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Foreign direct investment (FDI) in Brazil

FDI in Figures

Foreign direct investment into Brazil boomed between 2009-2011, but had been slowing down ever since. However, according to the World Investment Report 2021 published by UNCTAD, FDI inflows have decreased by 62%, from USD 65 billion in 2019 to USD 25 billion in 2020.
As a result of the COVID-19 pandemic, Brazil saw a significant decrease in FDI in 2020, as the privatisation programme and infrastructure concessions were paused for several months. The most affected industries were transportation (which had a decrease in inflow of over 85%), financial services (with a 70% decline in inflows), oil and gas extraction (with 65% decrease in FDI), and the automotive industry (which also contracted by 65%). Nevertheless, there were still some significant investments made in the country even amid the COVID-19 crisis. In January 2021, U.S-based New Fortress Energy announced that it would buy Hygo Energy Transition and Golar LNG, in a combined USD 5 billion deal that marks the group's entry into the Brazilian natural gas sector and making the company the leading gas-to-power company in Brazil. Additionally, with Brazil opening its natural gas industry to private investors, other major oil companies, including BP PLC and EIG Global Partners, are also looking into multibillion-dollar investments in the country. On the other hand, Ford Motor Co. also announced in January, that it would close all three plants in Brazil and stop producing automobiles in the country, where it had been operating since 1919, as the pandemic amplified persistent industry idle capacity and slowed sales, resulting in significant losses. The stock of FDI has remained stable over the past two years and reached USD 608 billion at the end of 2020. Brazil is the 11th largest recipient of FDI in the world in terms of inflows (6th the previous year), and the largest in Latin America and the Caribbean. The main investing countries in Brazil are the Netherlands, the United States, Germany, Spain, the Bahamas, and Luxembourg. Investments are mainly oriented towards oil and gas extraction, the automotive industry, financial services, commerce, electricity, and the chemical industry.

Brazil ranked 124th out of 190 countries in the World Bank's last Doing Business report, released in 2020, a significant decrease from the previous year, when it ranked 109th. However, the country is one of the biggest FDI receivers in the world. Brazil is an attractive market for international investors due to several factors: a domestic market of over 210 million inhabitants, availability of easily exploitable raw materials, a diversified economy that is less vulnerable to international crises, and a strategic geographic position that allows easy access to other South American countries. However, investment in Brazil remains risky because of some negative factors including cumbersome and complex taxation, bureaucratic delays and heavy and rigid labour legislation. As part of the country’s ongoing effort to strengthen its business environment, Brazil introduced electronic certificates of origin which reduced  the time required for import documentary compliance, facilitating and simplifying the whole process. The country also made several infrastructure concessions which have helped foster investment. The current president has plans for further improving the business environment in the country, implementing reforms such as decreasing the number of days needed to create a company in Brazil from 79.5 days down to the regional average of 30 days. Easing of regulation in some sectors and potential amendments to the tax system should help as well.

 
Foreign Direct Investment 201920202021
FDI Inward Flow (million USD) 65,38628,31850,367
FDI Stock (million USD) 705,031595,285592,761
Number of Greenfield Investments* 355222184
Value of Greenfield Investments (million USD) 30,81417,21223,250

Source: UNCTAD, Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 
Country Comparison For the Protection of Investors Brazil Latin America & Caribbean United States Germany
Index of Transaction Transparency* 5.0 4.1 7.0 5.0
Index of Manager’s Responsibility** 8.0 5.2 9.0 5.0
Index of Shareholders’ Power*** 4.0 6.7 9.0 5.0

Source: Doing Business, Latest available data

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Brazil

Strong Points

Advantages for FDI in Brazil:

  • Extensive natural resources
  • A large middle-class and a large domestic market (7th largest population in the world)
  • A strategic geographic location
  • A diversified economy, well anchored in international exchanges (FDI inflows and foreign exchanges reserves are important, low external debt)
  • Export sectors, especially in industry, represent investment opportunities, thanks to the weakness of the real exchange rate
Weak Points

Despite being open to international trade, some of the barriers to FDI in Brazil include :

  • Onerous labour laws, resulting in high costs to foreign companies and keeping a good part of local business in the informal sector
  • High costs of production (wages, credit, energy and logistics)
  • Insufficiently developed infrastructure
  • High level of regulatory risk (high taxation and heavy fiscal system)
  • High exposure to changes in commodity prices on international markets
  • Shortage of qualified labour
Government Measures to Motivate or Restrict FDI
The Brazilian Government encourages and promotes FDI. The National Investment Bank (BNDES), one of the largest development banks in the world, encourages foreign investment. Most of the barriers to foreign investors have been removed, particularly on the stock market. A very large number of public companies have been privatised and many sectors were deregulated over the last fifteen years.

Among the Brazilian initiatives to attract investors there are numerous incentives: Inovar-Auto Programa, that aims at improving technological development and energy efficiency; Consulta Pública Ex-Tarifário, which enables increased innovation by companies through  a temporary reduction in the rate of tax on the import of capital goods; Renai, which provides information to potential investors on business opportunities in Brazil. Moreover, Brazil’s federal government offers investment support through funding and agreements limiting double taxation.

The Brazilian Trade and Investment Promotion Agency (Apex-Brasil) is the national investment promotion agency for Brazil. Apex-Brasil webpage offers information about the Brazilian tax system, industrial property protection, labor and environmental legislation, credit support and incentives for foreign investors.
Bilateral investment conventions signed by Brazil
Brazil has signed several bilateral agreements for the protection of foreign investments. To see the list of countries and conventions, click here.

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Latest Update: June 2022

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