As Brazil continues to focus its efforts on domestic growth in various sectors, concerns about import barriers and international competition continue to grow. Many of these concerns are viewed as justifiable given the low-cost financing and tax incentives that the Brazilian government offers Brazilian companies in certain sectors for abiding by local content requirements. Local content rules require companies to use locally made equipment or parts. In other instances, regulations require companies to have a majority Brazilian ownership. Several Brazilian companies have capitalized on these funding opportunities. In fact, as of October 2013, Banco Nacional de Desenvolvimento Economico e Social, BNDES, the state-owned development bank, had expanded its lending and equity investment since 2007 by 140%. Despite local content rules and laws that benefit Brazilian companies, opportunities for international companies to export to Brazil exist, especially in many of Brazil’s emerging sectors.
Brazil’s nascent solar energy industry provides opportunities for international trade. According to energy analysts, Brazil needs to install more than 500 megawatts of solar energy capacity a year to support local panel production.Solar power currently represents less than 1 percent of the electricity that is generated in Brazil and the country has almost no domestic photovoltaic production. Due of the limited production, the export opportunity is more pronounced compared to other industries. In July 2014, Brazil’s BNDES development bank announced that it will allow solar developers to import photovoltaic cells until 2020 as part of efforts to spur domestic solar manufacturing capacity. After 2020, local content rules will require developers to use components produced in Brazil to qualify for its low-cost financing.
Less obvious opportunities also exist in Brazil’s defense sector. As Brazil continues to modernize its armed forces, occasions for international companies increase. In the defense sector, similar to other sectors in Brazil, domestic companies are given priority to government contracts. However, to spur growth international firms seeking partnerships with Brazilian defense counterparts can gain access to government contracts if the international firm offers a technology transfer – which is the process of transferring skills, knowledge, technologies, methods of manufacturing, samples of manufacturing and facilities – to Brazil.
Similar opportunities are available in Brazil’s infrastructure industry. In 2012, Brazil began an ambitious program to draw in private capital and managerial expertise to upgrade the nation’s infrastructure. Through the Empresa de Planejamento e Logistica (The Logistics Investments Program), the Brazilian government opened all of the concessions to foreign companies. This gives international companies the ability to bid outright for contracts or can to seek partnerships with domestic companies that win concessions. The terms of these concessions will range from 25 to 35 years, with the possibility of extensions. In February 2014, President Rousseff announced a third stage of the Growth Acceleration Program which will invest more funds to strengthen the country’s infrastructure that will begin in 2015.
With an ever-changing economic, political, and environmental landscape, it is difficult to predict the outcome of Brazil’s emerging sectors. Changes in policies have already taken place and with many of the project deadlines still years away more changes will occur. Given the current circumstances, will more international companies choose to take advantage of the opportunities?
Jamal Pope is a Summer Associate in the Barral M Jorge team working in the area of Government Relations and Corporate Affairs. He is a graduate of the University of Tampa and a consultant at CNS (https://bmj.com.br/parceria.php)