In a continuing effort to boost Brazilian manufacturing, the Government of Brazil announced another $35 billion in stimulus measures on April 3. This second phase of the Brasil Maior (“Bigger Brazil”) Industrial Plan eliminates payroll taxes for some Brazilian manufacturers and greatly expands low-cost lending facilities offered by Brazil’s National Development Bank, BNDES.

Brazil’s 20 percent payroll tax, long criticized as hampering Brazil’s industrial competitiveness, has been eliminated for certain sectors. The first phase of Bigger Brazil, announced last August, eliminated the payroll tax for clothing, footwear, call centers, and software sectors. In the recent announcement, eleven new sectors qualify for payroll tax elimination, including textiles, auto parts, capital goods, plastics, furniture, electrical materials, buses, shipping industry, airplane industry, hotels, and microchip design. For these industrial sectors, the payroll tax will be replaced by a tax on gross revenues at the rate of 1 percent for industries and 2 percent for service sectors.

BNDES also received $24.7 billion from Brazil’s National Treasury to expand its industrial loan programs. BNDES announced a number of changes to reduce the cost of financing for industries and extend loan terms and amounts. The BNDES PSI Program, which provides loans for industrial purchases of machinery and equipment, was extended through December 2013. Interest rates for this program were also reduced, from 8.7 percent to 7.3 percent for large companies, and from 6.5 percent to 5.5 percent for micro, small, and medium-sized enterprises. For export loans, BNDES is extending the loan term from 24 to 36 months, with interest rates continuing at 9 percent for large companies and 7 percent for micro, small, and medium enterprises.

Additionally, BNDES announced a new PSI program, directed at promoting technological development. The BNDES Transforming Projects program, focused on knowledge and engineering-intensive sectors, provides loans for investments that promote technological and production capacity for products not currently manufactured in Brazil. These loans will be issued for up to 144 months at 5 percent interest.

At the recent Latin America Summit in Colombia, Brazil’s President, Dilma Rousseff, stated that Brazil’s actions are necessary to protect Brazilian companies and jobs from other countries’ predatory trade practices. Since we first reported on Bigger Brazil in the September 2011 Trade & Manufacturing Alert, the government has continued to intervene in the currency markets to prevent further appreciation of the Real. The Real’s appreciation has made Brazilian products more expensive in export markets. In addition, Brazilian manufacturers continue to face competition in Brazil from lower cost imports manufactured in countries with weaker currencies.