Grupo Peixoto de Castro

completed

The proposed project consists of- For Apolo:The implementation of a new steel pipe line in replacement of an old one.- For Synteko: The implementation of a new resin plant in Uberaba, and the implementation of a three-year expansion and renovation program of its existing resin, adhesives and floor wax facilities in Araucaria, Parana State and Gravatai Rio Grande de Sul State.The proposed project will not result in resettlement or economic displacement.IFC RoleIFC has five important roles to play in this project. First, IFC''s involvement in the project will provide the necessary long-term financing for two medium-sized Brazilian companies (SMEs), which access such investment opportunity for the first time. Following the Brazilian economic crisis, long-term financing has been severely restricted to local companies, particularly for middle-market firms and SMEs. The lack of access to such financing has been a major constraint to the development of the Brazilian private sector, hampering productivity increases, broad-based growth, and a broader distribution of the benefits of growth. Under current conditions, in both international and domestic Brazilian financial markets, only larger firms can access financing, while SMEs, such as Apolo and Synteko, are further delayed the necessary investments that will modernize them and enable to mantain international competitiveness. The only way to obtain financing, for a commercially viable and otherwise efficient mid-sized firm, is through the support of sources such as IFC. Second, IFC would introduce the companies for the first time to international lending practices that would serve as an important step to gain visibility and credibility for access further international credit markets in the future. Third, IFC''s involvement would support environmentally sound and socially conscious practices, with a strong demonstration effect in this important area of corporate responsibilities that is still at a nascent stage in Brazil. Fourth, IFC''s involvement in this project would allow two local companies to improve their efficiency in order to better compete with multinational companies, especially in the consumer cleaning segment. Fifth, IFC investment in this project would contribute to the development of the related industries (MDF, particleboard and natural gas) which are experiencing significant demand and pressure to increase their production capacities.Development ImpactThis is the type of real sector company which is critical to the success of Brazil''s adjustment program. Only if these mid-size competitive producers invest to modernize and expand, will Brazil''s growth recover. This growth is critical for the benefits of the Plano Real to begin to be felt in Brazil. The assistance provided to Apolo would improve the operating efficiency and competitiveness of a medium-sized company and would allow the increase in natural gas consumption, a cheaper and more environmentally friendly source of energy. IFC support would also help Satipel, another mid-sized IFC project with important development impact (including the substitution of hardwood consumption for the benefit of MDF), receive stable and high quality supply of resin at competitive costs. Finally, the project will contribute to a decline in prices of products which will benefit consumers especially in the low and middle income segment of the population.World Bank Group StrategyThe World Bank Group''s assistance strategy for Brazil was considered by the Board in a joint IBRD-IFC CAS on March 30, 2000. The principal objective of the country assistance strategy (CAS) is the achievement of sustainable, private-sector led, broadly shared growth, and the priorities for achievement of such growth include: (i) creation of new employment opportunities in internationally competitive private firms; (ii) broadened finance access to the commercial system, both for starting business (i.e. bank lending, leasing, micro-finance), and for participation in their benefits (i.e. broader share ownership); and (iii) delivery of improvements in areas of basic needs and/or visible impact on standards of living: housing, water, health, education, urban transport. IFC''s strategy, consistent with the CAS framework, has the following primary components: (i) backing companies that will create growth, particularly middle-market firms; (ii) supporting activities which demonstrate tangible benefits of liberalization; (iii) investing in financial and physical infrastructure to improve the prospects for sustained growth. IFC''s financing of the project is consistent with this strategy as IFC''s involvement will help this middle-market companies access term-financing it could not otherwise obtain and without which it could not contribute to the supply response that Brazil needs.