Basic statistics of Brazil, 2016 : (Numbers in parentheses refer to the OECD average)*

166 Pages·06.851 MB·English

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OECD Economic Surveys:
Brazil
2018
This document, as well as any data and any map included herein, are without prejudice
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Please cite this publication as:
OECD (2018), OECD Economic Surveys: Brazil 2018, OECD Publishing, Paris.
http://dx.doi.org/10.1787/eco_surveys-bra-2018-en
ISBN 978-92-64-29047-1 (print)
ISBN 978-92-64-29050-1 (PDF)
ISBN 978-92-64-29051-8 (epub)
Series: OECD Economic Surveys
ISSN 0376-6438 (print)
ISSN 1609-7513 (online)
OECD Economic Surveys: Brazil
ISSN 1995-3763 (print)
ISSN 1999-0820 (online)
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TABLE OF CONTENTS │ 3

Table of contents
Basic statistics of Brazil, 2016............................................................................................................... 8
Executive summary ............................................................................................................................... 9
Sustaining inclusive growth with further significant reforms ............................................................ 10
Stronger investment and productivity are key for future growth ....................................................... 10
Brazil can seize greater benefits from greater global and regional integration .................................. 10
Assessment and recommendations ..................................................................................................... 13
The economy is gradually emerging from the recession ................................................................... 20
Inflation has declined but financial intermediation could be improved ............................................. 25
Fiscal outcomes need to improve to ensure the sustainability of public debt .................................... 28
Improving governance and reducing corruption ................................................................................ 42
Raising investment is a key policy priority ........................................................................................ 43
Supporting the integration with the region and the world economy .................................................. 49
Green growth challenges.................................................................................................................... 57
Bibliography ...................................................................................................................................... 61
Thematic chapters ............................................................................................................................... 67
Chapter 1. Raising investment and improving infrastructure ........................................................ 69
Stronger investment is a key requisite for solid growth ..................................................................... 70
Why has investment been so weak? ................................................................................................... 73
Raising returns on investment ............................................................................................................ 78
Strengthening competition and shifting resources to firms with the best investment opportunities .. 94
Attracting private investment into infrastructure projects ................................................................. 96
Improving access to investment financing ....................................................................................... 103
Annex 1.A.
Bibliography .................................................................................................................................... 113
Description of the empirical analysis and results ......................................................... 118
Chapter 2. Fostering Brazil’s integration into the world economy ............................................... 121
Brazil is missing out on the opportunities arising from international trade ..................................... 122
Trade barriers have significant economic effects ............................................................................ 131
Seizing the opportunities of the global economy ............................................................................. 140
Policy options to strengthen integration .......................................................................................... 148
Making trade work for all Brazilians ............................................................................................... 150
Bibliography .................................................................................................................................... 159

Tables
Table 1. Expected gains from structural reform are substantial ............................................................ 19
Table 2. Macroeconomic indicators ...................................................................................................... 23
Table 3. Key vulnerabilities .................................................................................................................. 25
OECD ECONOMIC SURVEYS: BRAZIL 2018 © OECD 2018
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Table 4. Expected possible savings from improving the efficiency of public expenditures ................. 41
Table 5. Past OECD recommendations on macroeconomic policies .................................................... 42
Table 6. Past OECD recommendations on improving the investment climate ..................................... 57
Table 7. Past OECD recommendations on green growth ...................................................................... 60
Table 2.1. The structure of exports and imports .................................................................................. 128

