29 Jun São Paulo’s economic recovery spurs investment interest
Henrique Meirelles, Finance Secretary of São Paulo, details what the state government is doing to encourage financial growth after overcoming challenges presented by the COVID-19 pandemic and what needs to be done to balance the national budget
Can you give us an overview of how well the state of São Paulo and its financial sector is faring?
The economy of São Paulo grew about 0.4 percent in 2020, which was substantially above the performance of the Brazilian economy, which contracted 4.1 percent. In the first quarter, while Brazil grew by 1.2 percent, São Paulo grew around 1.7 percent. The economy is now 6 percent above the level when the pandemic hit in January 2020, which is a result of the state being open to international investors and conducting general reforms and private concessions for roads, subways, trains, airports and ports. We are introducing massive transportation by railroad into Brazil, something common on the global market. We are building a railroad between the city of São Paulo and the economic region of Campinas that aims to transport 665,000 passengers per day. The resumption of global trade and investment has increased the demand for many goods and services that are produced within Sao Paulo; our exports are growing. Our gross domestic product (GDP) growth expectation for 2021 is between 6 percent and 7.6 percent.
Banks are performing well as they followed all protocols we established, such as social distancing and working from home; larger banks have kept their profit level. They also followed our initiatives to support online banking. We have a financial institution called Desenvolve SP that borrows from international development banks, the World Bank, Brazilian Development Bank and European agencies. It is an important mechanism for funneling investment into the state of São Paulo and is performing very well despite market conditions.
What needs to happen to balance the national government’s finances?
It is important that the federal government controls its expenses. The federal public debt to GDP level is now high. Government spending increased last year. Amongst emerging markets, Brazil was one of the highest spenders in fighting the pandemic. If the government can control expenses, the central bank must take proper action because inflation will come down. Brazil has a history of high inflation, having been under hyperinflation for a period of 15 years ending in 1994. When we set a ceiling on the growth of federal government expenses in the constitution, the neutral interest rate and investment and fiscal risk came down. During that time inflation dropped from 14 percent to less than 3 percent. In summary, the central bank needs to take a strong position, deliver a hawkish message and take concrete measures.
What key initiatives and programs has the government put into play to promote regrowth of the economy?
The government has introduced a series of basic reforms that have already improved the ease of doing business. We have simplified and digitized the government’s paper-based system. All newly registered or terminated companies can process their documentation through our online portal, simplifying bureaucratic procedures. Another important project is a tax simplification initiative. According to a World Bank study conducted in 2016, a Brazilian company on average spends 2,600 hours per year filling in bureaucratic procedures to pay taxes. The most important part of this tax complexity in Brazil is at the state level. We are working on simplifying both the tax procedure and the tax structure. We want to make information on tax status and tax legislation accessible, easy to understand and uniform across all states. We are also focusing on reducing the time it takes to incorporate a company. This used to take an average of 101 days, but today in the state of São Paulo we have companies opening in a day. We are conducting a human resources reform that will eliminate inefficient usages of resources. We are moving towards a friendlier reality for companies.
An important initiative for the development of industry is the creation of economic pools. The idea is to cluster companies according to their sector in certain areas of the state. Some sectors have already begun to do this, such as aeronautics and automotive sectors, concentrated in the cities of Santo André, São Bernardo do Campo and São Caetano do Sul, also known as the ABC region in the greater São Paulo area. We are providing special conditions for these companies in terms of infrastructure, management and training and up-skilling employees. These industrial clusters facilitate production and doing business as suppliers and buyers are in the same area.
How is São Paulo attracting investment in its projects?
We need to create a favorable environment for investment. Our efforts to push through rapid vaccinations is a catalyst for growth as it improves perceptions of the economy. In 2020 we had the largest private-investment auction for a road in the history of Brazil. The road, which crosses the center of the state, was won by a large American investment fund and a large sovereign fund from Asia and will require $3 billion. We simplified procedures, which eases doing business at this level. In terms of opportunities for investment, our agricultural sector is growing fast due to increased global demand stemming from growth in the U.S. and China. We have provided incentives to attract state-of-the-art technologies to increase productivity by mapping out rural areas and aiding in planting and harvesting. We also have interesting alternatives in the real estate market, which is back in full swing with opportunities sprouting up outside the congested downtown areas of São Paulo.
What are your projections for the state of São Paulo’s economic patterns this year?
2021 will have a continuation of what happened during the second half of 2020. We will see strong growth of investment in technology, telecommunications, construction, agribusiness and financial industries. We are also seeing a rise in the biofuels industry that will make use of our large production of sugarcane and ethanol. We are establishing agreements with countries to add ethanol to their transport and industrial sectors. Tourism and business travel within the state is beginning to improve, which spurs on economic growth in hotels and conference centers. The airline industry, which suffered a lot last year, now has a strong prospect for growth. São Paulo has the largest airport in Latin America and the third largest airport in Brazil. We are offering concessions for 22 regional airports in São Paulo that are witnessing a rise in traffic. We have seen growth levels above what we expected. São Paulo is open for foreign investors. We have a friendly business environment and are substantially improving the ease of doing business while focusing on environmental, social and corporate governance and protecting the environment.
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