Mr. Klaus Schwab, Founder and Executive Chairman of the World Economic Forum,
Heads of state and heads of government,
Cabinet ministers, members of my delegation,
Ladies and gentlemen representing the business and financial communities,
Ladies and gentlemen journalists, photographers and cameramen,
Ladies and gentlemen at large,
More than five years have gone by since the onset of the global financial crisis, the deepest and most complex crisis since 1929. Government leaders, members of the business community and workers found themselves in the difficult challenge of avoiding the worst, while engaging in an effort to rebuild the path towards prosperity towards resumption of production activity, investments and particularly job opportunities.
All economies had to face up to the task of restoring business confidence. The kind of confidence that is really key and essential for good economic performance. In order to definitively exit the crisis, one is required to adopt an approach that will set priorities not only in the short term. The short term is very important, but it is just natural that in a crisis environment that is contaminated by adverse effects, many evaluations or reviews ultimately focus solely on the short-term time horizon.
It is however, absolutely essential to bear in mind a medium and long-term time horizon in our reviews, in order to support diagnoses and actions that are required to ensure growth of different economies. From that perspective, even if it is true that developed economies show clear-cut signs of recovery, the fact remains that emerging economies will still continue to play a strategic role. We are, after all, talking about those countries that have the biggest investment opportunities and prospects for expanding consumption.
We, the emerging countries, are countries that require, demand a diversified logistics infrastructure, social and urban infrastructure, as well as energy, oil, gas infrastructure, and ores, as well as industrial and agricultural investments. We, our societies, are currently undergoing a social mobility process. Societies where new and dynamic domestic markets are being established. Markets, domestic markets that are made up of hundreds of millions, sometimes even billions of consumers.
Therefore, the view or notion that, following the crisis emerging economies will allegedly be less dynamic, is an over hasty theory. They will be more dynamic precisely because that’s where huge opportunities lie, especially considering that the current investments and trade flows and high employment rates, as well as the current outlook for business opportunities available in these economies, point precisely to a different direction. And they point towards the direction of opportunity that is currently available. The fact is that since the developed economies have been the hardest hit by the crisis and out of the crisis, they will certainly create a more favorable global environment for everyone. A more favorable global economic environment.
Brazil in turn has been going through a deep social transformation in the past few years. By means of a speedy social mobility process, Brazil is becoming a mostly middle class nation. Let me just share a few figures with you that reflect or illustrate that fact: Thirty-six million men and women who have been taken out of extreme poverty in the recent past. Plus the 42 million Brazilians who have been uplifted and mainstreamed into the middle class, which grew from 37 percent of the population up to 55 percent of the Brazilian population between 2003 and 2012 alone to date. The average mean per capita income of Brazilian families grew 78 percent in the same period. In the past three years, we have created 4.5 million new job posts.
We have created a large domestic mass consumer market. We’re currently one of the world’s largest markets for automobiles, computers, mobile phones, refrigerators, pharmaceuticals and cosmetics. However, only 45 percent of Brazilian households currently have a computer, 55 percent of Brazilian households have an automatic washing machine, 17 percent have a freezer and 8 percent have a flat screen TV set, which clearly shows the signs of the demand yet to be met in Brazil, and the related business opportunities.
We have developed a huge contingent of citizens who now enjoy better standards of living, more access to information, as well as a greater awareness of their rights. Citizens who now have new hopes, new wishes and new demands. Some of these Brazilian citizens were participants in the recent June demonstrations of last year, out in the streets. And last year’s June demonstrations are an inseparable part of our process of building democracy and fostering social change.
My administration did not crack down on those demonstrators. Much to the contrary, we heard and we understood the voices from the streets. The demonstrators did not ask for a return to the past, or the life of the past, rather they asked for progress towards a future with more rights, more participation and more social gains. We know all too well that democracy breeds a desire for more democracy. Social inclusion leads to an expectation for more social inclusion. Quality of life arouses a yearning for more quality of life. A yearning for more and for better services.
It is our view that all of the achievements attained thus far will always be just a beginning. We must change this outstanding energy out there, demonstrated by the Brazilian people out in the streets, into accomplishments that will benefit everyone.
This new emerging Brazil, even if somewhat unequal, although certainly less unequal, is being built without giving up any of our commitments towards sound economic or macro-economic foundations. Inflation control and balanced government accounts are key sine qua non requirements, in order to ensure much needed stability as the solid foundation for economic expansion and social progress.
