Mercosur-EU Agreement: Small have 30% of public purchases – 07/21/2023 – Market

Priority of President Luiz Inácio Lula da Silva (PT) in the negotiations of the agreement between Mercosur and the European Union, micro and small companies today account for about a third of the total public purchases of the Brazilian government.

The survey was carried out by Sebrae (Brazilian Support Service for Micro and Small Companies) based on data from the federal government’s purchasing panel, and shows that small business sales to the public sector –Union, states and municipalities– reached R$ 17.3 billion in the first half of the year. The total volume of public acquisitions in the period was R$57.8 billion.

Among the products auctioned by the public administration, food for public school lunches, medicines and hospital supplies for the SUS (Single Health System) stand out, in addition to equipment in the area of ​​technology.

Décio Lima, president of Sebrae, sees small entrepreneurs as “the foundation of the economic process” and the participation of this group in the public procurement market as an engine for local economies, with the generation of more jobs and income.

The numbers collected by Sebrae indicate that the participation of MEIs (individual micro-entrepreneurs) and micro and small companies in the public procurement market has grown every year.

The value of signed contracts jumped from BRL 24.8 billion in 2019 to BRL 42.4 billion in 2022. Of the 566,000 government suppliers, the sector’s share is now equivalent to 66.8% of the total.

For the president of the entity, the expansion stems from an inclusion process, in addition to a demand factor, and the volume may grow even more in the coming years. “The programs that are being resumed under Lula’s government will increase the presence of micro and small entrepreneurs in reaching the broad spectrum of the Brazilian economy”, he says.

From January 2019 to June this year, R$ 569.2 billion were approved in bidding processes for all sizes of companies. Of this amount, the share of small businesses corresponds to R$ 145.2 billion. The value represents around 26% of the total in public purchases – including municipal, state and federal governments.

Also according to the entity, of the total signed contracts, BRL 51.9 billion were actually acquired in the analysis interval by the three spheres of government – ​​with BRL 7.9 billion having been transferred to small businesses.

Sebrae considers that a large part of hiring is formalized by other instruments, such as commitment notes, supply authorizations, bidding waivers, and that many bodies resort to alternative means to the portal due to the lack of systems integration.

The issue of government purchases is seen as crucial for Brazil in the negotiations of the Mercosur-EU agreement, agreed in 2019 by the then administration of Jair Bolsonaro (PL). This is because the current government considers the mechanism an instrument to be able to exercise its public policies aimed at development and the reduction of inequalities.

The text provides that, by assuming commitments in relation to public procurement markets, the two blocs will guarantee greater competition and access in domestic bids. It also establishes that suppliers of goods and services on each side will receive “national treatment” in bids carried out by the counterparty.

Small businesses have been defended by President Lula in the negotiations. In an interview with journalists in Brussels on Wednesday (19), the Chief Executive said that government purchases are “an instrument of internal development” for small and medium-sized companies and that, therefore, Brazil cannot give up this potential.

“The United States does this, Europe does this, Germany does this and Brazil has the right to do this. This is how we manage to encourage small and medium-sized entrepreneurs to survive and grow,” he said.

Despite Lula’s statements, members linked to the economic team defend that micro and small companies will continue to be preserved after the agreement, even in a scenario of potential increase in competition between Brazilian and European companies. Today, foreign companies can already participate in national bids.

In addition, the agreement provides for a list of exceptions that includes, for example, bids carried out by state and municipal government bodies, as well as those related to public-private partnerships involving inputs from the strategic list of the SUS (Sistema Único de Saúde).

Lima, from Sebrae, is in favor of the trade agreement between the two blocs and highlights the potential for expansion of business by Brazilian micro and small companies in the international market if the treaty succeeds.

“We have to qualify ourselves, prepare small entrepreneurs to add value to our products and compete in markets around the world, as we have already gained prominence [como fornecedores] of commodities. We don’t have to be afraid,” she says.

Brazilian legislation today guarantees that small businesses, including MEIs and small farmers, have differentiated treatment in bidding processes, such as exclusivity in purchases of up to R$ 80,000.

The law also provides for a quota of up to 25% for contracting goods and services from micro and small businesses by federal, state and municipal entities.

Some critics claim that the Mercosur-EU agreement goes against the new bidding law, sanctioned in 2021, an argument that is contested by the wing of the government that defends only fine adjustments to the text

In this case, national legislation provides that the margin of preference for domestic manufactured goods and services resulting from technological development and innovation in the country may be up to 20%. According to technicians interviewed by the Sheetthis percentage is a possibility, it is not something mandatory, and needs regulation by the Executive.

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PUBLIC PROCUREMENT AND THE MERCOSUR-EU AGREEMENT

What are government procurement?
Acquisitions and contracting of goods and services made by companies in the public sector, at the federal, state or municipal levels. The process involves holding a public tender, in order to comply with certain principles, such as equality between competitors and choosing the most advantageous proposal for the body.

Which products fit into this buying process?
Food for public school lunches, medicines and hospital supplies for the SUS (Unified Health System) and technology equipment are some examples.

Can foreign companies participate in bids in Brazil?
Yes. Since 2020, foreign suppliers can participate in national tenders. Companies only need to have a legal representative in the country at the time of execution of the contract, and may freely participate in tenders.

What does the Mercosur-EU agreement provide for on this point?
It provides that, by assuming commitments in relation to public procurement markets, the two blocs will guarantee greater competition and access in domestic bids and that suppliers of goods and services on each side will receive “national treatment” in bids carried out by the counterpart.

Why is this theme so central in the discussions of the Mercosur-EU agreement?
Studies show that public procurement moves around 12% of the Brazilian GDP (Gross Domestic Product) per year, including subnational and state entities. However, only a portion of this would fall within the scope of the trade agreement between the two blocs. Government purchases are also a mechanism through which the government can exercise its public policies to meet development goals and reduce inequalities, a view close to that shared by Lula.

Which is size of the public procurement market?
The public procurement market in Brazil totals around R$750 billion. Of this amount, R$ 166 billion are related to the federal government (amount referring to 2022), but only a range of 10% to 20% would enter the Mercosur-EU agreement, according to an estimate by an executive interlocutor.

Does the text of the Mercosur-EU agreement signed in 2019 provide for exceptions?
The agreement foresees in the list of exceptions tenders carried out by state and municipal government agencies, as well as tenders related to public-private partnerships involving inputs from the strategic list of the SUS (Unified Health System), among other items.