University of California

Anderson Management School

Introduction to International Business

Marc Buchman

By Luiz Guilherme Osorio and

Antonio Henrique Cunha Santos

Los Angeles

2015

PROEX: Programa de Financiamento às Exportações (Exportation Financing Program)

Introduction

In the present essay we would like to explain what is PROEX (Programa de

Financiamento à Exportação - Export Financing Program), a Brazilian ruled program

designed to boost the country’s exportations.

We are going to identify why it is important; which kind of companies can

benefit from; which products and services can be financed by this program; how can a

firm apply for this financing and who is the institution responsible for its management.

The main purpose is to give an idea of how an export company can benefit from this

financing program and what are the intentions of Brazilian government to do so.

In order to answer those questions, we are going to talk about a little bit of the

historical, political and economic facts that lead the State to create this credit line. Later

on, we intend to describe what it is and how it works, and finally conclude on whether it

is or not beneficial for the country’s international commerce and export companies.

History

As we can see around the world’s History, international trade and commerce has

been considered one of the best strategies to grow domestic income. Since Adam Smith

published his most famous work “An Inquiry into the Nature and Causes of the Wealth

of Nations” (1776), governments stared to emphasize their capacity to deal beyond their

borders. In this book, Smith says that international trade benefits all nations involved

and boosts their income when dealing with one another.

Several other theories have been developed since Smith published his book but

all of them agree that international trade brings more advantages than disadvantages to

the countries involved on it. Although they might have different positions in which

ways it should be implemented, they have a common ground that considers commerce

between countries a good asset for their balance of payments.

In Brazil it was no different. During the years of 1960’s, the country created its

first financing program to support business owners when dealing in foreign markets.

The idea was to grow and diversify exportations but keep high importation rates to

protect the national industry. This was one of the most important principles followed by

the Theory of Import Substitutions put in practice by the government in that occasion.

In the 1980’s, due to the severe economic crises, the exports financing were

driven to a less important position in government actions in order to concentrate the

efforts to control the hyperinflation that was destroying the country’s currency. Only in

the 1990’s with the market opening and the abandon of the imports substitution policy,

the exports financing were able to come back on stage. The government created the

FINAMEX managed by the BNDES (Banco Nacional do Desenvolvimento Econômico

e Social) and the PROEX (Programa de Financiamento à Exportação) managed by

Banco do Brasil.

The years of 1990’s were the period of reorganization in International Trade in

Brazil. With new institutions, Ministries, departments, banks (both private and public),

think tanks and non-governmental organizations connected to the producers, the

exportations got much more dynamic and started to grow in a stable prospect.

In the 2000’s, the commodity boom in the world made exportations a huge

source of revenue to the government and companies. Those revenues boosted the

industrial production and investment in the internal market, while the surplus of

manufactured goods was being shipped to our neighbors in South America and African

countries.

What is PROEX?

Every economic activity offers risks to anyone who is involved on it.

International trade offers an even bigger risk, because the agents are dealing in different

countries and many times never seen each other before. This situation causes a lack of

trust which shall be mitigated in order to make international transactions possible.

Mechanisms of financing imports and exports were designed to try to minimize those

risks.

Following this objective, Brazilian government created basically two programs

of exporting finance aid: PROEX and BNDES-Exim. Although both have a huge

importance in lowing risks and funding exportations, we’ve chosen to talk about

PROEX, because it has a bigger focus on small and medium companies.

PROEX is a tool created by the Brazilian government to support and finance

exportation of goods and services produced by national companies. This program

focuses, as said before, on small and medium companies, in which gross annual sales

mustn’t be higher than R$ 600 million reais (around US$ 172 million dollars). And also

in national commercial banks that provide loans for exporters. The idea is to guarantee

the loans and exportations with National Treasury.

The legal dispositive that support PROEX is the law number 10.184/01 that

creates two divisions in the program: PROEX-Financiamento and PROEX-Equalização.

The first one (PROEX-Financiamento) is responsible for the post-shipping financing

and can be provided to the seller (supplier’s credit) or to the importer (buyer’s credit)

using Letters of Credit. The financing has a limit of 85% of the exporting value, but can

be wide to 100% for small and medium companies.

The second division (PROEX-Equalização) refers to commercial bank’s loans

and covers the difference in interest rates from money taken in the international

financial market. This is a way to minimize Foreign Exchange risks and provide interest

rates compatible and competitive in the international market. PROEX-Equalização is

supposed to hedge the commercial banks and make their interest rates similar to the

ones provided internationally.

The government agent responsible for those programs is Banco do Brasil who

pays the exporters the amount of the contract as soon as the business is done. This way

they (exporters) can offer a bigger deadline in order to give the importers a wider

possibility to honor their payment. Both, the Brazilian exporter and the foreign

importer, are able to benefit from this credit. The exported goods can also be negotiated

in any Incoterm.

The Credit Conditions are negotiated by the exporter with Banco do Brasil and

concerns guarantees, interest rates, the time to pay the loan and the percentage of the

transaction value that is going to be covered. The only requirement from BB is that

interest rates shall be paid each semester. There is no limit for the loans in terms of

values, and the government also guarantees 95% of the commercial risks and 100% of

political ones.