Inflation in Brazil remains under control, and since 1999, Brazil has pursued an inflation targeting regime. In the past few years we have pursued the very center of the target, and year after year we have worked to attain this objective. The results achieved thus far are very much within the range acceptable under this monetary regime. May I underscore that we have purposefully sought convergence towards the center of the inflation target.
The experience we had with extremely high inflation rates back in the 1980s and 90s, taught us a lesson on the destructive power of lack of price control over income, wages, business profits and obviously on the overall economic variables. Currency stability is currently a central value for us Brazilians as a nation.
May I emphasize that we do not compromise on inflation. Fiscal responsibility, in turn, is a founding principle of our economic and social development vision. In Brazil, federal government current accounts are under control, and there has been a qualitative improvement in government accounts in the past few years. We have successfully attained a sharp reduction in the net public sector debt, which fell from 42.1 percent in 2009, at the very beginning of the crisis, down to 34 percent of GDP in 2013. Even the gross debt has dropped over the same period, going from 60.9 percent down to 58.5 percent of the GDP.
My administration will soon set the primary surplus target for this year. And we will do so very much in line with the current trend to reduce public indebtedness. It is my belief that Brazil posts one of the lowest government indebtedness levels in the world.
Now, as we look towards the future, two other initiatives emerge as strategic. The first such initiative is about enhancing the control over subnational government accounts, and strengthening the principle of fiscal stability in order to ensure greater effectiveness and transparency to the subnational government’s task of developing and fostering a primary surplus. And that of course includes the federal administration, plus the state and municipal governments.
The second key initiative is about repositioning state-owned banks, so as to expand credit availability for investment, which is currently possible given the increased involvement of private financing, capital markets and new financial tools. In Brazil we have a sound financial system with high levels of capital, liquidity and provisioning, which has helped ensure a sustainable expansion of credit availability in the course of the past few years. The system that is currently in place is also an efficient one and it includes a harmonious role for private institutions, private banks, both national and foreign private banks. These institutions have performed an important role in Brazil over the past few years, especially the public financial system during the periods of turbulence in the national financial markets. With the resumption of normal conditions in global markets, the government’s strategic guidance is that these public institutions should go back to their natural roles and agendas, as part of their original mandate.
The global financial crisis has now taken on new contours as we see the tapering or withdrawal of monetary incentives by developed countries. Now, while recognizing that this move reflects a trend towards recovery of the world’s economy and trade, there remain lingering challenges that breed volatility in the financial markets.
Our international reserves currently stand at about US$ 376 billion and as such provide a safe cushion to absorb that volatility. Furthermore, the swap program designed by the Brazilian Central Bank has succeeded in providing an element of credibility and stability to our foreign exchange market.
Brazil’s first line of defense is our floating foreign exchange policy, in parallel with the broad flow of foreign direct investment, which in 2013 came to US$ 64 billion. FDI flows that remain clearly directed to Brazil further strengthen our resilience to the changing financial and monetary conditions.
From Day 1 in my administration, we have been keenly aware of the need to evolve towards a new stage. We have reiterated our commitment towards institutional quality, especially with respect to existing contracts, and our commitment to a stable economic environment that will prove attractive to investors.
It is our objective to structurally improve the Brazilian economy, thus making it increasingly competitive. To that end, it is critical that we engage in an increasingly better management of government funds by reforming the state apparatus and by cutting down on red tape and bureaucracy. Accordingly, measures to reduce bureaucratic requirements are key in order to boost Brazilian productivity. Let me just refer to one example, this so-called streamlined or simple business web portal to be put in place this year with the purpose of shortening the time required to open a business in Brazil to no more than five days.
Above all, we must and we are clearly determined to foster a strong increase in investments in infrastructure, education and innovation. By so doing, we will increase the investment rate vis-à-vis the Brazilian GDP, which is absolutely key to uphold and sustain long-term growth.
That is ultimately the purpose of our infrastructure expansion program, which is about overcoming the bottlenecks that have resulted from decades of under-investment and made worse by the strong increase in demand in the past few years.
Working in partnership with the private sector, we have in place a concessions program focusing on integrated logistics infrastructure, energy infrastructure, plus social and urban infrastructure. All of which involve hundreds of billions of dollars. The ultimate objective of the program is of course to add funds, while boosting efficiency and enhancing the management of the services associated with those public works. The private sector consortia that have taken part in the on-going concession and bidding processes are made up by major Brazilian and foreign corporations.
