On support from National Development Banks for the internationalisation of public Brazilian companies: it’s hard to say goodbye (to good companies)

ABSTRACT

This article examines the relevance of National Development Banks (NDBs), taking as a reference the activity of Brazil’s BNDES (Banco Nacional de Desenvolvimento Econômico e Social) and its role in the internationalisation of State-Owned Enterprises (SOEs). NDBs cover market failures in access to financing for companies, and they promote the development of nascent industries. Within the business cycle, the key determination to be made is at what point NDBs should withdraw their support and reallocate resources to other developing industries and companies. Using operations databases from BNDES, this process is analysed by considering the different strategies followed by flagship Brazilian companies, including Vale, Embraer, and Petrobras.

KEYWORDS:

• National Development Banks
• BNDES
• Embraer
• Petrobras
• Vale
• internationalisation
• business cycle
• multilatinas

JEL CLASSIFICATION:

• G20
• O16
• L52

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. As we are interested in the targets of NDB support, the terms “industry” and “sector” are used interchangeably throughout this paper.

2. However, despite their importance, issues such as the choice of sector in which to invest or the sectoral diversification of an investment are beyond the scope of this article.

3. The role of NBDs in Latin America is analyzed in Rougier (2011).

4. The references cited in this section are not intended as an exhaustive analysis of the ways in which the State should influence the financial sector; rather, the purpose is to collect some of the main views around the topic at hand.

5. This issue is controversial, as there may be incompatibility between the Basel Accords related to the extent of use of capital buffers and development banking as instruments of industrial and technology policy (Hanley et al. 2016).

6. United Nations 2014. Report of the Intergovernmental Committee of Experts on Sustainable Development Financing. A/69/315.

7. Conference & Agenda: http://www.un.org/esa/ffd/wp-content/uploads/2015/08/AAAA_Outcome.pdf

8. More information on the history and operation of BNDES can be found at (Almeida, Lima-de-Oliveira, and Ross Schneider 2014; Alves 2018; BNDES Barboza et al. 2020; BNDES, Puga, and Gabrielli 2018; Bugiato 2018; da Silva Macedo 2020; Ferraz and Coutinho 2019; Ghibaudi and Laltuf 2017; Hermann 2010; Lazzarini et al. 2015; Mazzucato and Penna 2015; Micco, Panizza, and Yanez 2007; Morfín Maciel 2018; Oliveira 2016; Senhoras 2019; Silva 2019; Tokumoto et al. 2021; Torres and Zeidan 2016).

9. Hanley et al. (2016) provides an excellent critical review of the literature on BNDs that analyses nearly 1000 texts and a period of 60 years. In addition to presenting a wonderful guide to understanding the evolution of BNDs, these authors point out the main research questions and highlight that most of the literature is narrative rather than analytical in nature, as well as non-critical, largely due to the predominance of texts produced by the bank itself.

10. This period breakdown is similar to that used by (Feil and Feijó 2021), who analyse the performance of BNDES in three stages: 1952–1980, 1981–2002, and 2003–2015.

11. However, most of our analysis will focus on the second and third periods, which coincide with the Sixth Republic, when democracy was already reinstated, and especially since the Cardoso administration. This is because Cardoso was the first president elected by popular ballot since the coup d’état to complete one term. If fact, he was re-elected for an immediately consecutive term.

12. Article 239 of the Federal Constitution of 1988 determined the allocation of part of the funds collected by PIS-PASEP (mandatory public pension plans) – which today make up the FAT – to BNDES for investments capable of boosting the economic development of Brazil. Since then, 40% of the funds from PIS-PASEP (the main source of FAT) have gone to customers of all sizes, including the micro-entrepreneur and family farmer. These funds return to the FAT in the form of BNDES financing with FAT resources (Barboza et al. 2020).