Brazil: Attracting foreign investment

Author: | Published: 23 Feb 2017
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Karin Yamauti Paula Gentil Faria Pereira

Brazil is facing an unprecedented economic crisis. Political changes, corruption scandals, a budgetary deficit and high inflation, all combined, have created a perfect storm. As a result, economic activity has stalled and unemployment is on a steep rise.

Attracting investment in infrastructure is the top priority of the existing administration to lead the way out of this crisis. The fact that president Temer's very first measure upon taking office was to launch the Programme for Partnership in Investment (PPI) that targets investments in infrastructure, is both significant and symbolic.

Infrastructure depends on substantial volumes of financing. In Brazil, these investments are still highly dependent on government funds, through official banks and the national development bank, BNDES. This is why the recent Decree 8,957, issued on January 16 2017, that expands and updates the list of economic activities classified as of major national interest, is particularly important.

The classifications define the activities in relation to which foreign controlled companies can have access to public financing from official banks and development banks.

The issuance of the decree indicates a desire by the government to attract foreign players by detailing and updating the list of infrastructure sectors, as well as including new industrial activities in the range of 'major national interest'. Note that the list has not had a major update since 1997 – 20 years ago.

The list now expressly provides that the activity of 'ports and transportation systems, including cargo and passengers' includes logistics and distribution of goods. Likewise, the list now specifies that 'sanitation' expressly includes basic sanitation and management of solid waste.

In addition, new industrial segments have been included in the 'major national interest' list, such as health, textiles, education, energy efficiency and commerce.

Also relevant is the announcement by BNDES of its revised financing policy. In terms of energy, BNDES's new policy shifts incentives primarily towards renewable initiatives (with solar, wind and small-scale hydro plants taking a larger portion of funds). BNDES will finance up to between 70% and 80% of the investments, and away from fossil fuel projects, thermoelectric power plants will cease to be financed by BNDES.

BNDES will also prioritise the allocation of funds to sanitation, an area where the country still lags behind when it comes to investment. BNDES will finance up to 80% of investments in this area. This is positive, as sanitation has received significantly less attention and fewer investments than other infrastructure sectors in the last few years.

Logistics (airports, toll roads, ports), will also benefit from BNDES financing, but the concessionaires are expected to also access other sources of fund. For these areas, BNDES will finance up to between 40% and 60% of the total investment.

With several auctions for privatisations and new concessions expected this year, the federal government's measures demonstrate its focus on fostering infrastructure to lead the way out of the crisis and onto a path of economic growth.

Karin Yamauti and Paula Gentil Faria Pereira