The avalanche of investments into the local economy is expected to reach $15 billion this year—almost the same amount invested throughout the entire decade of the 1980s. All this money will be going into production rather than the financial market, which has fueled a frantic rush to build, buy or merge with local enterprises. State-owned companies. Industrial plants. Retail businesses. Banks. No sector of the economy has escaped the investment fever that has swept the country.

Approximately 600 projects have been filed with and are pending approval by the Ministry of Industry, Commerce and Tourism, each worth at least $10 million of investments. And according to surveys conducted by Price Waterhouse, multinational companies were the buyers in 70% of the acquisition deals that took place in the country during the first quarter of this year. The question that's been asked is: Is the "sleeping giant" finally coming out of its inertia, or is Brazil selling its soul to foreign capitalists?

Obviously, ideological rhetoric has no bearing in the investors' decisions; facts and numbers do: in this case, they translate into over 160 million avid consumers of the world's 10th largest economy. Adding to the allure is Plano Real's successful attempt at economic stability which, in turn, brought an increased buying power to the low-income population, some 80 million people. Without the specter of inflation, these new consumers are expected to pour over $149 billion into the retail sector this year alone, a $10 billion increase in their spending habits.

Numerous multinational companies already doing business in Brazil can attest to the market's potential. In 1996, for instance, Coca-Cola had a 3% global growth compared with the 10% registered by its Brazilian subsidiary, while automobile manufacturer Fiat recorded an increase in revenues of nearly 7%. (During that same period the Fiat group reported a 3% raise worldwide.) The company's latest data shows that car sales in Brazil rose 18% in the first five months of this year, while the group's unit car sales climbed 8.2%.

Examples of successful performances by foreign investors abound: American Philip Morris, French Rhodia, Korean Samsug, English Glaxo Wellcome, Swedish Electrolux...the list goes on and on. The financial sector has also seen an increasing participation of foreign banks. The new arrivals include the English Lloyds, the Spanish Santander, the German Dresdner and Hong Kong Shanghai Bank Corporation, just to mention a few. Several other foreign institutions await Banco Central's (Central Bank) authorization to begin operations in the country. 

Nevertheless, the renewed confidence in the Brazilian economy is not without caution. Brazil's budget deficit has yet to be trimmed, and it puts at risk the controlled inflation, Plano Real's major achievement. The public sector debt has escalated to $135 billion from $89 billion in 1992, yet much-publicized bills to reform the civil service and the social security system (which would cut public spending considerably) are still pending approval, two years after being introduced to Congress.

The trade deficit, expected to reach $13 billion this year, is another cause for concern. So far the government has been able to deal with the problem thanks to the great amount of foreign capital being invested in the country, but that's a palliative solution, and it doesn't touch the core of the problem.

In spite of the risks, analysts believe that the Brazilian economy is on firmer ground than in the past, and as long as the government keeps its consistency and commitment to the economic reforms, Brazil will remain a top target for foreign investors. Recent research released by Site Selection, the official publication of the International Development Research Council, shows that Brazil is the 5th investment destination recommended by 24% of the world's 100 largest corporate advisors. It loses only to the United States and China, tied in first place and chosen by 47% of the consultants; Mexico, with 30%, and the United Kingdom, with 27%. The Brazilian market is preferred over Malaysia, Thailand, Japan, Canada and Germany.

If the investment projects of foreign car manufacturers are any indication, then it is safe to say that investors are betting on the good predictions about Brazil's future. Mercedes-Benz, Volvo, Chrysler, Mitsubishi, BMW and Audi are just some of the industry giants with plans to set foot in the country soon. This year alone the automobile sector is expected to produce 2 million units, compared to the 960,000 cars manufactured in the early 90s. By the year 2000, production should reach 2.5 million vehicles, totaling $17 billion in investments.

Which leads to another wave of mergers, acquisitions and joint-ventures between local and foreign component makers . The trend among car manufacturers to produce vehicles that can be exported to any country in the world demands a supply of standardized parts. However, in order to remain competitive, national auto parts makers need an advanced technology, which they lack. Partnerships with multinational companies—themselves eager for a slice of such a promising market—would therefore seem to be the right path to take. 

Some experts, though, fear that the acquisition process and the substitution of national components for imported ones may be happening too fast. Although not against the injection of foreign capital in the economy, they believe that there should be incentives for the local manufacturing of components, otherwise Brazil may become a mere assembly line of imports, without being able to develop its own new technologies.

On the other hand, Brazilian companies that haven't joined the merger frenzy are trying to find alternatives in order to survive the overwhelming international competition, both at home and in the export arena. The solution, they say, is cost reduction, and major Brazilian manufacturers have already moved to greener pastures, where they can get cheap labor, government subsidies or any other type of incentives.

The unexplored interior of Northeastern Brazil has been one of the preferred destinations of many in the textile sector and in the shoe industry, for instance. Lacking jobs and all sorts of infrastructure, cities fight for and welcome the new employers effusively. Some of these areas are so impoverished that companies have to include lessons on how to use the restroom in their training programs since many of the employees don't have such a "luxury" at home.

The Northeastern employees work long hours, earn half of what their Southern counterparts do and have no benefits. Against such a miserable scenario, they are nevertheless considered the lucky ones, and even the labor unions don't dare to interfere. After all some of these people are making $120 a month, a small fortune compared to the monthly salary of $6 paid by the city of Iracema (in the State of Ceará) to its employees.

Will foreign investments and the migration of local companies to needy areas solve Brazil's inequalities? Not really, according to some observers. Most of the investments, both foreign and national, still go to the wealthier South and Southeast regions, especially after the creation of Mercosul. Others with even a more pessimistic viewpoint argue that, despite the billions of dollars being poured into the country, not much will change if the government doesn't address major issues, such as the politicians corruption, illiteracy, the no-land movement, and other pressing social matters.

In the meantime, the multinational companies keep coming, bringing along lots of money, modern technologies and their sophisticated installations which, in turn, will require an improved infrastructure—from better roads and telecommunications systems to better education for its work force. The cards are on the table, place your bets. 

Recent currency troubles in Asian markets were blamed for the plunge in stock prices as many feared that investors would be pulling their money out of Brazil to cover losses in Asia. The heavy fall of the Bovespa (São Paulo Stock Exchange) index sent shock waves throughout Latin America's stock exchanges, in a reaction that was dubbed by some as the "samba effect"—a reference to the "tequila effect" caused by the 1994 collapse of the Mexican peso.

However, government officials dismissed any comparisons with Asia and regarded the drop in Brazilian stocks as a normal reaction of investors taking profits after the exuberant gains registered during the first six months of the year. In June, Bovespa traded an average of $1.1 billion worth of shares each day. That rise put the São Paulo Stock Exchange on par with big world markets, such as Canada and Hong Kong where stock exchanges trade an average daily volume of $1.07 and $1.17 billion respectively.

According to the experts, local small investors, usually wary of such a speculative market, have been the main force behind the extraordinary performance of the Brazilian stocks. As inflation declined, so did the returns on fixed-income investments, thus the rush to the stock funds. If the investors will remove their money from the market after July's plunge remains to be seen. (M. A.)

Marta Alvim is a Brazilian journalist, freelance translator and interpreter. You can reach her at mltdalvim@yahoo.com