Brazil Triples Funds for Exports to Close to US$ 800 Million

BNDES headquarters in Brazil Brazil's federal government is going to nearly triple the funds for its Export Financing Program (Proex) in 2008. Instead of the forecasted 500 million reais (US$ 298.6 million), the credit line of the Brazilian Development Bank (BNDES) is going to count on 1.3 billion reais (US$ 776.4 million).

The increase is one of the measures announced by the federal government with the objective of increasing foreign sales and strengthening the country's position in global trade.

The government has also decided to exempt from the Welfare Tax (PIS) and the Social Security Tax (Cofins) the purchase of national inputs destined to production for exports – the so-called drawback. So far, only imports of inputs received fiscal incentives.

Another initiative for encouraging drawback is the availability of this type of operation on the Internet. According to data supplied by the Brazilian Ministry of Development, Industry and Foreign Trade, from 10% to 15% of Brazilian imports are aimed at drawback.

Although 25% of Brazilian exports use this type of operation, only around 2,500 companies are able to benefit from the incentive in an effective manner.

"This has a bureaucratic cost, one must prove that the input purchased tax-free was used to manufacture a product destined for export. Some companies even have separate plants," explained the Foreign Trade secretary, Welber Barral, upon announcing the news, soon after the production development policy was disclosed. With the use of the Internet, the number of companies using drawback is expected to increase from 10% to 20% within three years.

The federal government also decided to eliminate income tax on remittances to foreign countries for payment of export logistics services, such as storage of goods, and extending the Export Guarantee Fund (FGE) to micro-, small- and medium-sized companies with annual exports of up to US$ 1 million. In order to reduce bureaucracy in foreign trade operations, the government raised from US$ 20,000 to US$ 50,000 the limit for the Simplified Export Statement (used in foreign sales by mail, for example).

The set of measures announced also forecasts sector incentives, such as extending the Proex financing deadline for the three sectors most harmed by the appreciation of the real against the dollar – shoes, textiles and furniture – and reducing the tax on the payroll of the information technology (IT) sector, in order to attract multinational companies in the field.

"These measures should contribute a lot to increase the competitiveness of Brazilian products, and they meet a large portion of demands by the exporting sectors," said Welber Barral.

The benefits, however, are conditioned to the meeting of specific goals for each sector. In the case of IT, for instance, one of the objectives is to export the equivalent to 3.5 million reais (US$ 2 million) in software and service exports by 2010, and to create 100,000 direct jobs during that period.

In biofuels production, one of the aims is to export 5 billion liters of ethanol by 2010. Foreign sales of meat should reach US$ 14 billion in three years, and exports of automobiles should total 910,000 units, with expansion of production from the current 2.9 million vehicles per year to 4 million by 2010.

The federal government also wants to consolidate the country's position among the world's five leading manufacturers of pulp and paper and to earn a 1% share of the global merchant navy market.

The textile, footwear and furniture industries also have ambitious goals. In the case of textiles and clothing, the goal is to increase revenues from US$ 33 billion (in 2006) to US$ 41.6 billion in three years. In the case of leather, shoes and artefacts, the goal is to increase export value by 10% per year and to occupy the second position in the global ranking of shoe producers.

For furniture and wood, the forecast is for an average growth of 15% per year in domestic sales and of 7.5% per year in exports – Brazilian companies in the sector currently answer to 3.2% of global production, and only 1% of global exports. "The goals are ambitious, but feasible," believes the secretary.

ABr

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