Brazil Country Market
Insights and Opportunities
Foreign Investment Sector
Overview: Brazil is open to and encourages foreign investment. According to a recent United Nations report, Brazil is the largest foreign direct investment (FDI) recipient in Latin America; attracting an estimated USD 42 billion in 2008 (The Brazilian Central Bank reports a slightly higher figure of USD 45 billion).
The United States is the number one foreign investor in Brazil. FDI is prevalent across Brazil’s economy, although certain sectors, notably media and communications, aviation, transportation and mining, are subject to foreign ownership limitations. While Brazil is generally considered a friendly environment for foreign investment, burdensome tax and regulatory requirements exist. In most cases these impediments apply without discrimination to both foreign and domestic firms. The Government of Brazil makes no distinction between foreign and national capital.
With respect to the current global financial crisis, a diversified economy, reliance on local rather than external debt, and investment grade status will help Brazil weather the storm. However, Brazil is not immune to the crisis and the Central Bank’s January 2009 market survey revealed a forecasted GDP growth of 2.0 percent, a decline from the July 2008 forecast of 4.0 percent growth. The Brazilian government is pursuing monetary policy and industry support measures to address the impact of the crisis.
Banking: An indication of the country’s financial openness, Brazil’s banking sector includes significant foreign investment and representation. While the Constitution of 1988 technically forbids new or expanded foreign investment in the banking sector, the vast majority of requests for entry or expansion have been approved on a case-by-case basis. Recent Brazilian Central Bank figures report that in 2008 foreign banks comprise 18 of the top 50 Brazilian banks in terms of total assets, representing 21.6 percent of total financial assets less brokerage.
Insurance: Since 1996 the insurance sector has been open to foreign investors with most major U.S. firms represented via joint venture arrangements. On January 15, 2007, Complementary Law 126 was published in Brazil eliminating the previous state monopoly on reinsurance through the government-owned Brazil Reinsurance Institute (IRB), which had been in place since 1939.
Privatization: Foreign investment has played a significant role in Brazil’s privatization programs. From the early 1990s through 2007, Brazil’s privatizations realized USD 87.9 billion in sales revenue and another USD 18.1 billion in debt transfer. Foreign investment accounted for about USD 42.0 billion, or 48 percent of the total. Of this foreign investment participation, U.S. investors accounted for one third or USD 14.0 billion.
After a slowdown in privatization activity in the early 2000s, the Lula administration, which came to power in 2003, revived the program with three transactions: the 2004 privatization of the State Bank of Maranhao for USD 26.6 million, the 2005 privatization of the State Bank of Ceara for USD 302 million, and the 2006 privatization of Paulista Electric Energy Transmission Company for USD 230 million. In 2007 and 2008, large scale infrastructure projects were auctioned, including federal highways, high speed rail and airports. Additional infrastructure privatization activity is planned for 2009.
Ownership Restrictions: A 1995 constitutional amendment terminated the distinction between foreign and local capital in general, yet there are laws that restrict foreign ownership within some sectors, notably media and communications, and aviation. Foreign investment restrictions remain in a limited number of other sectors, including highway freight (20 percent) and mining of radioactive ore. Foreign ownership of land within 150 km of national borders remains prohibited unless approved by Brazil's National Security Council.
Media: Open broadcast (non-cable) television companies are subject to a regulation requiring that 80 percent of their programming content be domestic in origin. Additionally, Law 10610 (2002) limits foreign ownership in other media, including open broadcast and print media outlets, to 30 percent.
In 2009, Brazil's legislature is considering extension of this restriction to cover Internet Service Providers, pay TV channels and operators, and content producers and distributors.
Foreign ownership of cable companies is limited to 49 percent, and the foreign owner must have a headquarters in Brazil and have had a presence in the country for the previous ten years. National cable and satellite operators are subject to a fixed title levy on foreign content and foreign advertising on their channels.
Aviation: The Government of Brazil currently restricts foreign investment in domestic airline companies to a maximum of 20 percent. The Government of Brazil is considering potential privatization of commercial airport operations. The United States and Brazil liberalized cargo and passenger services in June 2008 and committed to further liberalization discussions by 2010.
In May of 2008 Brazil published the Productive Development Policy which encourages technological innovations and new investment opportunities in the country. It sets targets for investment spending to reach 21 percent of GDP and private investment in R&D to reach 0.64 percent of GDP by 2010. It also sets goals to increase Brazil’s share of exports to 1.25 percent of the global total and increase the number of small export businesses.