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 2022 published by UNCTAD, FDI inflows increased to USD 50.3 billion in 2021. Still, FDI inflows to the country have yet to return to pre-pandemic levels. Although Brazil saw a significant decrease in FDI during the pandemic, 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 2021, 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 and reached USD 592 billion at the end of 2021. That same year, the number of Greenfield Investments in the country decreased to 182. However, the value of those investments increased from USD 17.2 million in 2020 to 23.2 billion in 2022. 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, France, Spain, and Canada. Investments are mainly oriented towards commerce, non-metallic mineral products, chemical products, financial and auxiliary services, and motor vehicles.

According to the Economist Business Environment, Brazil ranks 51 out of the 82 countries reviewed for their investment climate. The country 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.

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.