1. 1
London – March, 2013
Investment Opportunities in the
Brazilian Economy
Luciano Coutinho
President

2. 2
Summary
1 Fundamentals of the Brazilian Economy
2 Investment Outlook & Infrastructure Perspectives
3 The Financing of Infrastructure

3. 3
Fundamentals of the Brazilian Economy
1

4. 4
Brazil has solid fundamentals for sustaining economic growth Stable legal and institutional framework; Social inclusion has spurred the domestic market; Healthy banking sector not exposed to troubled assets; Robustness of the external sector; Strengthening of long-term planning; Government has conditions to foster growth:
Fiscal and monetary instruments;
Improvement of regulatory framework;
Partnership with private sector.

5. 5
Gross Fixed Capital Formation (as % of GDP)
Expansion of investment is a major government priority
15
16
17
18
19
20
21
22
23
24
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
3Q 2012*
2013
2014
2015
2016
2017
2018
18,3
16,9
17,4
17
15,7
16,8
17
16,4
15,3
16,1
16
16,4
17,4
19,1
18,1
19,5
19,3
18,5
PAC 1
Infrastructure programs
PAC 2
Source: IBGE.

6. 6
Increasing investments by the public sector
Public Sector Investment (as % of GDP)
1,1
1
1
1
1,1
1,4
1,8
1,9
1,7
1,9
1,2
1,2
1,2
1,4
1,1
1,4
1,4
1,6
1,4
1,4
0,1
0,2
0,1
0,2
0,3
0,4
0,4
0,4
0,3
0,4
0,2
0,2
0,3
0,4
0,4
0,5
0,6
0,8
0,6
0,7
2,6
2,6
2,6
3,0
2,9
3,7
4,2
4,7
4,0
4,4
0
1
2
3
4
5
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Central Government
States & Municipalities
States & Municipalities (self financing)
State Owned Enterprise (Central Government)
Source: IPEA.

7. 7
Sound macroeconomic fundamentals: Declining Net Public Debt/GDP
Consolidated Public Sector Net Debt (as % of GDP)
60,4
54,8
50,6
48,4
47,3
45,5
38,5
42,1
39,2
36,4
35,1
30
35
40
45
50
55
60
65
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Brazilian Central Bank.

8. 8
CPI Inflation (IPCA index, % YoY)
Sound macroeconomic fundamentals: Inflation under control
8,9
6,0
7,7
12,5
9,3
7,6
5,7
3,1
4,5
5,9
4,3
5,9
6,5
5,84
0
2
4
6
8
10
12
14
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
IPCA
Lower Bound
Center of the Target
Upper Bound
Source: IBGE.

9. 9
International Reserves (US$ billion)
Sound macroeconomic fundamentals: Strength of the external sector
Source: Brazilian Central Bank

10. 10
Foreign Direct Investment - FDI (US$ billion)
•Fonte: UNCTAD
•Elaboração: Ministério da Fazenda
FDI at highest levels
Source: UNCTAD

11. 11
Brazil will be the fifth largest global market in 2020
Global Consumer Market
in US$ trillion
Source: based on McKinsey, prepared by Ministry of Finance

12. 12
Ongoing economic inclusion fuels a dynamic market
Population by income class strata (# of people)*
* Source: IPEA, based on PNAD/IBGE data. Prepared by Ministry of Finance

13. 13
New macroeconomic framework
Tax Cuts
(US$ 23 bn in 2012)
Exchange Rate Policy
Monetary Policy
•Lower interest rates
•Inflation under control
•Maintaining competitiveness
•Floating exchange rate with reduced volatility
•Payroll tax reduction (40 sectors)
•Reform of VAT (ICMS)
•Reduction of the Tax on Industrial Producs (IPI)
•Reform of Social Contributions (PIS/COFINS)

14. 14
Expected growth in business
Recent survey* (with more than 1,300 CEOs), indicated Brazil as the third most often mentioned country for expanding business over the next 12 months
Countries where companies expect to expand their business
(% of total answers)
* “Dealing with disruption, adapting to survive and thrive”, PricewaterhouseCoopers, 16th Annual Global CEO Survey, January 2013, p.12.