Figures
Figure 1. Well-being indicators ............................................................................................................. 14
Figure 2. The economy is recovering and productivity growth has slowed down ................................ 15
Figure 3. GDP growth could be much stronger with more ambitious structural reforms ..................... 20
Figure 4. After a deep recession, the economy is recovering ................................................................ 21
Figure 5. Inflation has come down, the exchange rate has depreciated ................................................ 22
Figure 6. Financial markets contain risks, but these appear manageable .............................................. 24
Figure 7. External debt has risen but currency reserves are high .......................................................... 25
Figure 8. Inflation and core inflation have eased, while expectations converge towards the target ..... 26
Figure 9. Monetary policy has responded to declining inflationary pressures ...................................... 27
Figure 10. Fiscal outcomes have deteriorated sharply .......................................................................... 28
Figure 11. Investment is closely following domestic savings ............................................................... 29
Figure 12. Public debt levels are middle-range but interest expenditures are high ............................... 30
Figure 13. Public debt trajectory ........................................................................................................... 31
Figure 14. Main functional areas of public expenditure ........................................................................ 32
Figure 15. Poverty is relatively high for young people ......................................................................... 33
Figure 16. Different benefits reach people at different income levels .................................................. 34
Figure 17. Pension reform is urgent ...................................................................................................... 35
Figure 18. Potential gains from greater spending efficiency on health ................................................. 38
Figure 19. High expenditures in education coincide with weak outcomes ........................................... 39
Figure 20. Compensation of general government employees ............................................................... 40
Figure 21. After years of decline, investment is low in international comparison ................................ 44
Figure 22. Infrastructure quality is low ................................................................................................. 45
Figure 23. Hours required to prepare taxes ........................................................................................... 47
Figure 24. Regulatory barriers to entrepreneurship are high ................................................................. 48
Figure 25. Exposure to trade and participation in global value chains are low ..................................... 50
Figure 26. Brazil has remained on the side lines of global value chains ............................................... 51
Figure 27. Trade barriers are high, especially in capital goods ............................................................. 51
Figure 28. The potential consumer benefits from lower trade barriers are highly progressive ............. 53
Figure 29. Export performance has been weak ..................................................................................... 54
Figure 30. Active labour market policies are not focused on training and labour market services ....... 55
Figure 31. Women and youths have lower labour market attachment .................................................. 56
Figure 32. Net greenhouse gas emissions by sector of origin ............................................................... 58
Figure 33. Deforestation is increasing ................................................................................................... 59
Figure 34. Taxes on fossil fuel are low in international comparison..................................................... 59
Figure 35. Green growth indicators ....................................................................................................... 60
Figure 1.1. The economy’s growth potential has declined .................................................................... 70
Figure 1.2. Income gaps with OECD countries remain large due to low productivity ......................... 71
Figure 1.3. The investment rate is low in international comparison ..................................................... 72
Figure 1.4. Infrastructure quality is low ................................................................................................ 73
Figure 1.5. Productivity is low in international comparison ................................................................. 74
Figure 1.6. Saving is low and has declined ........................................................................................... 75
OECD ECONOMIC SURVEYS: BRAZIL 2018 © OECD 2018
TABLE OF CONTENTS │ 5

