Guess Who Is Bullish on Brazil Now? The Germans and the Dutch

Manaus industrial parkMultinationals keep on betting on the Brazilian market despite the crisis in the global economy. The country received US$ 12.6 billion in foreign direct investment (FDI) in the first half, according to information supplied by the Central Bank (BC). Although the value is lower than that recorded in the same period of last year, the forecasts of analysts still place the result for the year as the third highest in the decade, only lower than in 2007 and 2008, when the volume of funds was record.

“In the first half of this year, we probably received the lowest investment this year, and now the volume should rise,” said economist Luís Afonso Lima, president of the Brazilian Society of Studies on Transnational Corporations and Economic Globalization (Sobeet).

According to the monthly research made by the BC alongside market analysts, up to the end of the year the FDI inflow should reach US$ 25 billion. Lima added that the Sobeet forecast for 2010, considered conservative, is for inflow of US$ 30 billion. In 2011, in his evaluation, the volume may return to the same levels as in 2008, around US$ 45 billion.

In the first half, the behavior of investors changed when compared to last year, both in terms of countries of origin and sectors that receive the funds. The Netherlands and Germany exceeded the United States and Spain as the two main origins of FDI flowing into Brazil.

In the case of the Netherlands, according to Lima, this does not mean that the funds really originate there. The country, apart from being a traditional product distribution center, is constantly becoming a hub for distribution of direct investment.

“The Dutch have agreements to avoid dual taxing and investment protection with several countries. Many investors prefer to make transactions through the Netherlands, due to the facilities, benefits and guarantees,” pointed out the economist, adding that the country is not a tax haven.

An example of this part played by the Netherlands took place at the time of the merger of the Brazilian AmBev and the Belgian Interbrew, which resulted in the establishment of InBev, currently the largest brewery in the world. The transfer for consolidation of the business took place in 2004 and, that year, the Netherlands was also the country that led in terms of FDI inflow, as the funds crossed the country despite having originated in Belgium.

This year, Germany rose in the ranking due to the purchase of the Volkswagen truck and bus division, headquartered in Brazil, by the German MAN. The deal, closed for US$ 1.684 billion was announced in December 2008, but was consolidated this year.

Later, early this month, Volkswagen Brazil announced that it plans to increase vehicle production in the country to 1 million units per year by 2012, expansion of 39% over the total produced in 2008. In 2009, the carmaker plans to end the year with production of 800,000 vehicles and, for this, purchases from suppliers should reach 11 billion reais (US$ 6 billion), 10% more than in 2008.

In the Long-Run

The vehicle sector was among those helping place the industry as the main destination for FDI inflow this year, occupying the place that up to 2008 belonged to the service sector. Industrial investment totaled US$ 6.63 billion from January to June, expansion of 1.6% over the same period last year.

Foreign investment in industry grew at a moment in which national investment in the sector dropped. The reduction of industrial investment was the fact that most expanded the deceleration of the Gross Domestic Product (GDP) of Brazil early this year.

“It is always like that, foreign investors think that in the long-run, it is worth investing more where there is greater potential for growth and, here, the potential for coming years is very great,” said Lima.

In the case of the auto industry, for example, there is no space for growth in the central economies, and the effort of companies is to expand participation in the market by dislocating competitors. “Here there is a great share of the population that does not have cars,” added the economist.

Such potential for expansion of the market is clear when analyzing the research by the United Nations Conference on Trade and Development (Unctad), disclosed in July, which places Brazil in the fourth place among the most attractive nations to FDI, only behind China, the United States and India. From 2008 to 2009, Brazil climbed one position in this ranking and overtook Russia.

Another example of a multinational carmaker betting on the Brazilian market is General Motors, which announced investment of US$ 1 billion in July at its factory in Gravataí, in Rio Grande do Sul, despite the head office in the United States having recently filed for chapter 11 bankruptcy.

Still in the automotive industry, MWM International, a branch of Navistar International, informed that investment in the country totaled US$ 70 million this year and there are plans to turn another US$ 345 million to the country over the next five years at its diesel engine factories in Santo Amaro, in São Paulo, Canoas, in Rio Grande do Sul, and Córdoba, in Argentina.

According to information supplied by the company, investment in 2009 was turned to technological development programs, employee training, expansion of the production line and purchase of equipment, among others. Over the next five years, the company plans to invest in the development of less polluting engines to anticipate future rules for emissions.

MWM produces engines for vehicles, agricultural machinery, industries and vessels. Apart from Brazil, it has among its main markets the United States, India, China, South Korea and Mexico. The company also supplies the Middle East and has distributors in Egypt, Lebanon and Yemen, trading on average 1,500 units a year in the region. The forecast for this year is production of 108,000 engines, being 20,000 for export.

In the same area, the superintendent of the Manaus Free Zone (Suframa), Flávia Grosso, recently said that the German BMW should start producing motorcycles in the Industrial Hub of the capital of Amazonas state.

Early this month, she announced approval of over 41 industrial projects at the site, to receive US$ 524.15 million in national and foreign investment. The projects in operation in Manaus are mainly those in the motorcycle sector, auto parts, electric and electronic, information technology and capital goods sectors.

It is not just in the auto sector that growth of FDI has been identified. Investment has also risen in the chemical, pharmaceutical, electric material, machinery and equipment, information technology and food industries.

Amidst the crisis, the Brazilian press constantly published news about new multinational investment in several areas. In the field of food and beverages, very strong in the country, Nestlé disclosed its intention of turning 120 million reais (US$ 65 million) to expansion of its factory in Araraquara, in the interior of the state of São Paulo, and accommodating a long-life milk production line with a capacity for the processing of 100 million liters a year.

US-based PepsiCo has also announced the purchase of the Brazilian Amacoco, which has 70% of the Brazilian coconut water market. The company plans to use the Pepsi distribution channels to further expand domestic consumption, as well as selling the product on the foreign market.

In the hotel sector, the French Accor group announced last week that it closed 10 new contracts for the construction of hotels in the fist half of the year, eight of them in Brazil and two in other Latin American countries. The business involves investment of US$ 101 million, both in own and third party funds.



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