A series of booklets about doing business in Brazil – easyBrasil - aims at publishing official, transparent, reliable information for those interested in investments and trade in Brazil - or those interested in knowing more about the country and its business environment. Every booklet deals with specific matters related to Brazil's economic activity, including macro- and micro-economic information, regulations, policies, forecasts, as acknowledged by the Federal Government. easyBrasil series will be available both in paper and digital formats.
#1 THE NEW BRAZILIAN ECONOMIC POLICIES
Since May 2016, the new Brazilian government adopted an extensive reform agenda, targeting fiscal balance and sustainable growth. The first relevant step was the approval of Constitutional Amendment 95, which created the New Fiscal Regime and established a spending cap for the federal budget.
A set of measures, described ahead, comprises the range of reforms Brazil’s government is promoting: mandatory containment of the Federal Government’s expenditure; replacement of the Long-term Interest Rate (TJLP) for the market-converging Long-Term Rate (TLP); reform of the labor laws, reform of the pension system, and business friendly measures.
#2 WELCOMING FOREIGN DIRECT INVESTMENT
Attracting Foreign Direct Investment is a core, permanent, objective of Brazil’s International Political Economy. Since 2016, the new Brazilian government has been firmly committed to improve, strengthen, and implement legislation and regulatory procedures designed to provide investors with a friendly business environment in the country.
Since 2013, the Brazilian government created an innovative model of investment agreement that protects foreign investors against discrimination, by means of national treatment and most-favoured country clauses, among other relevant provisions. This new model – the Cooperation and Facilitation Investment Agreement (CFIA) – is the basis for bilateral and/or regional agreements already signed or initialled with countries in three continents so far.
The CFIAs offer investors legally-binding international protection for their investments; facilitation of their investments during their entire life-cycle; and structured and dynamic cooperation between the signatory governments. This report answers, in very practical and transparent terms, two most relevant questions regarding current and future foreign investors in Brazil: what do CFIAs offer to foreign investors? And how do CFIAs compare to current Investment and Promotion Agreements?
#3 BRAZILIAN AGRIBUSINESS
Brazil is one of the world’s leading producers and suppliers of food, fibers and agro-energy. Productivity gains obtained through technology and organization of agribusiness production chain, added to steady improvements in political and institutional conditions, and the enterprising, groundbreaking spirit of Brazilian farmers, have been the principal factors in this veritable revolution.
Over recent decades, Brazil has gone from a position as a net importer of food to being a major world supplier. Today Brazil is the largest net food exporter in the globe, and the agriculture and livestock sector already accounts for more than 20% of its GDP, using less than 10% of the country's area of production.
Brazil also has extensive areas of native vegetation, which covers about 66% of its national territory, which are recognized worldwide as important to biodiversity, water cycling, carbon storage and climate regulation. Brazilian agribusiness is ready to commit to preserving this natural resource heritage, while at the same time expanding its production and supply of agricultural products to attend domestic and overseas demand, in order to contribute positively to the two major global challenges of this century: food security and environmental sustainability.
#4 FACILITATING INVESTMENT IN CONCESSIONS
A high priority of the Brazilian government at present is to attract external investment targeted to infrastructure development and services for the public. Toward this objective, the federal government has initiated legislative and regulatory measures, created new programs, reinforced incentives for competition, improved financing mechanisms, and established a standardized and permanent agenda for concessions.
Bids for infrastructure projects are now programmed via integrated network, and the federal government has consistently removed restrictions limiting the number of competitors in the infrastructure market. These measures promise, along with greater competition in concessions tenders and auctions, reduced costs and greater quality of services delivered.
Such efforts have rapidly shown positive results. In the logistics’ sector, standouts in 2017 included auctions of airport and port concessions. Even more notable success came in the energy sector, with auctions for concessions in electric-power generation and transmission and oil and gas prospecting surpassing expectations.
#5 BRAZIL´S MACROECONOMIC SUSTAINABILITY
2017 was a pivotal year for Brazilian business prospects, seeing a conjunction of positive shifts in three fundamentals: a significant drop in the rate of inflation, reduction of interest rates, and resurgent economic activity. Disciplined guidance of monetary policy, reinforced by changes to economic policy overall, played a crucial role in curbing inflation, actual and projected, and in enabling the easing of interest rates. These achievements, along with adjustments and reforms implemented in a low-inflation environment, stimulated the economy’s recovery.
In this positive domestic scenario, the external accounts are more favorable: current Foreign Direct Investment more than offsets the external deficit and foreign reserves have in recent years held to a liquidity buffer of USD 380 billion, approximately 20% of GDP. This anchor provided by national policy for reserves management plays a crucial role in the federal government’s strategy of providing a foreign exchange hedge to insure against extremes in volatility. With the financial system capitalized, well provisioned and amply liquid, Brazil’s central bank is pursuing comprehensive reforms. Its Agenda BC+, covered in this report, is modernizing exchange regulation through enhanced security and implementation of best practices.
With inflation reined in, a rebalancing of external accounts, a solid financial system and a comprehensive agenda of reforms, Brazil’s economy is primed for a return to sustainable growth.