Brazil Shifts Industrial Policy Through BNDES Innovation Financing

Brazil’s National Bank for Economic and Social Development (BNDES) has set a new record in innovation financing. The bank approved R$5.9 billion ($1.1 billion) in innovation loans from January to August 2024.

This amount surpasses the total innovation funding for the same period in the past five years combined. The BNDES Mais Inovação program, launched a year ago, drives this surge in innovation funding.

It marks the return of subsidized interest rates for large companies, albeit on a smaller scale than previous administrations.

This program accounts for 76% of the bank’s innovation loans this year, with R$4.5 billion ($818 million) allocated. Pharmaceutical companies lead the beneficiaries of this program.

EMS, Eurofarma, and Aché received a combined R$1.39 billion ($252.7 million) for generic drug production and new medication development.

This aligns with President Lula’s directive to promote technological transformation in the industry. BNDES President Aloizio Mercadante emphasizes the program’s goal of enhancing industrial competitiveness and creating highly skilled jobs.

Since its inception in September 2023, BNDES Mais Inovação has disbursed R$8 billion ($1.45 billion) to national companies. The pharmaceutical sector received the largest share, with R$1.8 billion ($327.3 million) in subsidized loans.

Other sectors benefiting from the program include agribusiness, biofuels, electric vehicles, and mobility. These investments follow the guidelines of the New Brazilian Industry (NIB) plan launched in January 2024.

Despite economists’ skepticism, BNDES has already disbursed R$143 billion ($26 billion) of the NIB’s R$300 billion ($54.5 billion) target.

Accelerating Innovation with Strategic Loans

Major companies like Weg, Volkswagen, Rumo, Positivo, Suzano, and Embraer have received substantial loans through this program.

These funds accelerate innovation projects, allowing companies to compress five-year plans into three years. The loans support various initiatives, from artificial intelligence integration to biometric system development.

In addition, the BNDES Mais Inovação program uses different interest rate mechanisms, including the Reference Rate (TR) and pre-fixed rates.

This approach marks a shift from the bank’s previous focus on market-rate loans. However, concerns exist about the potential misuse of subsidized loans and their impact on monetary policy.

BNDES aims to diversify its loan portfolio geographically and by company size. Currently, the South and Southeast regions, along with large companies, dominate the loan distribution.

The bank has adjusted its policies to encourage more loans to smaller companies and less developed regions. This record-breaking innovation funding represents a significant shift in Brazil’s industrial policy.

It demonstrates the government’s commitment to technological advancement and economic growth. However, the long-term impact and sustainability of this approach remain to be seen.