Looking to invest or expand abroad? Think about Brazil for future growth

Looking to invest or expand abroad? Think about Brazil for future growth

There has been significant growth in Canada‑Brazil trade and investment in recent years. Bilateral trade has increased by 35.1 per cent since 2009, reaching $5.6 billion in 2014. That same year, Canada exported $2.2 billion worth of goods.

Canada’s imports from Brazil stood at $3.5 billion in 2015, making Brazil our 14th largest source of imports globally.

However, over the past few decades, Brazil has faced decline in its economic and political environment, prompting high inflation, a depreciating Brazilian reais (BRL) and economic contraction.

Political quandary

Before the Brazilian senate impeached Brazilian President Dilma Rousseff on August 31st for illegally manipulating government accounts, earlier that summer she announced new concessions that she hoped would bring in 198 billion BRL of investment in infrastructure, including 64 billion BRL over the next four years.

Today, the Michel Temer government of Brazil is looking to an infrastructure and investment strategy based on the Rousseff plan but focusing on the most feasible and realistic projects over the next two to three years. The newly formed Investment Partnership Program re-assessed the strategy leveraging the Brazilian Development Bank (BNDES) matrix, bringing the program from 200 billion to 70 billion worth of projects.

Canadian opportunities in Brazil

Fernanda Custodio, EDC’s Senior Regional Manager in Brazil says until recently, infrastructure has been an area almost dominated by the large local infrastructure players in Brazil. “The landscape is changing, and there seems to be more opportunities for Canadian companies (foreign companies in general), to play a more active role. The new Government has elected infrastructure as one of the priorities and has also improved the rules to attract more investors. Now foreign companies do not necessarily need to partner with a local company to participate.”

The Canadian Trade Commissioner Service has concluded that there are considerable prospects for Canadian companies in education, infrastructure, clean technologies, oil & gas, and aerospace.

Research and innovation opportunities are examined by the Canada-Brazil Framework Agreement for Cooperation on Science, Technology and Innovation. Signed by both countries in 2010, its framework aims to foster scientific and technological advancement and innovation in areas of common interest.

The infamous infrastructure of Brazil

“In early September,” states EDC’s South American economist, Andrea Gardella, “the Brazilian government announced a privatization plan which will release 25 privatizations and concession starting in the last quarter of 2016.”

The program includes the concession of a previously built road and railway system as well as the auction of operational rights in oil fields and hydroelectric dams in an attempt to increase private investment, and encourage Brazil’s economy out of its hardest-hitting recession in ninety years.

The oil & gas sectors requirements are currently in congress where discussions in progress to make the sector more competitive and discontinue the obligation that state-run oil company Petrobras have a 30 per cent stake in all new pre-salt developments (this bill was passed on November 10th and now only requires Presidential sanction).

Brazilian Development Bank (BDNES)

“Although the government and BNDES aim to reduce public long term funding for these projects and make long-term financing more competitive locally,” says Gardella, “Brazil’s ability to attract foreign funding and to provide the appropriate safeguards will be the deciding factors on implementation.”

To do so, Brazil is currently revisiting its infrastructure concession model, aiming at offering a more market friendly approach, and also reducing barriers for the participation of foreign players.

According to Custodio, ”Brazil has set its priorities centered on important economic reforms and the need to attract and stimulate investment in key segments, mainly infrastructure, and targets to increase by at least 50 per cent the country’s investment in this segment from the current level of 2.1 per cent of GDP, which should represent over US $100 billion in the next 3 years (infrastructure and oil & gas).”

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