Building Brazil’s future: How BNDES is paving the way for stable long-term investment

Brazilian development bank BNDES is prepared to disburse loans for up to 160bn reais (US$26bn) in the next year, while the institution sees progress in long-term projects across multiple sectors.

The bank also suggests that the level of lending could be even higher, as it diversifies its funding sources, thereby increasing its capacity to provide loans.

However, this initiative comes against the backdrop of an adverse scenario in the capital markets, as the central bank is in a monetary tightening cycle due to rising inflation and investor concerns about the deterioration of the country’s public finances.

Nelson Barbosa, director of planning and institutional relations at BNDES and a former finance minister, speaks with BNamericas about the development bank’s plans and strategies to prevent recent capital market volatility from affecting the perception of long-term investments.

BNamericas: How can the volatility in the capital market be prevented from affecting the success of infrastructure auctions?

Barbosa: By continuing to present projects. By demonstrating that, even in periods of volatility, there are multiple investors interested in making long-term investments in Brazil. For instance, we recently had two highway concession auctions where each one saw four competing consortia. Both auctions sparked significant competition.

Through concrete examples, we demonstrate that, despite current volatility, Brazil is heading in the right direction. Economic growth has exceeded expectations, creating numerous investment opportunities.

Volatility may cause short-term disruptions, but the strong commitment to long-term investments in the projects I mentioned shows that Brazil is a safe and profitable investment destination. Most importantly, these investments highlight a partnership between the public and private sectors – there’s no competition between them, they complement each other.

BNamericas: What room will BNDES have for financing in general in 2025?

Barbosa: We have a budget for disbursements of about 1.3% of GDP. This amounts to approximately 150-160bn reais for all sectors.

But it’s important to note that we can increase this capacity. As a bank, if opportunities for raising funds arise, we can secure more resources and increase disbursements.

We’ve been raising more international funds. During the G20, we signed agreements to raise 26bn reais from various sources, including institutions in Europe and China. Additionally, we began domestic fundraising through LCD issues [long-term credit lines]. So, BNDES also has the capacity to access the market to finance the medium- and long-term investments happening in Brazil, where our biggest advantage lies.

Today, when a company makes a 20- to 30-year investment or financing, BNDES is likely involved in some way – whether participating directly or structuring the operation.

BNamericas: The central bank has signaled a potential further increase in the Selic rate. Could this impact long-term infrastructure financing?

Barbosa: The Selic rate is a short-term rate, reflecting the cost of money in the short term. For this type of financing, medium- and long-term rates are much more relevant.

This Selic increase, indicating that inflation may return to target levels more quickly, suggests interest rates could start to decrease by the end of next year. This would influence 5- to 10-year rates, which are the ones relevant to such infrastructure projects.

So, while we’re facing a scenario of higher interest rates over the next six months, I’m confident that the central bank will bring inflation back to target levels. This will enable a reduction in rates, perhaps as early as the second half of next year. That reduction will positively impact medium- and long-term rates, benefiting these long-term projects.

BNamericas: Regarding project structuring, Brazil is conducting several highway auctions. Where do you see the most room for progress?

Barbosa: We’ve made strides in tackling the challenges of highway concessions. The transport minister has done extraordinary work to revive this concessions agenda, including the renewal of existing concessions.

For railroads, similar efforts are underway. However, because the capital requirements for these projects are higher, progress is a bit slower. Nevertheless, there is ongoing work on renewing railroad concessions in exchange for investment commitments.

Moreover, our sanitation agenda is progressing well. At BNDES, we’re structuring several projects, including a major initiative for the entire state of Pará and another for Pernambuco, involving sanitation concessions for areas not yet covered. Each project represents a total investment of approximately 20bn reais, and we expect to hold the tenders next year.

We’ve also made significant progress in urban mobility. Recently, BNDES approved a total of 10.6bn reais in financing for various mobility projects in São Paulo state, including the intercity train project for Campinas, the Rodoanel highway and the electrification of São Paulo’s bus fleet. The urban mobility agenda is moving forward effectively.

BNamericas: Are there other sectors where BNDES aims to make progress?

Barbosa: One initiative that surprised us, even though we knew it was a strong sector, is renewable fuels.

Recently, together with FINEP [the financing agency for studies and projects], BNDES launched a public call for projects totaling 6bn reais. The response exceeded expectations, with proposals showing a potential for over 160bn reais in investments.

We’re now analyzing these proposals and will soon announce which of these 160bn reais of projects are viable. We’ll secure funding for those deemed most feasible.

The biofuels sector, particularly sustainable aviation fuel (SAF) and sustainable maritime fuel, is expanding. Reaching net zero by 2050 will require replacing fossil fuels with biofuels.

Brazil is among the most competitive countries globally for biofuel production. This is already driving a wave of investments, including industrialization – investment in machinery, equipment, pipelines to transport these fuels, and a shift toward hybrid vehicles.

This avenue of investment is progressing regardless of short-term volatility.

It’s worth noting that, while Latin America – including Brazil – is one of the most volatile regions globally, we also have a well-developed financial market that allows us to hedge against such volatility. The key is ensuring growth stability, contract security and political stability. Brazil is a politically stable country that respects all contracts, which makes a significant difference in attracting medium- and long-term investments.

BNamericas: Within these renewable fuel projects, has BNDES identified the main players?

Barbosa: Both Brazilian and foreign players. We see lots of Brazilians already in the ethanol market with significant expertise. At the same time, there is substantial international participation, driven partly by the need for compliance with European Union emission standards.

The potential Mercosur-EU trade agreement could further accelerate this progress.