The International Executive Development Programme in Development Finance BRAZIL STUDY TOUR GUIDE Country Profile

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The International Executive Development Programme in Development Finance BRAZIL STUDY TOUR GUIDE Country Profile 1. Brazil overview Brazil is the largest country in Latin America in terms of land area, population and gross domestic product. It is the world s fourth-largest land area (8.5 million sq kms), fifth largest population (210m) and eighth largest economy. Its GDP is 2.1 trillion compared to Mexico s 1.15 trillion, the second largest economy in Latin America. The Brazilian economy is highly diversified, with services and industry representing the highest share of GDP. While Brazil is a relatively prosperous country in overall terms, it has the dubious distinction of being one of the countries with the highest gini-index, 52.7 in Latin America, only lower than Columbia (53.5) and Honduras (53.7). Data released by the Brazilian Institute of Geography and Statistics (IBGE) in December 2017, showed that more than fifty million Brazilians, nearly 25 percent of the population, live below the poverty line, and have family incomes of R$387.07 per month approximately US$5.50 a day. Poverty is not distributed equally throughout Brazil. The poverty rates ranges from 6.9 percent in Sao Paulo to almost one-third in the Northeast Region. The Northeast accounts for only about a quarter of Brazil s total population and 20% of its land area but home to more than half of Brazil s poor. Despite the much higher poverty rate in the countryside, rural and urban areas have about the same number of poor people due to the rapid urbanization. More than half of Brazil's population is considered middle class, but poverty and income inequality levels remain high; the Northeast, North, and Center-West, women, and black, mixed race, and indigenous populations are disproportionately affected. Disparities in opportunities foster social exclusion and contribute to Brazil's high crime rate, particularly violent crime in cities and favelas (slums). Brazil's rapid fertility decline since the 1960s is the main factor behind the country's slowing population growth rate, aging population, and fast-paced demographic transition. Brasilia has not taken full advantage of its large working-age population to develop its human capital and strengthen its social and economic institutions but is funding a study abroad program to bring advanced skills back to the country. The current favorable age structure will begin to shift around 2025, with the labor force shrinking and the elderly starting to compose an increasing share of the total population. Well-funded public pensions have nearly wiped out poverty among the elderly, and Bolsa Familia and other social programs have lifted tens of millions out of poverty. Brazil has traditionally been a net recipient of immigrants, with its southeast being the prime destination. After the importation of African slaves was outlawed in the mid-19th century, Brazil sought Europeans (Italians, Portuguese, Spaniards, and Germans) and later Asians (Japanese) to work in agriculture, especially coffee cultivation. Recent immigrants come mainly from Argentina, Chile, and Andean countries (many are unskilled illegal migrants) or are returning Brazilian nationals. Since Brazil's economic downturn in the 1980s, emigration to the United States, Europe, and Japan has been rising but is negligible relative to Brazil's total population. The majority of these emigrants are well-educated and middle-class. Fewer Brazilian peasants are emigrating to neighboring countries to take up agricultural work. 1

Population 207,353,391 (July 2017 est.) Age structure 0-14 years: 22.33% (male 23,599,867/female 22,696,756) 15-24 years: 16.36% (male 17,212,048/female 16,721,295) 25-54 years: 43.86% (male 45,114,076/female 45,836,147) 55-64 years: 9.12% (male 8,931,065/female 9,974,723) 65 years and over: 8.33% (male 7,356,838/female 9,910,576) (2017 est.) Dependency ratios Total dependency ratio: 43.8 Median age Population growth rate Birth rate Death rate Net migration rate Youth dependency ratio: 32.4 Elderly dependency ratio: 11.4 Potential support ratio: 8.7 (2015 est.) Total: 32 years Male: 31.1 years Female: 32.8 years (2017 est.) 0.73% (2017 est.) 14.1 births/1,000 population (2017 est.) 6.7 deaths/1,000 population (2017 est.) -0.1 migrant(s)/1,000 population (2017 est.) Urbanization Urban population: 86.2% of total population (2017) Major cities - population Ethnic groups Religions Languages Literacy School life expectancy (primary to tertiary education) Rate of urbanization: 0.99% annual rate of change (2015-20 est.) Sao Paulo 21.066 million; Rio de Janeiro 12.902 million; Belo Horizonte 5.716 million; BRASILIA (capital) 4.155 million; Fortaleza 3.88 million; Recife 3.739 million (2015) white 47.7%, mulatto (mixed white and black) 43.1%, black 7.6%, Asian 1.1%, indigenous 0.4% (2010 est.) Roman Catholic 64.6%, other Catholic 0.4%, Protestant 22.2% (includes Adventist 6.5%, Assembly of God 2.0%, Christian Congregation of Brazil 1.2%, Universal Kingdom of God 1.0%, other Protestant 11.5%), other Christian 0.7%, Spiritist 2.2%, other 1.4%, none 8%, unspecified 0.4% (2010 est.) Portuguese (official and most widely spoken language) note: less common languages include Spanish (border areas and schools), German, Italian, Japanese, English, and a large number of minor Amerindian languages definition: age 15 and over can read and write total population: 92.6% male: 92.2% female: 92.9% (2015 est.) total: 15 years male: 15 years female: 16 years (2014) Education expenditures 6% of GDP (2013) Maternal mortality rate 44 deaths/100,000 live births (2015 est.) Source: https://www.indexmundi.com/brazil/demographics_profile.html 2

