Economic reforms pave the way for foreign investment in various sectors
By Sérgio Siscaro
The directions of the Brazilian economy point to the intensification of activity as of 2020. The recent approval of the Social Security Reform, combined with other measures taken to increase productivity and competitiveness – such as state privatization, tax reform and the simplification of bureaucratic processes for businesses and entrepreneurs – have allowed a more positive outlook on economic recovery. This perception has excited international investors.
By September, the minutes of the Monetary Policy Committee (Copom) meeting beckoned inflation below the government’s target of 4 percent by 2020. At the end of October, the Central Bank’s Focus Bulletin, a weekly report that brings expectations of market players, indicated next year’s trend of 2% growth in Gross Domestic Product (GDP), and the entry of $ 80 billion in Direct Investment in the Country (IDP).
The investment announcements have already begun. A good example was the disclosure of the Sovereign Fund of Saudi Arabia that will contribute US$ 10 billion in the country. No wonder. Reasons abound to bet on Brazil 2020. Check out some:
1. Social security reform
The recent approval of the Social Security Reform by the Brazilian Congress indicates a greater concern of the country with its fiscal accounts, allowing the best balance between the collection and the expenses with the pensions. This means a better environment for meeting financial obligations with international investors.
2. Tax reorganization
Once the Pension Reform is approved, the attention of society and Congress turns to the proposals of Tax Reform presented by the government, deputies (representatives) and senators. It is estimated that the draft with the changes may be ready for discussion and voting in the first half of 2020. Quite complex, the current tax system is on track to be simplified – which will bring gains to both Brazilian companies and those wishing to develop business in Brazil. Thus, the operating cost structure will be clearer for foreign companies that decide to operate in Brazil.
3. Privatizations plan
The federal government announced this year a plan involving 119 privatization or concession projects of assets of the Federal Government in several areas – with which it intends to attract R$ 1.3 trillion. The proposals concern investments in several economically relevant sectors and the country’s development.
4. Production flow
Brazil has emerged as one of the global giants in the supply of grain and animal protein, but the outflow of this production presents very serious problems, including the lack of a comprehensive rail network, poor road conditions and the saturation of ports. In addition to participating in consortia to operate railways and highways, foreign investors may enter sectors such as port terminals and the administration of the ports to be privatized. Here one of the highlights is the privatization of the Santos Port Authority, manager of the largest port in the country.
5. Airport network
Prospects for economic recovery present a twofold challenge for the airport sector: increasing its capacity to receive domestic and international passengers, and increasing its efficiency as a modal for cargo transportation. The airport concession process is intended to deliver to the private sector all the infrastructure currently managed by Infraero by 2022. The growth of the sector is seen as certain and highly promising given the size of the country, its population and production.
6. Oil and gas
According to federal government calculations, the three oil and gas auctions that will be held this year will bring $ 1.1 trillion in investments to Brazil – in addition to the more than $ 100 billion that will come with the bonuses of contracts signing. Advance in the provision of privately owned pre-salt areas for oil exploration is expected to continue in 2020, with the sharing of other exploration blocks – which will increase the demand for investments in naval and offshore infrastructure.
The need to expand the mobile phone network, pushed by increased access to mobile phones, the development of the Internet of Things (IoT) and the arrival of the fifth generation of mobile internet, 5G, open opportunities for foreign investors interested in operating in the sector. Brazil already has two digital devices per inhabitant today. That means 420 million devices including smartphones, computers, notebooks and tablets, for a population of about 210 million people. In addition, the privatization of Telebrás, which is responsible for providing telecommunications infrastructure and networks to bring the Internet to more remote Brazilian regions, could also attract foreign investment.
Another strategic sector to leverage economic growth, power generation and distribution should also benefit from the federal government’s privatization project, which involves 12 lots of transmission lines, the privatization of Eletrobrás and the search for partnerships for the construction of Angra 3 nuclear power plant. At the same time, expanding demand for economic boost and discussion of new forms of clean energy open the door to a series of highly attractive investments. Segments such as wind energy (on the rise in Northeast Brazil), solar and biomass are highlights.
The Brazilian market has been open to disruptive innovations brought by startups from different areas. This trend is likely to continue and even to expand, given the favorable outlook for technology, giving rise to the development of fintechs (financial services), agrotechs (agribusiness solutions), healthtechs (health) and edtechs (education), to name but four.
10. Legal certainty
Continued economic reforms and the privatization of government assets help to consolidate the view that the federal government will not interfere in the economic sector, thus providing more certainty in compliance with contractual rules with private enterprise. Brazil has established itself as the country providing the safest and most reliable environment in the region.