Figure 1.7.Private sector assets under management .............................................................................. 76
Figure 1.8. Brazil attracts less direct investment than other countries in the region ............................. 77
Figure 1.9. FDI restrictions are low compared to OECD countries ...................................................... 77
Figure 1.10. Regulatory barriers to entrepreneurship are high .............................................................. 78
Figure 1.11. Ease of starting a business ................................................................................................ 79
Figure 1.12. The court system is slow to resolve commercial disputes ................................................ 83
Figure 1.13. Insolvencies are slow and recovery rates low ................................................................... 84
Figure 1.14. Hours required to prepare taxes ........................................................................................ 85
Figure 1.15. Unit labour costs have risen .............................................................................................. 88
Figure 1.16. Minimum wages are high in international comparison ..................................................... 89
Figure 1.17. Skill gaps are significant ................................................................................................... 90
Figure 1.18. Many firms struggle to fill jobs ......................................................................................... 90
Figure 1.19. The state of Ceará has made substantial progress in education quality ............................ 92
Figure 1.20. The share of students in vocational and technical programmes is low ............................. 93
Figure 1.21. Investment in infrastructure is low .................................................................................... 97
Figure 1.22. Density of paved road network by country ....................................................................... 98
Figure 1.23. Mobile telecom services are relatively expensive ........................................................... 103
Figure 1.24. Real lending rates are extremely high ............................................................................. 104
Figure 1.25. Investment has been inversely correlated with ex-ante real interest rates ...................... 104
Figure 1.26. BNDES disbursements and credit subsidies remain high ............................................... 105
Figure 1.27. Infrastructure finance is dominated by public banks, in particular BNDES ................... 107
Figure 2.1. Exposure to trade is low and export performance has declined ........................................ 123
Figure 2.2. Brazil integration in global value chains is minimal ......................................................... 124
Figure 2.3. Brazil has remained on the side lines of global value chains ............................................ 125
Figure 2.4. Prices are relatively high ................................................................................................... 126
Figure 2.5. The share of imported inputs is low .................................................................................. 127
Figure 2.6. Export diversification has fallen ....................................................................................... 128
Figure 2.7. The share of processed agriculture and good exports has diminished .............................. 129
Figure 2.8. Brazil’s participation in food GVCs is small .................................................................... 130
Figure 2.9. China is Brazil's main trading partner ............................................................................... 131
Figure 2.10. Brazil has not gained new markets for its exports in recent years .................................. 131
Figure 2.11. Tariffs barriers are high ................................................................................................... 132
Figure 2.12. Tariff to intermediate and capital products are very high ............................................... 134
Figure 2.13. Sectors with high tariffs are also hampered by high tariffs on their inputs..................... 134
Figure 2.14. Brazil makes a large use of non-tariff trade barriers ....................................................... 135
Figure 2.15. Local content rules are relatively abundant in Brazil ...................................................... 136
Figure 2.16. The number of antidumping measures in effect in Brazil is relatively large .................. 137
Figure 2.17. The cost to export is high ................................................................................................ 138
Figure 2.18. Trade facilitation procedures could improve further....................................................... 138
Figure 2.19. Brazil restricts trade in services more than other countries ............................................ 140
Figure 2.20. Sectors using more imported inputs will benefit more from tariff cuts .......................... 142
Figure 2.21. Estimated responses of value added by sector to changes in trade protection ................ 144
Figure 2.22. The share of tertiary graduates is relatively low ............................................................. 146
Figure 2.23. Reducing tariffs would benefit especially low-income households ................................ 148
Figure 2.24. Spending on active labour market is very concentrated in subsidies .............................. 152
Figure 2.25. Vocational education is not well developed .................................................................... 153
Figure 2.26. There are large differences in tariff protection across states ........................................... 154
Figure 2.27. Educational differences across regions are large ............................................................ 157

OECD ECONOMIC SURVEYS: BRAZIL 2018 © OECD 2018
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Boxes
Box 1. A glance at Brazil’s recent economic history ............................................................................ 16
Box 2. Recent and ongoing reform initiatives ....................................................................................... 18
Box 3. Recent corruption investigations ............................................................................................... 43
Box 1.1. Identifying constraints to productivity growth using firm-level data ..................................... 81
Box 1.2. The power of incentives in education policies: Lessons from the state of Ceará ................... 92
Box 1.3. A few successful examples in the area of infrastructure finance .......................................... 109
Box 1.4. Summary of policy recommendations for raising investment .............................................. 112
Box 2.1. Building on Brazil’s success in agriculture and food ........................................................... 129
Box 2.2. A tale of two industries – automobiles and aerospace .......................................................... 133
Box 2.3. Quantifying the effects at sectoral level of a cut in trade tariffs ........................................... 144
Box 2.4. Successful examples of regional policies to foster structural transformation ....................... 156
Box 2.5. Recommendations to foster integration into the world economy ......................................... 158

OECD ECONOMIC SURVEYS: BRAZIL 2018 © OECD 2018
CHAPTER TITLE │ 7

This Survey was prepared in the Economics Department by Jens Arnold and Alberto
González Pandiella under the supervision of Piritta Sorsa. Research and statistical
assistance was provided by Christian Abele, Matheus Bueno, James Hiroshi Habe and
Anne Legendre and editorial assistance by Carolina González.
The Survey was discussed at a meeting of the Economic and Development Review
Committee on 13 November 2017 and is published on the responsibility of the Secretary-
General of the OECD.