2. Macroeconomic Overview The geo-political history of Brazil impacts to a great extent the current social-economic status and challenges that the development finance and financial inclusion initiatives aims to redress. Brazil Economy Data 2013 2014 2015 2016 2017 Population (million) 201 203 204 206 208 GDP per capita (USD) 12,278 12,106 8,785 8,720 9,896 GDP (USD bn) 2,468 2,455 1,796 1,797 2,055 Economic Growth (GDP, annual variation in %) 3 0.5-3.5-3.5 1 Domestic Demand (annual variation in %) 3.7 0.3-6.3-5.1 0.9 Consumption (annual variation in %) 3.5 2.3-3.2-4.3 1 Investment (annual variation in %) 5.8-4.2-13.9-10.3-1.8 Industrial Production (annual variation in %) 2.1-3 -8.3-6.4 2.5 Retail Sales (annual variation in %) 4.3 2.2-4.4-6.3 2.1 Unemployment Rate 7.1 6.8 8.5 11.5 12.7 Fiscal Balance (% of GDP) -3-6 -10.2-9 -7.8 Public Debt (% of GDP) 51.5 56.3 65.5 70 74 Inflation Rate (CPI, annual variation in %, eop) 5.9 6.4 10.7 6.3 2.9 Inflation Rate (CPI, annual variation in %) 6.2 6.3 9 8.7 3.4 Inflation (PPI, annual variation in %) 5.1 2.2 11.3 7.7-2.5 Policy Interest Rate (%) 10 11.75 14.25 13.75 7 Stock Market (annual variation in %) -15.5-2.9-13.3 38.9 26.9 Exchange Rate (vs USD) 2.36 2.66 3.96 3.25 3.31 Current Account (% of GDP) -3-4.2-3.3-1.3-0.5 Current Account Balance (USD bn) -74.8-104.2-59.4-23.5-9.8 Trade Balance (USD billion) 2.3-4 19.7 47.7 67.1 Exports (USD billion) 242 225 191 185 218 Imports (USD billion) 240 229 171 138 151 International Reserves (USD) 359 364 356 365 374 External Debt (% of GDP) 12.7 14.4 18.6 18 15.1 Source: https://www.focus-economics.com/countries/brazil Overview Last Reference Previous GDP Growth Rate 0.20% June 2018 0.1 Unemployment Rate 12.10% August 2018 12.3 Inflation Rate 4.53% September 2018 4.19 Interest Rate 6.50% September 2018 6.5 Balance of Trade 4971 USD Million September 2018 3775 Government Debt to GDP 74.04% December 2017 69.95 Source: https://tradingeconomics.com/brazil/indicators 3

Informal sector Brazil has a large informal sector, which is consistent with the high poverty rates and an open economy with large number of microenterprises. Nationwide statistics estimated that there are almost 9.5 million microenterprises in Brazil with over two million non-agriculture microenterprises located in the Northeast region alone. The Brazillian Small Enterprises Support Service (SEBRAE) uses relatively broad definition of microenterprise industrial firms with up to 19 employees and service and commerce firms with up to 9 employees. According to this definition, as many as 90 percent of all firms and microenterprises and they account for 35% of employment. These microenterprises are most prevalent in commerce and services, where they represent 94% and 91% of firms. Even if stricter definition of microenterprises is used, as firms with up to four workers irrespective of sector, they will still account for 46% of firms in the industrial sector. 78% in commerce and 82% in services. 3. Financial Market Performance 3.1 Opportunities and challenges for microfinance in Brazil Despite the great advance of retail banking in Brazil, there is a huge contingent without access to credit - 101 million people - mainly micro entrepreneurs. The main challenge is to assess the credit risk for people with: o No positive banking history o No proven income o No collaterals o Low level of financial education o Thought of banks not being something for the poor 60% of Brazilian adults do not use credit Sources: BACEN/Uso e Qualidade dos Serviços Financeiros do Brasil (2015 data) and IBGE Brazil is well behind most other countries in Latin America in the development of its microfinance industry. The most common explanations for the slow growth of microfinance in Brazil are: a) The country's macroeconomic instability until fairly recently; b) The "crowding-out" effect of subsidized government credit lines; and c) Legal and regulatory impediments faced by nonbank institutions. While all of these factors likely create constraints on microfinance development, international experience suggests that no single factor is sufficient to account from Brazil's relative lag in the supply of microfinance services. However, the combination of macroeconomic stabilization, recent elimination of several restrictions on nongovernmental organizations, reform of public banks to emphasize sustainability of operations, and proactive government programs to support the initial learning phase are providing the enabling environment required for rapid development of the microfinance industry in Brazil. Source: http://documents.worldbank.org/curated/en/284401468769786235/microfinance-prospects-in-brazil 4

