Despite Red Tape and High Taxes Brazil Makes the Case to Draw Foreign Investors

Voting machine, a good Brazilian product Brazil should attract more foreign investment in coming years. The statement was made by the secretary-general at the Arab Brazilian Chamber of Commerce, Michel Alaby. The organization has just finished a survey for foreigners who are interested in investing in the country.

The document will be distributed to Arab businessmen on trips to Brazil, and will also be taken to them during trips organized by the Arab Brazilian Chamber to the Middle East and North Africa. Last year, the Arabs only answered to 0.02% of the total foreign direct investment (FDI) received by Brazil, which was US$ 18.8 billion.

According to Alaby, the fields in which Brazil can expect Arab investment include tourism, alternative energy sources, and cattle raising.

Last year, Lebanon was the Arab country that invested the most in Brazil, at US$ 2.3 million, and Bahrain ranked second, at US$ 1.05 million. The secretary-general believes that investments are concentrated in the financial and animal-raising sectors.

The survey conducted by the Arab Brazilian Chamber of Commerce, entitled "An Overview on Investments," aims at providing Arab businessmen with an overview of the current Brazilian economic environment for investments.

The survey presents general information on Brazil, such as the Human Development Index, which now stands at 0.792, the literacy rate, currently at 88.6% of the population, the country's workforce, of 96 million, and it also cites the features of the economy that favor investment.

These include a floating exchange rate, the regime of inflation targets, the strict fiscal policy, and the Growth Acceleration Program (PAC), a set of economic measures launched by the Brazilian government early this year in order to accelerate the country's growth.

Nevertheless, according to the survey, the country will be more receptive to foreign investment if it conducts reforms in some institutions, such as the regulating agencies, and the judiciary.

Currently, according to the survey, companies are faced with slowness and bureaucracy in the Brazilian judiciary. The high tax burden is also listed as an obstacle to the increase in foreign investment.

Taxes account for 38% of the Brazilian GDP, according to the survey. Strict labor legislation constitutes another obstacle to foreign companies willing to invest in Brazil.

According to Alaby, the country also needs to invest in infrastructure and logistics. Brazil presently has, according to the report by the Arab Brazilian Chamber, 54 ports, 68 airports operated by the Brazilian Airport Infrastructure Company (Infraero), 31,000 kilometers of railways and 1.7 million kilometers of highways.

Nevertheless, these are some of the sectors that should benefit from public-private partnerships (PPPs). The Arab Brazilian Chamber survey provides an overview of how PPPs work, and of what their main guidelines are, such as minimum investment and contract periods. The goal is to present these partnerships as a good option to foreign investors.

On the other hand, Brazil offers some advantages that make life easier for foreign investors. One such advantage is the fact that there are no restrictions with regard to remittance of earnings abroad. The country also has foreign currency reserves of approximately US$ 140 billion, which ensures its structural safety in case of a foreign crisis.

The current exchange rate, with the appreciated real (Brazilian currency), also makes it easier for industry to import technology. The survey also cites the country's historical cultural diversity as a factor that makes the local environment favorable to foreigners, as well as the public sector data transparency.

The report points to three centers of excellence in Brazil: aircraft manufacturing, electronic voting systems, and agribusiness software. These sectors, according to Michel Alaby, are also features that might attract foreign investment.

He claims that Brazil traditionally has a good performance in those fields, but that they became more visible after the macroeconomic improvements that took place in the country. Last year, the Brazilian sector that attracted foreign investment the most was the services sector, at US$ 12.1 billion, followed by the industry sector, at US$ 8.7 billion, and agribusiness, at US$ 1.3 billion.

Anba

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