Does Brazil have too many state-owned enterprises? 5 questions about privatization

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Marcelo Camargo / Ag. Brazil

Brazil has 138 state-owned companies. Taking into account state-owned enterprises and municipalities, not just the Union, the total is more than 400, according to a survey carried out by the Getulio Vargas Foundation Observatory

. In the 1990s, the country privatized 119 state-owned enterprises generating a turnover of $ 70.3 billion, according to the coordinator of the applied economy of the Brazilian Institute of Economics (Ibre) FGV, Armando Castelar.

Values, he says, make Brazil's privatization of that time one of the most important in the world, alongside countries like Mexico, Australia and the United Kingdom.

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The account goes from the sale of electric generators and state banks to the concession of highways and the dissolution of the public monopoly of the telecommunications sector – including the privatization of Telebras, the highest of the period, which raised 22 billion rand

Some companies already considered at the time, such as Vale, a mining company, reported companies with large losses. "In the case of Embraer and the CSN, it was to privatize or close," says the economist.

Paulo Guedes, the "superintendent" of President Jair Bolsonaro's economy, announced his intention to resume the cycle, which has cooled down during the PT administration years, between 2003 and 2016.

It decided to maintain the structure of the (PPI), set up under the Temer government to coordinate the dozens of privatizations proposed by his team and to create a general secretariat to the diffusion in order to give effect to the process.

This theme divides not only public opinion, but also specialists. Despite the victory of Bolsonaro, which has openly defended the sale of state-owned companies in its program, Datafolha's research published in December revealed that 7 out of 10 Brazilians were against privatization.

Some economists believe that it makes sense that state-owned enterprises be present in the sectors considered. strategy, or as a mechanism to promote development or to induce innovation.

Others, in turn, question the concept of "strategic" and believe that the state can promote economic growth without necessarily owning a business, with a good regulatory framework, good regulatory agencies. performance and promotion of competition.

But after all, does Brazil have an excessive number of state-owned companies? Is it wise for the state to reject them?

Next, BBC News Brazil explains the privatizations in 5 questions:

1) The Union owns more than 100 companies – is that a lot?

The list of 39 countries established by the OECD (Organization for Economic Co-operation and Development) with data from 2015, the 134 state-owned companies that Brazil had then placed the country in fourth position , behind India (270), Hungary (370) and China (51,341).

Neighboring countries, such as Argentina and Colombia, had 59 and 39 federal and developed states respectively, such as Germany and France, 71 and 51. The United States and the United Kingdom had 16.

OECD Senior Economist for the Brazilian Economic Monitoring Zone, Jens Arnold, says Brazil is in the group of countries in which SOEs have significant weight – with total revenues equivalent to about 5% of GDP (gross domestic product).

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Petrobras is a mixed-state government corporation with one publicly traded stock

"As long as they work well and their governance is good (no number can be considered excessive)," says the German economist.

In view of the above, however, he believes that the country can, on the one hand, improve the structure of public enterprises and, on the other hand, privatize.

"Privatization should not be the subject of debate

In his view, the excess of political indications – which often ends up pave the way for corruption – and the lack of concrete performance objectives in most Brazilian states.

2) What have become of the companies that Brazil has already privatized?

A large study published in 2005 by researchers from Brazil USP, Getulio Vargas Foundation and Mackenzie Presbyterian University and 102 privatized companies between 1987 and 2000 concluded that they had generally improved their performance since they were run by a company.

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On the basis of 15 performance indicators, calculated from the information presented in the annual financial reports of companies, the survey highlights in particular an increase in the profitability and the operational efficiency of enterprises , says Francisco Anuatti Neto, professor in the Department of Economics of

C is the case, for example, of Vale, object of study of the professors of the Department of Economics of the PUC -Rio Vinicius Carrasco and João Manoel Pinho de Mello

Analyzing the yields of American Depositary Receipts (ADRs, which are shares issued by the US government to exchange shares of foreign companies on the New York Stock Exchange), they discovered that they were generating a nominal dollar. over 3,000% between 1997, the year of privatization, and 2011.

Researchers acknowledge that part of the performance was due to rising demand for iron ore. Nevertheless, when we compare the results of Vale over the period to those of another mining company, Australian Rio Tinto, those of Brazilian society are still much higher.

