Amidst low investment and stagnant productivity, Brazil has primarily relied on favorable demographics (labor accumulation) to grow. In the face of rapid population ageing and a decline in fertility rates however, Brazil's demographic dividend has been gradually fading. Brazil will have to alter its pattern of growth and find avenues to stimulate capital investments and improve total factor productivity if its economy is to achieve higher medium-term growth prospects (ie. lift potential growth). The administration has embraced this challenge through an ambitious structural reform agenda anchored on two complimentary pillars: enhancing the business environment and transforming the role of the state in the economy. The disruption caused by the Covid-19 pandemic has however slowed down the pace of reform and heightened uncertainty over the path of the economy in coming years. This begs the question of the reasonable timeframe within which productivityenhancing private investment can become an alternative and durable engine of growth.

This is the second of two articles devoted to the issue of investment in Brazil. In a previous Conjoncture article, entitled "Investment in times of fiscal adjustment" (August 2020), we investigated some of the impediments that weigh on investment in Brazil.

In this article, we look at Brazil through the spectrum of three supplyside drivers of medium-term growth: investment in physical capital, demography and productivity. In particular we try to show why given Brazil's demographic transition, lifting impediments to investment will be so crucial to addressing Brazil's productivity challenge. We then turn our attention to aspects of the administration's ambitious structural reform agenda, in particular its focus on mobilizing supplyside solutions to help increase investment incentives. We conclude by offering some remarks regarding potential downside risks to reform implementation, trying to internalize both challenges that predated Covid-19 and others that have arisen since.

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