Remarks by Angel Gurría,
São Paulo, 5 November 2015
(As prepared for delivery)
Excellencies, Ministers, Senhoras e Senhores,
I am delighted to open today’s OECD-FIESP seminar on “Building a Positive Agenda for Brazil: Lessons from international practices and experiences”. I thank the Federação das Indústrias do Estado de São Paulo for your excellent support in convening this joint event.
Brazil finds itself at a turning point, and that is why the theme of today’s seminar is so important. During the early part of the 21st century, Brazil has become a leading economic power. 25 million people have been lifted out of poverty in only a decade. Bucking the trends in most OECD countries, inequality has been coming down, albeit from high levels, as the incomes of the poorest 10% have increased at three times the rate of the richest 10% since 2003.
These achievements were built on the foundation of hard-won macroeconomic stability, and also owed much to favourable external conditions. As the tailwinds from high commodity prices have weakened, and as the normalisation of US monetary policy approaches, ambitious structural reforms are long overdue to support inclusive and sustainable growth. Such a ‘positive agenda’ can help put Brazil back on a stronger, fairer, greener growth trajectory.
Two days ago, in Brasília, I launched with Ministers Mauro Vieira and Joaquim Levy an OECD-Brazil Programme of Work, through which the OECD will put the full range of its expertise at Brazil’s disposal. Our shared hope is that this can support the development of exactly the comprehensive structural reform programme that the country needs. Crucial to this effort is a dynamic, competitive and productive private sector willing to play its part in building a better future. Just as Brazil is a Key Partner of the OECD, so Brazil’s private sector is an indispensable partner of government.
Today’s seminar is an ideal occasion to engage both the Brazilian government and the private sector with policy practitioners from the OECD’s member countries as well as with our own Secretariat’s senior experts. Working together, we can build a positive agenda for Brazil. We therefore look forward to discussions of policy options to put Brazil back on the path of sustainable and inclusive growth; to improve the investment climate; and to increase the efficiency and transparency of government spending.
Yesterday, in Brasília, Minister Levy and I presented the OECD Economic Survey of Brazil 2015. It highlights an important reality: as Brazil’s population ages, growth will no longer be supported by a growing labour force as has been the case in recent years. Increasingly, productivity will be the dominant driver of growth. Here, the recent evidence is not encouraging. Over the last decade, labour productivity doubled in China. It increased by nearly a third in Colombia and South Africa. But, in Brazil it only increased by 12%! At the same time, growth in the industrial sector has been lower (2%) than overall real GDP growth (3.4%).
A number of key structural reforms could unleash significant unexploited potential for productivity gains and also improve competitiveness by reducing the so-called “Brazil Cost”. These reforms would include tackling the onerous and complex tax system, particularly the fragmented indirect taxes; a reduction of regulatory barriers and administrative burdens for starting and closing businesses, registering property, enforcing contracts, and resolving insolvency. These are particularly cumbersome in Brazil, even with respect to its Latin American peers. Minister Levy has already been championing the reform of indirect taxes. Conclusion of these efforts should be swiftly followed by a comprehensive, cross-government reform plan.
Brazil has not fully embraced the global trends shaping industrial production, including the growing fragmentation and optimisation of production across global value chains (GVCs) and the increasing integration of international trade. At present, Brazil is the least integrated into GVCs of the 40 economies in the OECD/WTO Trade in Value Added – or TiVA – database. This shows the potential gains from trade that Brazil is missing out on!
In that regard, both the OECD Economic Survey of Brazil 2015 and a recent study commissioned by FIESP from the Federal University of Rio de Janeiro are aligned in highlighting the negative impact of high tariffs on intermediate inputs for the competitiveness of Brazilian firms. On average, tariffs in Brazil are twice the level of other BRIICS countries. Reducing tariffs and taking steps to facilitate trade could be vehicles to both drive productivity and improve the incentives to innovate, thereby underpinning growth.