15. 15
Sources: National Agency for Civil Aviation (ANAC), National Agency for Aquatic Transportation (ANTAQ), Brazilian Association of Highway Concessionaires (ABCR) and Brasilian Associationof Automative Vehicle Manufactures (ANFAVEA).
Increasing demand for infraestructure

16. 16
Investment Outlook and Infrastructure Perspectives
2

17. 2013-2016: BNDES Investment Survey at highest level
Source: BNDES Investment Survey
3503703904104304504704905105305502006200720082009201020112012391,1441,1439,1419,8512,3475,4535,9Investment Outlook for 4 years ahead(Comparable Sectors -US$ billion -2012) Base yearofBNDESSurvey2007-20102008-20112009-20122010-20132011-20142012-20152013-2016

18. Investments will reach at least US$ 1.9 trillion in
coming 4 years
Source: BNDES
(*) Note : The BNDES research on the investment outlook for 2013-2016 covers 66% of the total industrial investments, and 100% of investments in
infrastructure, totalizing about 58% of the investments in the economy (excluding residential construction). Agriculture and Services investments are
based on queries to Sectorial entities and/or econometric forecast.
Sectors 2008-2011 2013-2016 Δ (%) CAGR %
Industry 434,4 529,7 21,9 4,0
Infrastructure 184,1 257,1 39,7 6,9
Housing 305,6 394,9 29,2 5,2
Agriculture and Services 589,2 776,1 31,7 5,7
Total 1.513,3 1.957,8 29,4 5,3
Investment Outlook for Brazil (2013-16)
(U$ billion - Constant prices)
18

19. Investments in logistics will increase 123% in coming 4 years
Source: BNDES
(US$ Billion)
Logística
80,4
179,2
123,0
* It represents an expansion 44.5 GW of power capacity and 23,600 Km Transmission Lines
Sectors2008-20112013-2016Δ(%) Infrastructure184.1257.139.7Electricity*82.291.311.0Power Generation52.557.29.0Transmission6.913.697.1Distribution22.820.5-10.0Telecommunications43.552.220.1Sanitation17.421.724.9Highways20.535.271.8Railways14.039.4182.6Ports5.012.5150.1Airports1.74.7170.9Logistics41.291.9123.0

20. 20
Financing of Infrastructure
3

21. Hydro Power Plant
Alternative energy
Distribution
Transmission Lines
Railways
Highways
Ports, Terminals, and
Warehouses
Airports and Air
Transportation
US$ Million
Source: BNDES 21
BNDES Disbursements in Electricity and Logistics
1,922
2006 2007 2008
4,430
8,214
7,836
1,726
3,649
2005 2009 2010 2011 2012
9,612
12,584
Electricity
Logistics

22. BNDES Financing in Electricity and Logistics
Sector # Projects Amount Financed Total Investment
Hydroeletric Power Plants 13 24.830 39.854
Wind Power Plants 44 7.096 11.608
Distribution 45 7.670 14.650
Transmission Lines 56 6.942 12.138
Thermal Plants 18 3.624 7.094
Nuclear 1 3.073 5.244
Small Hydros 30 963 1.489
Cogeneration 8 439 575
Energy Racionalization 14 63 84
Roadways 37 8.123 15.094
Ports, Terminals and Warehouses 44 6.425 12.406
Railways 16 3.899 6.655
Airports/ Air Transportation 9 3.678 5.253
Pipeline Transportation 1 2.051 4.345
Navigation 11 1.007 1.456
Others 5 32 36
TOTAL 352 79.914 137.979
(US$ million)
Source: BNDES (projects approved or in the pipeline)
22

