Brazil’s Impending Investment Grade Brings Flood of Foreign Capital

Dollar and euro flood Brazil Entrance of Foreign Direct Investment (FDI) into Brazil is rising significantly. In the first eight months of 2007, the total FDI entering the country has already exceeded the total for 2006. But that is not where it ends, the tendency is for the growth in this flow to accelerate further over the next four years.

This optimistic outlook can be seen in an interview by the president of the Brazilian Society of Transnational Corporations and Economic Globalization (Sobeet), Luí­s Afonso Lima.

"This is not only a privilege of ours. The investment flow has grown significantly since 2003 and this year it should reach a historic level, greater than in 2000, when it totaled US$ 1.4 trillion," stated Lima.

But Brazil has one differential. According to a research disclosed last week by the United Nations Conference on Trade and Development (Unctad), Brazil is considered the fifth most attractive country for investment by multinational companies for the investment of funds between 2007 and 2009.

In Lima's evaluation, the option for the country, which is only behind India, China, the United States and Russia in the research ranking, may be explained by three factors. One of them is the global tendency to increase the flow, but the main one is the imminence of the country's reaching "investment grade", granted by international rating agencies to the safest countries for investment.

To the Sobeet, this should take place in mid 2009, a conservative forecast. Some analysts believe that Brazil may rise to this level next year. "Historically, in other countries that have already reached investment grade, there has been an expansion of investment flow after promotion," stated Lima.

According to him, the growth of inflow of capitals in promoted countries was 45% on average in the two years after reaching investment grade, and further on, the growth was even greater. From January to August, the entry of foreign funds into Brazil has reached US$ 26.5 billion, according to the Central Bank of Brazil, more than the US$ 18.8 billion that entered the country in the whole of last year.

Reaching investment grade shows that the country has improved on the international scenery, reducing its vulnerability, also seen in the significant expansion of foreign currency reserves and in the drastic reduction of debt indexed by foreign currencies.

To Lima, in the short term the sector that will attract the greatest interest of multinationals will be industry, especially chemical and metallurgy. "But this profile should change little by little and reach new productive chains," he said. As examples he mentioned the fields of agroenergy and services.

A change in profile may also be observed in the origin of the funds. Companies from emerging countries are occupying larger and larger space in the global flow of FDI.

Although companies in developed nations are still predominant, according to the Sobeet, participation of developing countries as the source of capitals has risen from 5.9% in 1990 to the current 20.5%, according to the most recent available figures.

In the case of Brasil, the presence of investment from emerging countries was 1% in 2001 and reached 10% of the total in 2006, according to the Sobeet. Brazilian companies have also been significantly expanding their presence abroad. Last year, Brazilian foreign direct investment abroad reached US$ 28.2 million, more than the investment in the country.

In Lima's evaluation, the diversification of origins of the funds is another factor favoring Brazil, as it makes the country less dependent on few investors. Apart from that, according to him, investment made by companies in emerging nations is very pulverized.

The option for business in emerging countries may also be explained, according to the analyst, by the saturation of markets like the United States and the European Union, where companies tend to be competing for market shares, making it necessary to nudge competitors. In developing nations, the markets have more space for growth.

The research published by the Unctad shows that up to 2009 developing nations should dominate new investment, called "greenfield", whereas in developed nations the flow should be turned to mergers and acquisitions. To Lima, however, this logic cannot be applied to Brazil, where mergers and acquisitions also prevail.

Anba – www.anba.com.br

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