We have thus far carried out five highway auctions, thereby transferring more than 4,000 kilometers into private sector hands for management purposes. We have also established concession agreements for six airports granted to consortia led by large international operators. And all together in the course of the lifecycle of these agreements, a sum of US$ 20 billion will be attained, ultimately speaking.
We have also adopted a new regulatory framework for the port system, therefore enabling the expansion of private sector involvement in the provision of services based on efficiency criteria and increased cargo, throughput and volume. Thus far, eight privately-run ports have been authorized, which involves investments of more than US$ 1.5 billion. In 2014, we will further authorize new privately run port terminals and we will start the leasing arrangements for public ports.
A new model for highway concessions is currently underway. Brazil is a country that is as vast as a continent and therefore, we need a proper railway system, especially for grain and ore outflow, as well as for container transport. In 2014, we will carry out the very first auction for a stretch in the Brazilian Midwest. The remaining stretches or sections will be further implemented as of this year and we will establish the contents of certain projects in a spirit of dialogue with investors. One of the major challenges facing Brazil is building a modern railway network that is in line with Brazil’s continental size.
Three oil and gas bidding rounds have been conducted in the past year. The milestone event in this area was the auction of the huge Libra oil field, which was won by a consortium of companies made up of the Brazilian oil company Petrobras and four large oil companies that bring together both technical capabilities and financial resources. The Libra oil field is estimated to have reserves between 8 and 12 billion barrels of oil. Its commercial development is expected to mobilize direct investments of about US$ 80 billion in the next 35 years. Its multiplier effect will certainly have a positive impact on the entire oil and gas production chain. By commercially developing the other oil fields that have a similar potential as the Libra oilfield, Brazil will certainly become a substantial exporter of oil.
In electric energy we have thus far carried out about seven auctions, which have added more than 9,000 Megawatts to the installed capacity. In the generation segment, we have always attached priority to renewable sources of energy. Brazil’s energy matrix, by the way, is one of the world’s cleanest. In the transmission segment, about 10 auctions have been carried out, thus adding more than 20,000 kilometers to the country’s transmission grid. One of our main objectives is energy security. The business men and women in the audience are all too aware of the importance of planning in advance for a system expansion. And they also know that the certainty of a regular supply is absolutely key to inform one’s investment decision.
The urban agenda is very much at the center of our concerns. Brazilian cities require investments in public transport, sanitation and housing, especially considering that this year marks the World Cup and with the Olympics in 2016, of course urban infrastructure is absolutely key, as we move on towards these international events. We have invested US$ 62 billion in metros or subways, light vehicles, trains and monorails by means of public-private partnerships. We’re talking about 600 kilometers of rail systems and solutions to overcome my country’s biggest urban problem, in other words, safe and rapid mass transport.
Yet another extremely important challenge for us is sanitation. And that is important not only to ensure higher standards of living, but also an important challenge with regards to the funds required, especially for building sewage and water treatment systems. We are currently investing US$ 36 billion to expand the basic sanitation services.
As you know, Brazil is home to the world’s largest fresh water reserve, but we also have extremely dry regions in Brazil, as is the case of sections of North-eastern Brazil. Now, in order to expand the water supply we are currently investing US$ 14 billion in dams, water mains, canals, as well as water supply systems and cisterns, and wells. Hundreds and thousands of these solutions are being put in place.
As I wrap up my comments on these points may I say a few words about a program of which I am very proud, as implemented in Brazil. I’m talking about the My House My Life program, our low-income housing program. Since 2011 we have contracted for the building of 2.24 million housing units, of which 1.5 million have already been delivered. Through this program we have ensured access to housing to the poorest segments of the population by combining public funds and financing totaling US$ 87 billion. As such, we have established something that is extremely important. I’m talking about a financial equation, which considering the population’s income has enabled the program without creating any risk to the real estate industry.
Yet another infrastructure challenge, from this year, is the task of extending our high performance, high capacity broadband network throughout the Brazilian territory.
Such a network will also serve as the foundation for the educational policy we have put in place, which attaches priority to inclusion and quality.
Education will increasingly perform a two-fold function in Brazil. On the one hand, it will shape a democratic nation, thus ensuring perennial eradication of poverty in Brazil. It ensures that Brazil will not experience any setback in terms of social economic equality. Furthermore, on the other hand, it will anchor our growth in technology and innovation, thus shaping the knowledge economy. So, we’re talking about a two-fold role of education, which is absolutely key in Brazil.