A big number of goods and services are the object of this financing system and

are listed on Portaria MDIC nº 587/02 from Ministério do Desenvolvimento, Indústria e

Comércio (Ministry of Development, Industry and Commerce). Almost all goods are

included (90% of all goods in the exporting list) except for commodities. Services like

construction, machinery repair, telemarketing, law services, oil and gas extraction, IT,

engineering, entertainment, advertisement, architecture, research and development,

design, among others, are also supported by this financing.

The loan term, the period of time someone has to pay the debt, goes from 2

months to 10 years and is defined by the total value of the goods being shipped. The

exporter has to be in a regular situation in all the fiscal institutions and has no debts with

the Federal Government. The payment can be in dollars or any other convertible

currency.

Conclusion

Different countries face different problems when dealing in the international

market. But some of these problems can be quite the same; they are usually red tape

bureaucracy, costs of transportation, costs of shipping, financing, among others. CNI

(Confederação Nacional das Indústrias) a private organization of the manufactures

pointed that financing is considered the fourth biggest barrier for exporting in Brazil.

One report from the World Bank also shows that in order to export more, Brazil

should improve competitiveness of its firms and invest in infrastructure to low the costs

of production. Although the report shows we have a huge amount of diverse products

commercialized in many different markets, some issues still have to be addressed to

improve the quality and quantity of exports.

Products and Markets (2008-10)

In the recent years, the commodity boom has concentrated the attention of

exports, and overshadowed machinery, electric and technological products. Exports as a

whole represent a small percentage of Brazil’s GDP (11. 2 % in 2010), as the country

focuses its economy in the internal market. However, with the cooling of the internal

market, government decided to pay more attention to international trade and facilitate it

as much as it could.

Export Technological Content

One of the first actions was to expand the amount of credit available in 1.5

billion dollars in 2015, especially in PROEX. More than half of exporting firms are

small or medium business, and this program is design to them. They represent only

10.7% of the total exportation value while big companies are responsible for 89%. This

difference explains why the focus went to small and medium companies, in order to

improve the revenues that they already have.

Exporting by size of firms (2004)

Other actions were the Concessions Program designed by the Federal

Government to attract private investor for infrastructure achievement. In this program,

ports, railways and airports were and are being expanded to wide their capacity for

cargo and people.

A research made by IPEA (Instituto de Pesquisas Econômicas Aplicadas) an

economic think tank, have shown that the systems of export financing are indeed

achieving their goals to boost Brazilian exportations and also improving technology

skills in the firms. The amount of money available for the exporting business has also

increased if we look the series for the past years, which means that the number and

value of exportations have increased as well.

Annual budget for loan in both programs.

Therefore it is possible to affirm that those financing programs, and PROEX in

particular, are fundamental to the maintenance of stable growth of exportations. There is

a huge space for expansion in Brazil’s international commerce and a wide variety of

goods and services to be sold. Government is investing in infrastructure and technology

to improve the commercial relations and the competitiveness among the firms.

Although international market represents a small part of Brazil’s GDP, the

intention is to make it grow, especially in manufacture and technology sectors. Services

are also having a special attention because it represents 69% of GDP and have a bigger

value when negotiated outside the borders. The biggest problem in this expansion is the

economic cooling of several countries in the world, especially in China, Europe, USA

and Argentina, our biggest partners in trade. A good solution to that is the widening of

MERCOSUL, more attention and participation in African economies and in Caribbean

region. Those economies are growing fast and in high rates, though they have a small

size, and can contribute to enlarge Brazil’s exports.

References:

REZENDE, Tatiane Palma. Financiamento de exportações: caso PROEX e BNDES-

Exim. 2006. Florianópolis. Universidade Federal de Santa Catarina. Avaiable in:

http://tcc.bu.ufsc.br/Economia293768

CANUTO, Otaviano; CAVALLARI Mateus; REIS, José Guilherme. Brazilian

Exports: Climbing Down a Competitiveness Cliff. Washington D.C.:Policy Research

Working Paper 6302: World Bank, 2013. Avaiable in:

BRASIL. Ministério de desenvolvimento, indústria e comércio exterior. Medidas de

apoio ao financiamento e garantia das exportações brasileiras: Programa de

financiamento à exportação-PROEX; Fundo de garantia à exportação-FGE. Avaiable in:

<http://www.desenvolvimento.gov.br/arquivo/secex/camex/20031128MedidasExp

ortacao.pdf>.

MOREIRA, Sérvulo Vicente; TOMICH, Frederico; RODRIGUES; Maria da Glória.

PROEX e BNDES-Exim: Construindo o Futuro. Brasília: IPEA, 2006. (texto pra

discussão n° 1156).

CANUTO, Otaviano; CAVALLARI, Matheus; REIS, José Guilherme. Brazilian

Exports Climbing Down a Competitiveness Cliff. Avaiable in:

http://documents.worldbank.org/curated/en/2013/01/17150344/brazilian-exports-

climbing-down-competitiveness-cliff