Research briefing: what can African countries learn from Brazil’s inclusive growth and development?

Research briefing: what can African countries learn from Brazil’s inclusive growth and development?

Until the mid-2000s, credit in Brazil was characterised by: volatility; high costs; high concentrations in the banking industry, with the significant participation of state-owned institutions; segmentation, with large quasi-fiscal funds earmarking credit for investments.  Today, the Brazilian financial market is very different from the early 2000s, and, as this paper argues, may offer lessons for African countries.

Summary:

  • until-mid 2000s, credit to the private sector in Brazil was scarce, short term and costly. Interest rates were high in order to attract foreign investors and to finance the public debt, which reached more than 80% of GDP in 2002 and had to be rolled over every 12 months.
  • Brazil’s national development bank, the BNDES, holds a market share of over 20% of total credit market and is mainly financed by special funds from the government. On average it finances 25% of all investment in manufacturing and infrastructure
  • from 2004 to 2010, bank credit to the private sector more than doubled compared to GDP, while BNDES expanded its leading position in the long term market as a result of its important counter-cyclical financing
  • BNDES’ role has been enlarged in recent years to include new activities such as social investments, innovation and export finance to many countries, including Africa
  • the experience of BNDES is unique in Latin America and shows the importance of creating national development banks as tool to support investment and growth in less developed countries, particularly in Africa

 

This briefing is based upon an IRIBA working paper 6, Restructuring Brazil’s National Financial System, by Ernani Torres, Luiz Macahyba and Rodriogo Zeidan.

  1. How good is this research?

    Assessing the quality of research can be a tricky business. This blog from our editor offers some tools and tips.