOTORES BRASIL 141 HONDA LOGISTIC 111 YASUDA 102

2013

MITSUI 528 HONDA 464 MITSUBISHI HEAVY INDUSTRIES 300 YASUDA 185 IHI 96 DAIKIN 53 MITSUBISHI ELECTRIC 23 CBMM 464 MITSUBISHI CORPORATION 495

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Questions, suggestions …

How to expand investment frontier? How to overcome fierce competition?

Brazil as…

Provider of inputs for food and energy security

Attractive internal and regional markets

Reliable base to face worldwide competition

Questions: Japan and Brazil,

Suggestions

Japan as…

Provider of production capacity where Japan excels

Partner in new activities

Transmitter of knowledge and experience

Source of long term funding

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Japan-Brazil 3.0

Geopolitical, market and competitive drivers can mould and forge common interests to foster a new generation of complementary economic relations

…and a strategic proposition

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João Carlos Ferraz Executive Director

February 18th - 20th, 2014 Osaka, Nagoya, Tokyo

Japan-Brazil 3.0

Fostering economic relations based on common interests