SAO PAULO, April 2, 2013 /PRNewswire/ -- Competitiveness in Brazil is still at a virtual standstill, so much so that the competitiveness index measured by FIESP put it in 37th place out of 43 countries in 2011, the same position as in 2008/2009 and only two places higher than in 2001 (when the country was 39th in the ranking). In 2011, Brazil's rate of investment was 19% of GDP. In 2012, it fell to 18%, versus 34% in India and 48% in China. A more recent FIESP survey shows investments in industry falling from R$218 billion to R$197 billion in 2013, a 9.5% reduction. In order to double current per capita GDP, the country would have to reach an annual investment rate of 25% of GDP until 2025. QUESTION 1: what can be done to increase private productive investment and raise the confidence of entrepreneurs?
Brazil has slightly less than 600,000 individual stock market investors, 20 times less than the average for the emerging nations and 50 times less than in China, as a percentage of population. In 2012, Brazil's savings rate was 17% of GDP, versus the global average of 24%, and 53% in China, 34% in India and 25% in Chile. As if that were not enough, in addition to the low savings rate, only 9% of investment fund resources are in equities, versus the worldwide global average of 40%. QUESTION 2: how to change Brazil's fixed-income culture, built up over years of high interest rates, and increase the savings rate?
Despite being the world's 7th largest economy, Brazil has only 353 local listed companies, an insignificant number in the global economic context, lower even than Mongolia and Malaysia ( Brazil is 26th place in the number of local listed companies). And it's getting worse: in the last five years the number of listed companies worldwide has grown by 9%, while Brazil's has shrunk by 9%. SMEs find it difficult to raise financing, either due to lack of available funds, the high cost of capital (punitive interest rates) or the guarantees required (unlikely in the case of technology or service companies). QUESTION 3: what can be done to ensure that Brazil has a capital market that allows SMEs access to growth capital, giving them the chance to become the large corporations of tomorrow?
There is no single answer to questions 1, 2 and 3 above. But one thing is clear – a workable solution goes well beyond merely encouraging SME investors in the capital market. Without a national drive towards educating both entrepreneurs and investors, involving corporate federations, market entities and trade unions, as well as an objective and timely government policy, it is highly unlikely that Brazil will change this situation within the next ten years.ENTREPRENEURSHIP, MOBILIZATION OF SOCIETY AND EDUCATIONAL PORTAL " Brazil lacks a public entrepreneurship policy. It is vital to have a government that improves the country's business environment. Entrepreneurs continue to suffer from the high cost of doing business in Brazil. Issues related to entrepreneurship must become part of the school curriculum," ( Fiorina Mugione, Chief of UNCTAD's Entrepreneurship Section, VEJA, March 30, 2013). Entrepreneurship in Brazil has the following features: (i) 3rd in the world in terms of the number of entrepreneurs, behind only China and the United States; (ii) 27 million people own their own business, according to a Sebrae survey; and (iii) 76% of Brazilians intend to open their own business, according to Endeavor. However, far from being able to grow and perpetuate their businesses through angel investments, venture capital, private equity and market listing, Brazilian start-ups are blocked. SMEs have no access to the stock market (a vicious cycle), unlike in China and the USA, where there is enormous competition in this segment (including specific SME markets): in the U.S., there are the NYSE Euronext, Nasdaq, Direct Edge, OTCQX and BATS, while China has Shanghai and Shenzhen, not to mention the neighboring Hong Kong market. It is almost unheard of for a Brazilian SME to access the stock market here, so they normally look for an exit mechanism through M&As, or sale to a major strategic group, thereby ending their life-cycle. One educational initiative preliminarily entitled PAC-PME - Growth Acceleration Program for Small and Medium Enterprises ( www.pacpme.com.br), was developed on a pro-bono basis and currently has 67 participants in its working and support group, comprising 15 financial intermediaries, 18 legal consultants, 9 auditors and 25 entities and associations. The later include ACSP – the Sao Paulo Commercial Association, ANCORD, ANEFAC, ATS Brazil (NYSE Technologies), CIETEC, Direct Edge, EXAME PME, FecomercioSP, FIESP, Força Sindical, IBEF-SP, the Creative Economy Institute, Jardim Botanico Investments, the Competitive Brazil Movement - MBC, and the Efficient Brazil Movement - MBE. PAC-PME is a complete portal of corporate solutions, offering six different resources in a simple and uncomplicated manner: educational, growth capital, digital presence, competitiveness, SME show room, and investors. The portal provides small and medium enterprises with an additional channel to promote development and entrepreneurial independence. Find out more on the educational platform and the PAC-PME video and join us. The greater the mobilization, the greater the possibility of engaging the government. SIMPLE PROPOSALS FOR THE GOVERNMENT'S CONSIDERATION AND EXPECTED RESULTS "We will give total priority to small and medium enterprises and entrepreneurship," (Dilma Rousseff, Valor Economico, November 17, 2012). For the PAC-PME to be successful, given the mobilization for education which already has 67 participants, we are making two simple and objective proposals to the government in regard to creating the necessary conditions for SMEs to access growth capital and break the above-mentioned vicious cycle: (i) an incentive for entrepreneurs who want to get their businesses formalized and to go public; and (ii) an incentive for investors who decide to buy SME shares.If the government puts these proposals into practice, the results of the PAC-PME in the next five years would be substantial, including:
- R$84 billion in private productive investments in the real sector of the Brazilian economy (growth in the investment and savings rates as a percentage of GDP);
- R$10 billion in additional tax revenue for the government;
- Creation of 1.1 million new formal jobs (conservative BNDES model);
- Greater productivity and sustainability of Brazilian SMEs (a segment that is responsible for 60% of the country's jobs);
- The implementation of stock option plans for workers (opportunity for creating and sharing wealth);
- Formalization of productive chains and sector decentralization;
- Fostering entrepreneurship and innovation; and
- Contributing to sustained GDP growth (with SMEs' increased share of exports).