Foreign Direct Investment in Brazil

A research study published in 2004 observed that foreign direct investment in Brazil had played a significant part in the country’s industrialization process in the past few decades. FDI inflows into Brazil were attracted mostly by the size of the vast domestic market and also by favorable government policies.

It has been observed that the FDI inflows into Brazil favored the capital intensive or technology intensive industrial production sectors of the economy. Of late the Brazilian services sector has also started garnering FDI inflows.

A research study published in 2004 observed that foreign direct investment in Brazil had played a significant part in the country’s industrialization process in the past few decades. FDI inflows into Brazil were attracted mostly by the size of the vast domestic market and also by favorable government policies.

It has been observed that the FDI inflows into Brazil favored the capital intensive or technology intensive industrial production sectors of the economy. Of late the Brazilian services sector has also started garnering FDI inflows.

In the reference period of the research study, the Brazilian FDI regulatory regime was substantially liberal. It may be noted that, majority of the Brazilian politicians view FDI as an employment generating avenue and also as a modernizing vehicle for the Brazilian economy.

 

Bird’s Eye View of the Brazilian FDI Regulatory Framework

Even in an era when industrialization was synonymous with import substitution, Brazil had a FDI regulatory regime, which was far from discriminatory. In comparison to the widespread variety of restrictions imposed on the country’s imports, investment activity attracted a small number of horizontal reservations and some standard sectoral limitations.

FDI flow into Brazil was encouraged by the existence of a vast, dynamic home market insulated by a host of trade barriers. Since the very beginning the Brazilian government prompted the market seeking behavior of foreign investments. A protectionist trade policy was put in place to guarantee the profitability of these investments.

The Brazilian investment scenario in the Import Substitution era was marked by remarkable stability. Much of the credit goes to its constitutional rules and in particular to Law number 4.131.

1990s were characterized by a host of path breaking liberalizing reforms in the Brazilian economy. In the year 1991 the Brazilian information-technology sector opened its doors to foreign companies. They were free to enter and operate in the Brazilian IT sector.

Some restrictions on capital outflow were also done away with. Partial liberalization was brought about in the financial inflows. A series of constitutional amendments were enacted within 1995 to 1996. They removed the constitutional distinction among national companies and foreign companies. They also put an end to the state monopoly in oil, gas and telecommunications.

Certain investment policies were formulated in the 90s to attract more FDI in to the country. The Central Bank of Brazil simplified the registration procedure for FDI inflows in the 90s. This led to a decline in the administrative costs associated with the entry of FDI inflows into Brazil.

In the 90s a platform for promoting investment and technology transfer, SIPRI, was set up as a wing of the “Ministry of Foreign Affairs” in Brazil.

In 2002 Investe Brasil was set up to promote investments in Brazil.

 

FDI figures for Brazil from 2004 to 2006

As per an investment brief from UNCTAD in 2007 FDI inflows to Latin America slowed down to some extent in 2006. Mexico followed by Brazil remained the biggest recipients of FDI in this period. Brazil recorded a 6% hike in FDI inflow. The following table gives an idea about the FDI inflows in Brazil.

Country	Brazil
Year	2004	2005	2006
FDI inflow measured in Billions of dollars	18.1	15.1	14.8

Source: UNCTAD