Part of these gains, Mr. Carrasco points out, has returned to government coffers in the form of taxes, one of the benefits he considers "ignored" in the privatization process.

In the specific case of Vale, he adds: has won its minority stake in the company, through BNDESPar – the branch of the National Bank for Economic and Social Development that manages the badets of the public institution of development in other societies.

Through the BNDES, the government still holds only a little over 7% of the shares of the mining company.

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Vale / Reproduction

One of the criticisms made with regard to the privatization of the Vale is personified in the case of Samarco, a subsidiary of the mining company, and the mining town of Mariana.

In 2015, the Samarco Fundão Dam, with millions of cubic meters of iron ore tailings, collapsed, completely destroyed three municipalities, left thousands of people homeless and caused the biggest environmental disaster that the country has known.

19659007] This would be a negative reflection of management by private initiative, more focused on reducing costs to guarantee shareholder returns than on guaranteeing adequate security conditions in their companies.

For the economist of PUC-Rio, these episodes would be: avoided with better regulation. (19659004) Image caption

Rogério Alves / Senado TV

Caetano Penna, professor at UFRJ and Associate Researcher at the University of Susbad, illustrates the complexity of the privatization debate with the case of the telecommunications sector.

An economist questions the fact that the service has improved after being provided by the private sector, "but it is not yet quite competitive and the Brazilian consumer pays expensive compared to other countries ".

A 2014 study by the International Telecommunication Union (ITU), linked to the UN, showed that mobile telephony in Brazil was one of the most expensive in the world, with a connection price higher than that practiced in all European countries.

Regarding the positive aspects of the dissolution of the public monopoly of the telecommunications sector, Armando Castelar, Ibre-FGV, emphasizes the universalization of telephony.

Of the 166 countries evaluated, in only 47, the costs were lower than those of Brazil. Fixed, made possible by the design of a cross subsidy in the process of privatization: consumers from the richest regions were first paying more to allow the service to reach more remote areas of the country.

This is, in his opinion, an example of the state having been able to gain a social advantage through the privatization contract and the regulatory model of the sector.

"The state does not have to be the owner to make strategic decisions," he said. ?

Between 2000 and 2017, the world witnessed at least 835 cases of "re-municipalization," according to the Netherlands-based think tank Transnational Institute).

The survey counts more than a hundred energy production and distribution companies in Germany, as well as the restoration of water and wastewater companies in more than ten French cities, such as Paris , Marseille and Bordeaux.

The work was concentrated in six sectors: energy, education, transport, transport, transport, transport, transport, health and social badistance, management of local public services, water and sanitation.

Only 267 cases have been mapped in the latter area – and stories in general are very similar, says TNI researcher Satoko Kishimoto.

Complying, even partially, with the investments they had made in privatization contracts, companies were borrowing in the private sector – generally more expensive than those contracted in the public sector – and gradually increasing their level of privatization. debt.

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Tomaz Silva / Ag. Brazil, Brazil

Over time, to provide service while guaranteeing a level of profitability of between 11% and 12%, the industry average, service providers have ended up raising rates, which has

The scenario is similar to what happened in the city of Itu (SP), where the sanitation department, after ten years of management at the initiative. private, was again administered by the mayor in 2017. [19659007] The case of the city of São Paulo is one of 12 that TNI is checking to include in the mapping of 2018 municipalities in the area of water and sanitation.

4) What is meant to be privatized by the Bolsonaro government?

Sanitation (19659020)

"What we have observed is that the trend is continuing." This area is a clbadic case of failure of private administration. is one of the focal points of the IPP – and therefore one of the areas in which privatizations must be resumed.

Eletrobras would also be online, its privatization having been proposed by the Temer government in January 2018 and following a judgment in Congress, as well as BR Distribuidora, a subsidiary of Petrobras.

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Fabio Rodrigues Pozzebom / Ag. Brazil

The new administration, however, has not yet put forward a concrete privatization program. More than that, the speeches of Bolsonaro and Paulo Guedes on the subject deviated at the end of the election campaign last year: the future Minister of the Economy has always defended a vast privatization, while the current president, after initially adopting this position, said, for example, that a possible sale of Petrobras would preserve its "core" and stated that it would not put Caixa and Banco do Brasil on sale.

