2022 will go down in economic annals as a “banner year” for foreign direct investment in Brazil. It reached its highest level for a decade last year with the influx of US$90.6 billion, almost double the amount invested in 2021. A number of factors contributed to the spectacular surge in FDI in Brazil, many of which will remain in place this year. As a result, investment levels should be at least as high in 2023.
Record levels of FDI in Brazil
According to the Brazilian Central Bank, FDI reached US$90.6 billion last year. The figure represents a 93% increase on 2021 and the highest for ten years. It also prompted analysts to herald 2022 as “a banner year” for FDI in Brazil.
Of the total, 40% (US$37 billion) came from new capital in the economy, up from US$30 billion in 2021. In addition, reinvested profit totalled US$33 billion, almost double the amount in 2021 and inter-company loans reached US$21 billion. They increased 21-fold since there were none in 2021.
Reasons for record FDI
Analysts attribute the vast influx of foreign funds into Brazil to several circumstances. They include:
Strong GDP – Brazil’s economy grew by 3% last year, despite the headwinds of inflation and the Ukraine war.
Strength of the real – Brazil’s currency continued to prove attractive to foreign investors because of the potential for more profit and currency appreciation when converting into dollars.
Growth in nearshoring – Brazil benefitted from the up-and-coming trends towards nearshoring and ‘friend’-shoring. According to Albright Stonebridge Group, this was particularly present in the mining, energy and technological sectors.
Geopolitical shifts – the Ukraine war and subsequent sanctions on Russia have led to a shift in investments away from Europe to countries that have fewer perceived risks.
Prospects for FDI in 2023
The Latin American Advisor recently asked financial analysts for their thoughts on whether FDI in Brazil in 2023 would see similar levels. The Brazilian Central Bank already predicts a similar amount – around US$88 billion is the current forecast – with another uptick in 2024.
The analysts echo this prediction. Ernesto Revilla, Managing Director of Latin American economics at Citigroup, says that although GDP growth will slow down this year, FDI levels should remain high. For Joel Korn, President of WKI Brasil, “the commitment to sound fiscal responsibility will pave the way, thus further advance the country’s ability to register even higher levels of FDI”.
Appealing sectors for foreign investment
The analysts also highlighted the areas of the Brazilian economy that they perceive as the most attractive for FDI. Anya Prusa, Senior Director at the Americas practice at Albright Stonebridge Group, the exchange rate continues to be one of the most appealing aspects of the Brazilian economy. She says it has made “Brazilian assets a relative bargain”, emphasizing the “ready opportunities for investment in energy, infrastructure and real estate”.
For Mauro Cazzaniga, Economic Analyst at BMJ Consultores Associados, green energy will remain a focal point for FDI in Brazil this year. He believes that such projects “are likely to receive incentives”. They include green hydrogen plants, particularly in Ceará and wind and solar energy farms, many of which are located in Northeast Brazil.
Korn highlights the overall advantages of Brazil as Latin America’s largest economy and second-biggest consumer market in the region. He also believes that “confidence in the country’s resilience and strategic geographic position leverage its huge competitive advantages in raw materials, agriculture, energy and renewable sources”. For Korn, these make up the most attractive sectors for investment along with financial services and commerce.
(Source: Latin American Advisor)
