Brazil rises to 4th place in Unctad’s investment attraction rankingValor Econômico
Brazil rose from 7th to 4th as the country that most attracted foreign direct investment (FDI) in 2017, behind only the United States, China and Hong Kong, according to the World Investment Report published by the United Nations Development Programme (Unctad).
The entity highlights the significant inflow of Chinese capital in the country’s energy sector and shows that the growth of 8% of FDI in Brazil last year was even more important because it contrasted with the 23% drop in global flow. In 2017, the country attracted $ 62.7 billion in FDI, accounting for 40% of the total flow to Latin America.
Nine of the 10 largest acquisitions by foreign companies in the region took place in Brazil. Seven involved Chinese buyers. Investments were mainly in electricity, oil, infrastructure (gas distribution) and in agribusiness companies.
Unctad points to “a boom in FDI in the energy sector” in Brazil, where foreign capital has more than tripled to $ 12.6 billion. In transportation and storage, foreign investments quadrupled to $ 6.6 billion. In the industrial sector, FDI inflows for chemicals and food industry doubled, reaching $ 3.2 billion and $ 2.6 billion, respectively. In the metallurgy sector, foreign investments grew 45% and reached $ 3.1 billion.
All this has offset the decline of 40% in foreign investment in the automotive sector, of 33% in the extractive industries, 20% to 25% in the financial and real estate sectors, and 12% in the oil sector.
In total, Latin America attracted $ 151 billion (+8%), the first increase in FDI in six years. However, Unctad forecasts a slight drop in 2018, to approximately $ 140 billion. The agency estimates that economic growth in the region remains weak and the challenges are many, including political uncertainties with elections in Brazil, Mexico and Colombia, and possible negative impacts with rising US interest rates.
The volume of FDI in 2017 represented 17.2% of gross fixed capital formation in Brazil. Even with the periodic turbulence between 2012 and 2017, the country attracted $ 388.4 billion of foreign investment. Total FDI stock increased by 14% between 2010 and 2017, now reaching $ 778.3 billion, equivalent to 36.4% of GDP.
Unctad shows Brazil as the last among 25 countries in the global value chains, that is, imported goods and services incorporated into the country’s exports.
Globally, FDI flows fell to $ 1.43 trillion, compared to $ 1.87 trillion in 2016, in stark contrast with the signs of economic growth and world trade.
The fall is attributed mainly to a 22% drop in international mergers and acquisitions. Also alarming is the value of announced greenfield investments, an indicator of future trends, with a 14% drop. For 2018, there should be a slight increase, but still below the average reported in the past ten years.
Unctad warns that escalating trade tensions will negatively affect foreign investment and global value chains. It also notes that US tax reform should have a significant effect on the flow of global investments, with US companies being encouraged to re-invest more in the country.
According to Unctad, the drop in rates of return is one of the main factors for the decline in FDI inflows globally.
In Brazil, the rate of return, according to the agency, was around 5.1% for 2017, stable since 2012. It was below the global level, which is now 6.7%, falling down when compared to 8.1% in 2012.
The return on investment is falling in all regions, with the highest drops being reported in Africa and Latin America. In Africa, the rate fell from 12.3% in 2012 to 6.3% in 2017. In Latin America, it fell from 7.9% to 5.6%.
For Unctad, this may be partially explained by the fall in commodity prices during the period.
“A lower return on foreign assets may affect the long-term prospects for FDI,” according the UN agency.