It is our objective to develop a generation of young experts, researchers and scientists. We are currently engaged in fostering the largest expansion of the federal higher and technological education network in our history. For that reason we have democratized access to government-run universities. We have also broadened our school grants or scholarships programs, as well as funds made available for students to have access to private sector universities, thus benefitting no less than 2.4 million young people from low income families, who would otherwise have no way to make it to private universities. We have also put in place a nationwide examination for admission to higher education, by putting in place a fair, efficient and merit-based model.
Our Science without Borders program is currently providing young people in Brazil with the opportunity to study in the world’s best universities. The only selection criteria is to have a good score in Brazil’s nationwide competitive examination, which is by the way a mandatory condition for students to qualify and be eligible to any of our programs. As part of the Science without Borders program, we’re talking about 101,000 scholarships for universities from 39 different countries in the fields of engineering, science and technology.
In a partnership with the private sector and working with all business federations, we have deployed a broad range of technical education programs. And, just to give you an idea, in a little less than two years we have gone beyond the threshold of 5 million enrollments in these technical education programs.
In conclusion, I would like to say to you that Brazil’s historic decision to allocate no less than 75 percent of the oil revenues, royalties in both the pre- and post-salt layer oil deposits, plus 50 percent of the social fund of the pre-salt layer revenues for the education sector, will allow us to do even more. We will change the oil industry’s finite wealth into a perennial asset available to our population, in other words, education. The alchemy of changing oil into knowledge, or education, will certainly benefit our production infrastructure. Properly trained and developed workers will be able to create more productivity in the economy and therefore, will be in a position to apply knowledge and innovation in their practice. And that of course will certainly lead to more productivity.
Furthermore, our Inova-Empresa, or business innovation program, has mobilized US$ 14 billion in the form of government funds allocated for research and development. Brazilian agriculture is a success story reflecting a positive partnership between the private sector and the public sectors in terms of engaging in innovation and absorbing scientific and technological knowledge.
It was precisely thanks to the technology developed by EMBRAPA, Brazil’s agricultural research organization and the technology developed by Brazilian agribusiness, that we were able to boost our grain production by 221 percent in the past two decades. And we did so by expanding the planted acreage area by only 41 percent, so we’re talking about a growth level of no less than 180 percent in agricultural yield or productivity, which has allowed Brazil to enjoy record-level grain harvests. In the 2014 harvest we are expecting to harvest more than 195 million tons of grains, while reducing deforestation and disseminating sustainable crop practices.
During the Copenhagen Climate Conference, we voluntarily undertook commitments to reduce greenhouse gas emissions by 36 percent at a minimum. We then broke a taboo and we showed clearly that, yes, it is possible to produce in a sustainable fashion and also produce in an equally efficient fashion.
May I, in conclusion, voice the following remark: the time has arrived for us to overcome defensive stances and recognize the role of world trade in economic recovery. The historic global agreement reached at the World Trade Organization renews hope for a balanced completion of the Doha Round. Brazil is ready and Brazil is also committed to bi-regional MERCOSUR, European Union negotiations with a view to a trade agreement.
May I again stress that a new world economic growth cycle is currently under gestation. As the crisis recedes, we will certainly see emerging countries attracting greater attention. With a long-term strategy focused on fostering investments in education and in increased productivity, we hope to come out of the current international crisis even better off.
Brazil is currently one of the broadest frontiers of business opportunities in the world. Our success in the next few years will be associated with partnership arrangements established with investors from Brazil and from throughout the world. We have always welcomed foreign investments. My administration has put in place measures to further facilitate those relations. Aspects of the recent state of affairs should not overshadow that fact.
As I said before, Brazil needs and certainly wants to engage in a partnership with both Brazilian and foreign private investors. Brazil would like to hereby invite you all to join us in the effort.
And in conclusion, may I take the opportunity to invite you all to join us in the upcoming FIFA World Cup, the Cup of all Cups, to be hosted in Brazil next June. May I also take the opportunity to invite you to join us in the upcoming 2016 Olympics in Rio. Brazil is the country of football, yes, we all love football. And I’m certain that together with other countries in the world – I would not be bold enough to say with all other countries in the world, but may I say that with the vast majority of other countries in the world – we all enjoy football and have it as one of the most important forms of asserting values such as peace, and also, it is a form of tackling prejudice, all forms of prejudice.
May I also say that we are poised and ready for the upcoming World Cup. The investments I refer to are also investments directed for the upcoming World Cup. But, above all, they are investments that have stemmed from Brazil’s domestic needs. May I also say that we have our arms open, wide open, to welcome visitors from all over the world.
Thank you very much once again.