Investment is yet another central piece in the growth and productivity puzzle. The current recession is driven to a large degree by a falling investment rate, from both foreign and domestic sources. Restoring trust and investor confidence should be a key priority for the government, as well as for public and private companies.
Even at this challenging moment, in the midst of recession, it is important to achieve fiscal consolidation targets, and to do so in a way that is growth, equity and environment-friendly. The renewed determination of the central bank to fight against inflation is also welcome. Minister Levy has already taken important steps to restore confidence in Brazil’s macroeconomic framework. We encourage you to stay the course, and to count on the OECD’s close support!
The investment climate is also influenced by a variety of other factors, including stability and trust in public institutions, legal certainty, and a transparent and predictable regulatory environment. The OECD Policy Framework for Investment, updated in 2015, provides a valuable tool for governments to design a reform agenda to improve in these fields, with the participation of business and civil society stakeholders.
Of particular importance in this regard is improving the framework for the participation of the private sector in infrastructure investment. With public finances under pressure, the private sector must have a key role here, but the government must take seriously its responsibility as an ‘investment enabler’, ensuring that the legal and regulatory frameworks are conducive to such productive, long-term investments. Increased investment in infrastructure can support demand in the short term, while boosting productivity and potential growth over the longer term by eliminating the bottlenecks that drive up firms’ transport and logistics costs.
Given that Brazil is the most biodiverse country in the world, there is both significant opportunities for, and responsibilities on, firms and investors in respect of ‘greening the economy’. Yesterday with Minister Isabel Teixeira, I launched the OECD Environmental Performance Review, which highlights the fact that Brazil is already the seventh largest investor in renewable energy, while ‘green markets’ could contribute up to 7% of GDP!
Brazil’s progress to deliver well-being to all its citizens also requires an efficient, modern state. Resources need to be allocated to priority areas, such as education and health. Brazil has made great progress in tackling poverty and inequality. To continue along this path, good budget management is essential.
The public budget is a contract between the state and its citizens, setting out how resources will be allocated and spent for public services. Recognising the importance of this element of the social contract, I launched on Wednesday in Brasília a joint OECD-TCU report, Supreme Audit Institutions and Good Governance: Overisght, Insight and Foresight.
Performance, evaluation and value for money are integral elements of good budgeting. OECD member countries are increasingly using performance information to make strategic choices. According to our Performance Budgeting Survey (where Brazil is among the top 5 countries), Brazil has indeed a consistent and well-established performance budgeting framework and uses performance information in budget negotiations. As in Brazil, half of OECD countries use spending reviews to examine spending across government to more strategically and efficiently make use of public funds.
Although Brazil has made significant progress in this area, however, there is still much to learn from other countries’ experiences. For example, Chile’s use of systemic evaluation across its performance management system enhances transparency and openness through evaluation reports which are available to Congress and the public.
Governments across the world are becoming more open and are increasingly involving end users –citizens and firms – in policy making, asking them what they need. For example, when developing regulations, nearly all (31) OECD countries now use the internet for public consultation with stakeholders, and the vast majority (24) also do it for draft regulations. Efforts such as these are helping governments tear away unnecessary red tape, simplify processes and respond to their societies’ needs more effectively.
Brazil has taken important steps to open up government. The OECD is encouraged by the role it has been playing as a founding member of the Open Government Partnership, for example. This can be a valuable platform for Brazil to learn from other countries’ experiences, in areas where there is room for improvement, such as in the consultation phases of the rule-making process.
Ladies and gentlemen,
I wish all of you very productive discussions today, supported by the international experience brought to the table by OECD experts and the high level discussants. Yes, the challenges are many, time is short and the stakes are high. But, by teaming together and engaging in constructive dialogue around global best practices in public policy – and how they can be adapted to the Brazilian context – I am convinced that we can shape together the outlines of a positive agenda for Brazil’s renewed development. Please count on the OECD as a trusted partner in the design, development and delivery of better policies for better lives.