23. Logistic
Main operators
Electricity
Source: Valor 1000, 2012 23

24. Main financiers and equity investors
24
Infrastructure Funds
Large Private Banks
Pension Funds
Asset Managers

25. Transmission
Generation
26,4
R$ Billion
US$ Billion
111,4
13.6
57.2
50%
55%
10
20
30
40
50
60
US$ Billion
70%
25%
80%
35%
15%
30%
Source: BNDES
* Figures according to BNDES forecast
** SPC leverage ≤ 80%
*** Amount of loans should observe DSCR ≥ 1.2
Equity
Debentures (holding or SPC**)
Credit***
Values in US$ billion
Financing structure: Electricity (2013-2016)*
15%
5%
5%
15%
25

26. Toll roads
Railways
Ports
Airports
Financing structure: Logistics (PIL)
23,5
R$ billion
US$ billion
56,0
54,2
11,4
12.1
28.7
27.8
5.8
Values in US$ billion
65%
65%
60%
60%
10
20
30
40
50
60
R$ billion
80%
80%
20%
15%
15%
20%
20%
65%
15%
5%
5%
15%
20%
20%
15%
70%
15%
15%
20%
* SPC leverage ≤ 80%
** Amount of loans should observe DSCR ≥ 1.2
Source: BNDES
26
Equity
Debentures (Holding or SPC*)
Credit**

27. Credit Lines for electricity and PIL government guidelines
Sectors
Amortization Schedule (up to – in yrs)
Grace Period
(up to – in yrs)
BNDES Credit (% - up to)
Financial Cost
Spread (% p.y.)
Power Generation
Hydropower
20
5
70
5 % *
0.9 + Risk rate
Alternative Energy
16
5
80
Thermal (Coal &1 Oil)
14
4
50
1.8 + Risk rate
Transmission
14
3
70
1.3 + Risk rate
Railways
30
5
65 - 80
5 % *
1.0
Toll roads
25
5
65 - 80
1.5
Airports
20
3
70
0.9 + Risk rate
Ports
20
3
65
2.5
Source: BNDES * TJLP - Long Term Interest Rate
27

28. Project Finance – typical toll road model
Auction
3 Months
Contracts Signed
/Bridge Loan
Approved
LT Loan
Approved
6 Months
30 Months to 60 Months
Completion
End of Concession
... 30 years total
Equity (20-35%)
Bridge Loan
Long Term Loan (65-80%)
Infrastructure Bonds (10-15%)
Strategic & Financial Investors, Local & Foreign
Financial Investors
Local & Foreign
Timing of Events
Banks &
Source: BNDES
28

29. Infrastructure Financing Holdings and SPC’s
Holding
Government Banks/Funds may co-invest with strategic and financial investors, either directly in the SPC’s or through the holding company’s equity, taking minority equity stake
SPC 1
SPC 2
SPC N
Bond
Equity
Bond
Equity
Source: BNDES
29
Brazilian Infrastructure Bonds and infrastructure investment funds – benefits for non-resident investors:
(i)zero Income Tax rate
(ii)zero IOF (Financial Operation Tax)

30. Each 1% increase in supply of infrastructure can add up to 0.5 percentage points to Potential GDP Induces economic integration of production clusters and increases efficiency of supply chains Increases competitiveness by reducing production costs... Therefore: generates systemic productivity gains... ... and contributes to improve life standards
The relevance of efficient eletricity, logistics and other infrastructures
30

31. Concluding remarks
•Brazilian growth will be led mainly by infrastructure investments
•Infrastructure pipeline: many opportunities of low risk and attractive yields
•Government financial institutions, like BNDES, will retain a role in financing Brazilian development, but…
•Investment financing in larger scale requires new private players and investors,
•making use of project finance and capital market instruments, led by private financial institutions
31

32. 32
London – March, 2013
Investment Opportunities in the
Brazilian Economy
Luciano Coutinho
President