In this sense, experts like Caetano Penna, of the UFRJ, envisage a possible conflict between "The" privatization fever "will be counterbalanced by the army, by the internal tension that unites them to the team of Paulo Guedes, "said Luiz Pinguelli Rosa. former president of Eletrobras.

For him, one of the focus of stress will be precisely the power of the state, since the Minister of Mines and Energy, Admiral Bento Costa Lima Leite, [19659005] Image Legend

The Itaipu factory, whose shareholders are the Brazilian and Paraguayan governments, is one of the subsidiaries of Eletrobras.

"He did not openly say that it was against the privatization of Eletrobras, but he was not in favor either," Rosa said.

In addition to mines and energy, the defense portfolio is also led by a military man, Fernando Azevedo e Silva. Military forces also occupy the Institutional Security Bureau, with General Augusto Heleno Ribeiro, and the Vice Presidency, with General Hamilton Mourão.

At the other end, the secretary general of the presidency, Gustavo Bebianno, who has already chaired the PSL and will be in charge of playing the PPI, and members of the higher echelon as president of Caixa, Pedro Guimarães , specialist in privatizations, and Petrobras president, Roberto Castello Branco, who defended the sale of the state company in an article published in the newspaper Folha de S.Paulo during the strike of the year last

5) After all, state ownership is good or bad for the economy

There are between developed economies countries in which state companies weigh heavily, as is the case in Norway and Singapore, where they are rare, such as the United States.

"There is no single model of success," says Mariana Pargendler, a professor at the FGV Direito-SP.

Curtis J. Milhaupt, a professor at Columbia University, studied these countries and five other countries to badess the challenges of managing public capital in different regions – the way in which the laws to which they are subject are subject to and how important are they in the general context of the local economy.

In the case of Singapore, the administration of the People's Action Party has created, since the independence of Malaysia in the 1960s, a series of "companies related to the government "( companies related to the government GLC)
Image Legend

Platform near Olen, Norway: Part of the country's oil profits were destined to to a social fund

The holding company currently controls 23 of the largest companies in the country, with a market value of 40% of market capitalization (ie the market value of publicly traded companies) in Singapore.

According to Pargendler, the regulatory design that gives commercial direction to companies and the fact that there is an intermediary between the government and the state (the Temasek) minimize the political influence on public enterprises.

The Singapore model, put forward by organizations such as the World Bank and the OECD, has inspired countries like China for years.

In Norway, according to the study, nationalization had increased after World War II, in a scenario where the weak capital market limited the ability of the private sector to invest.

One of the largest companies in the country is the state oil company Statoil, created in 1972 after the discovery of a large volume of reserves.

A portion of the income from the exploitation of merchandise has been paid since the 1990s to a sovereign wealth fund to finance social policies and serve as a "buffer" for the economy when oil is exhausted.

The researcher argues that there are many examples of state-owned companies too politically influenced or used by the state as dairy cows ("[ cow-milk " ).

The oil and gas sector has also raised a number of controversial cases in this regard, such as the Colombian oil company Ecopetrol, where, according to her, the political influence is negatively interfering in management. Petrobras, which is the subject of one of the biggest scandals of corruption in Brazil.

"But the Manichean vision is to place public enterprises on one side (ineffective) and private companies on the other," he said.

For privatizations to work effectively, says Castelar of Ibre-FGV, the state must devise a good regulatory model, be "well armed to control" and design good contracts conditioning private management to new investments so that privatization also generates potential social benefits – in the particular case of sanitation, universalization of the service, since half of the Brazilians still have no access to treated wastewater .

"It is necessary to create metrics to control the quality of service, have good regulatory agencies and compete with companies," adds Carrasco of PUC-RJ. sometimes takes place on very theoretical bases. "" It is the idea that the state is subject to corruption and inefficiency, but all of this must be verified on a case-by-case basis. "

In this sense, he points out that once restored, the Parisian sanitation company regained profits and reduced its prices." Already in London, where the service had been privatized, a study by the Greenwich University published in 2017 indicated that taxpayers were paying an additional £ 2.3 billion each year.

"Privatization is not a false dilemma. it's like defining what's strategic, doing a cost-benefit badysis in public companies and, if they're ineffective, trying to understand why, "he says.

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