UNCTAD shows optimism about Brazil’s rise, unlike the rest of the world

06/10/2022

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FDI flow to Brazil in 2021 reached $50.3 billion, up 77.9% from 2020 — Foto: Scott Eells/Bloomberg

Brazil was the sixth country that attracted the most Foreign Direct Investment (FDI) in 2021, climbing three positions in relation to the previous year, the World Investment Report released Thursday by the United Nations Agency for Trade and Development (UNCTAD) points out.

The expectation is that the country can continue to attract a good volume of productive foreign investment, although the global trend now is slowing down because of the war in Ukraine.

The FDI flow to Brazil in 2021 reached $50.3 billion, up 77.9% from 2020, when the country received $28.3 billion, according to Unctad’s consolidated figures.

In January, the UN agency had estimated that the flow to Brazil could have increased by more than 100% and the country would be the seventh-largest destination for real foreign investment.

“Brazil is an interesting case,” James Zhan, head of Unctad’s investment division, told Valor. “It is typically one of the largest recipients of FDI in the region and even among the most advanced developing countries.”

He notes that there was a strong recovery of investment in Brazil in 2021, but it has not yet resumed the level of 2019, before the pandemic, when the flow reached $65 billion. Last year, the flow was driven by the reinvestment of profits that multinationals had accumulated in recent years.

For Mr. Zhan, commodity prices may encourage multinationals to increase their investments in Brazil, expand existing operations and perhaps some new investments in the extractive industries and in the production of other commodities, such as in agriculture this year.

“That could be a kind of continued increase in investments for a full recovery of FDI in the country,” he said.

In 2021, Brazil was behind only the U.S., China, Hong Kong, Singapore and Canada as a recipient of FDI. And it attracted more productive resources than India, an economy that grows about 8% annually and is pointed out as one of the drivers of global expansion.

The FDI flow of $50.3 billion last year represented 18% of the gross fixed capital formation (GFCF), a measure of the productive capacity of an economy, compared to 11.8% in 2020.

The stock of FDI in Brazil totaled $592.7 billion at the end of 2021 (or -0.4% compared to the previous year) and represented 36.9% of the GDP compared to 41.1% in 2020.

The announcement of greenfield projects in Brazil reached $23.2 billion, or 35.1% more than in 2020. Mergers and acquisitions by foreigners in the country fell 45.7% between 2020 and 2021. The volume declined to $2.7 billion last year from $14.3 billion in 2018.

Overall, global foreign direct investment flows reached $1.6 trillion last year. Reinvested profits by subsidiaries of multinationals accounted for the bulk of this amount, reflecting a record high in profits for these companies in the wake of rising demand, low financing costs, and significant government support. Multinationals’ profitability doubled to 8.2% last year on average.

As for this year, UNCTAD sees “a significant risk” of the momentum for international investment recovery stopping untimely.

The global environment for international investment has changed dramatically with the war in Ukraine. New project activity already reflects increased risk aversion among investors.

Preliminary data for the first quarter show a 21% drop in greenfield projects. And international project financing fell by 4%.

Most of the top 5,000 multinationals have revised downward their earnings estimates for 2022 — but with differences that point to risks of setbacks in the energy transition.

The oil and gas industry forecasts an additional 22% gain and the coal industry another 32%, while the renewable power industries project a 22% drop in profits.

Other factors will negatively affect FDI in 2022. The spread of Covid-19 in China (with new lockdown measures) impacts global value chains.

Rising interest rates in several countries are also expected to slow down M&A activity and dampen growth in international project financing.

Negative financial market sentiment and signs of a looming recession could accelerate a fall in FDI. But UNCTAD also points to stabilizing factors. For example, large public support packages for infrastructure investment, with implementation over several years.

*By Assis Moreira — Geneva

Source: Valor International

https://valorinternational.globo.com/