São Paulo 2015 Blog: Who's Investing in Brazil Right Now? The Bold and the Chinese

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It takes a certain type of investor to be drawn to the country right now, say analysts. Beijing is among them.

On paper, the economic numbers coming out of Brazil these days aren't particularly bullish: the International Monetary Fund projects that Latin America's largest economy will contract by 1 percent in 2015, and the trade volume is down by 16 percent so far in 2015, among other key indicators. At the same time, foreign direct investment (FDI) in Brazil dropped by just 2 percent in 2014, and Brazil's Central Bank expects that figure to rise by 1 percent in 2015. The climate conditions could provide a window of opportunity for foreigners looking to invest in the country. As Stephen Kurczy writes in Americas Quarterly:

It takes a certain type of investor to be drawn to the country right now. … Brazilian companies need cash, so they’re selling assets. Nearly every day, it seems something is being put on the block. Take the other week, for example: on May 4, Energy Minister Eduardo Braga said the government would auction 269 oil and gas development blocks this October. The next day, Bloomberg reported that Singapore’s sovereign wealth fund was in talks to buy a $980 million stake in hospital chain Rede D'Or São Luiz. On May 6, Reuters said power company Centrais Elétricas Brasileiras S.A. (Eletrobras) may sell several power distribution companies. Rumors surfaced the following day that Petrobras is in talks to sell gas pipelines to Mitsui & Co. Cemig’s subsidiary, Light Energia S.A., announced Friday that it is divesting a stake in Renova Energia S.A., just after Renova itself agreed to sell 14 wind farms and three hydropower plants to a unit of SunEdison Inc. for $534 million.

To be sure, Brazil is a big economy—the world’s seventh-largest—and lots of deal-making happens every day. But analysts say the current situation is unprecedented. The government is even considering allowing land sales to foreigners and permitting international firms a larger role in deepwater oil development—both previously considered untenable to Rousseff’s Partido dos Trabalhadores (Workers’ Party—PT), which is looking for any way to boost Brazil’s balance sheet and avoid a sovereign credit downgrade.

Foreign governments also are stepping in. This spring, the United States and Brazil released a joint Memorandum of Intent for trade faciliation, and this week, Chinese Premier Li Keqiang, on a South American tour, pledged $50 billion of investment for Brazilian infrastructure (this, on top of the $200 billion the Brazilian government earmarked in its budget for infrastructure over the next three years). There is opportunity for investment to go around in Brazil, as Eric Farnsworth writes, and the Chinese are stepping in:

Resources are insufficient, and Chinese largesse meets a need. At the same time, China is not pursuing charity. Investments up to this point and into the future are clearly focused on the procurement of strategic natural resources, including energy and agriculture, and also the infrastructure to bring them to market—i.e. get them to China.

One of the key announcements for Li’s visit, in fact, will likely be agreement on a trans-Andean railway that will move Brazilian products to the Pacific coast, obviating the need to utilize the Panama Canal. The attractiveness on paper for such a route is compelling, although cost, engineering requirements, and environmental concerns may ultimately conspire to defeat the project the same way Beijing’s desire to build a route across Colombia has now been idled. …

Officially, the United States is welcoming of Chinese interest in Latin America and the Caribbean. Commerce Secretary Penny Pritzker told journalist Andres Oppenheimer recently that there is enough investment opportunity to go around, and the need, particularly in infrastructure, is great.