3.2 Financial Exclusion in Brazil Brazil: Evolution of the number of service points of the financial service per 10,000 inhabitants 4. Banks 1 - Banco Bradesco Financiamentos: Founded in 1943, in the city of Marília, São Paulo, Banco Bradesco is the second largest private bank in Brazil. Over its almost 70 years of existence, Bradesco has acquired several financial institutions in Brazil, such as Banco do Estado do Maranhão, Banco Morada, Banco de Crédito Nacional (BCN), Banco do Estado do Ceará and Banco Boavista. In 2006, Bradesco took over the American Express credit card operations in Brazil. 2 Caixa Econômica Federal: Founded in 1861, Caixa Econômica Federal is a public bank owned by the federal government and is the only working with FGTS, PIS and the payment of unemployment insurance. It is also where all benefits offered by the federal government, such as Bolsa Família, are paid. 3 HSBC: HSBC is a commercial and an investment bank organized within four business groups: commercial banking; global banking and markets; personal financial services and global private banking. Present in 87 countries, HSBC is present in Brazil since 1997 and is headquarted in Curitiba, PR. 4 Banco J Safra S/A: Banco Safra is one of the 10 major Brazilian banks, operating in all banking divisions, focusing on companies and upper-class customers. Established in 1955, it is headquartered in São Paulo. 5 Banco Itaú: Since the acquisition of Unibanco, in 2008, Itaú saw its market value increase 120%, becoming one of the 10 major banks in the world and the largest financial conglomerate in Latin America. Headquartered in São Paulo, Itaú is a branch of Itaú Unibanco Holding SA. It has operations in Argentina, Chile, Paraguay, Uruguay, England, Luxembourg, Portugal, USA, Japan, China and United Arab Emirates. Its major focus is financial services, such as commercial and corporate banking, besides insurance, assets management and capitalization plans. 6 Banco do Estado do Rio Grande do Sul S/A: Banco do Estado do Rio Grande do Sul (or simply Banrisul), is a state-owned bank focused on business in Southern Brazil. Present in 364 cities, most of them concentrated in Rio Grande do Sul state, Banrisul is headquartered in the city of Porto Alegre and its major focus are banking services. 5

7 Banco PanAmericano S/A: Founded by Grupo Silvio Santos in 1969, PanAmericano has operated as a multi-service bank since 1991, having started its credit card operations in 1994. PanAmericano Seguros was incorporated to the bank in 1999. In 2009 Caixa Econômica Federal bought part of the bank's shares and became the second largest shareholder of the institution. 8 Banco Santander: Santander fisrt came to Brazil in 1982, but it was only in 1991 that Santander Investment operations have begun. The Brazilian operation is considered to be the most important one, being responsible for 25% of the bank profit. In 1997 Grupo Santander acquired Banco Geral do Comércio and in 1998 and the control of Banco Banespa. In 2008 it acquired the Latin American operation of ABN Amro Bank and became the third major bank in Brazil in terms of assets. As of 2016, total assets of the bank were US$22.14 billion and net profit was US$2.20 billion. 9 Banco do Brasil: Banco do Brasil is the largest Brazilian and Latin American bank in terms of assets and third by market value. Founded in 1808, Banco do Brasil is one of the oldest, and largest, banks in Brazil. It provides banking products and services to individuals, companies, and the government. The bank is headquartered in Brasilia and employs around a million individuals. It operates 5,440 branches and 66,500 service points, and serves around 64 million customers. As of 2016, the bank s total assets were US$426.65 billion and net profit was US$2.45 billion. 10 Citibank: Citibank Brasil is headquartered in São Paulo and is a branch of Citigroup FNC, the largest multi-bank in the world. The bank came to Brazil in 1915 and is present in 21 of the 26 Brazilian states. 6