OECD ECONOMIC SURVEYS: BRAZIL 2018 © OECD 2018
8 │CHAPTER TITLE

Basic statistics of Brazil, 2016
(Numbers in parentheses refer to the OECD average)*
LAND, PEOPLE AND ELECTORAL CYCLE
Population (million) 206.1 Population density per km² 24.7 (37.2)
Under 15 (%) 22.6 (17.9) Life expectancy (years, 2015) 75.2 (80.5)
Over 65 (%) 8.1 (16.6) Men 71.6 (77.9)
Women 78.9 (83.1)
Latest 5-year average growth (%) 0.9 (0.6) Next general election 10/2018
ECONOMY
Gross domestic product (GDP) Value added shares (%)
In current prices (billion USD) 1,796.2 Primary sector 5.5 (2.5)
In current prices (billion BRL) 6 266.9 Industry including construction 21.2 (26.6)
Latest 5-year average real growth (%) -0.4 (1.8) Services 73.3 (70.9)
Per capita (th USD PPP) 15.2 (42.0)
GENERAL GOVERNMENT
Per cent of GDP
Expenditure 41.6 (41.6) Gross financial debt 69.9 (108.5)
Revenue 32.7 (38.7) Net financial debt 46.2 (69.9)
EXTERNAL ACCOUNTS
Exchange rate (BRL per USD) 3.489 Main exports (% of total merchandise exports)

PPP exchange rate (USA = 1) 1.995 Crude materials, inedible, except fuels 25.6

In per cent of GDP Food and live animals 24.3

Exports of goods and services 12.5 (53.9) Machinery and transport equipment 18.8
Imports of goods and services 12.1 (49.5) Main imports (% of total merchandise imports)
Current account balance -1.3 (0.2) Machinery and transport equipment 37.3
Net international investment position -39.9 Chemicals and related products, n.e.s. 24.7
Mineral fuels, lubricants 11.0
LABOUR MARKET, SKILLS AND INNOVATION
Employment rate for 15-64 year-olds (%) 54.0 (66.9) Unemployment rate, LFS (age 15 and over) (%) 12.0 (6.3)
Men 64.3 (74.7) Youth (age 18-24, %) 25.9 (13.0)
Women 44.5 (59.3) Tertiary education completed 25-64 y/o (%) 14.8 (35.7)
Participation rate for 15-64 year-olds (%) 61.4 (71.7) Gross dom. expenditure on R&D (% GDP, 2014) 1.2 (2.4)
ENVIRONMENT
Total primary energy supply p.c.(toe, 2014) 1.5 (4.1) Exposure to air pollution (more than 10 g/m3 of 50.9 (75.2)
PM2.5, % of population, 2015)
Renewables (%, 2014) 38.6 (9.6) CO2 emissions from fuel combustion 2.3 (9.4)
p.c.(tonnes, 2014)
SOCIETY
Income inequality (Gini coefficient, 2013) 0.470 (0.311) Education outcomes (PISA score, 2015)
Relative poverty rate (%, 2013) 20.0 (11.3) Reading 407 (493)
Median disp.househ.income (th USD PPP, 7.3 (20.4) Mathematics 377 (490)
2013)
Public and private spending (% of GDP) Science 401 (493)
Health care (2014) 8.3 (9.0) Share of women in parliament (%) 9.9 (28.7)
Pensions (public, 2014) 11.6 (9.1)
Education (public , primary, secondary, 4.1 (3.4)
post sec. non tertiary, 2014)
Note: Where the OECD aggregate is not provided in the source database, a simple OECD average of latest available data is calculated where
data exist for at least 29 member countries.
Source: Calculations based on data from OECD, International Energy Agency, World Bank, IMF and Inter-Parliamentary Union.
OECD ECONOMIC SURVEYS: BRAZIL 2018 © OECD 2018