Foreign Direct Investment in Brazil

Below is a short article published today (Jan 25, 2017)in the international edition of Valor. Some of the questions that come to mind are:

What sectors are receiving the largest inflows?  I would think most likely petroleum exploration with the loosening of restrictions.  The primary sector also is important with the growth of soybeans and large investments in eucaliptus for the pulp industry.

Where are these flows coming from?  China promised 10 billion but the Chinese are notoriously slow in fulfilling their promises.  What companies and countries are the source?  The US has the largest stock of accumulated FDI

Finally, as noted in the article, FDI in Brazil, in spite of uncertainty, recession, political crisis, disease, accidents, death and decline, keeps growing.  Someone must be thinking long term.

FDI reaches record 4.4% of GDP despite recession and political crisis

Recession, impeachment, political crisis, and corruption scandals have not affected the flow of foreign direct investment into the country, which ended 2016 at $78.9 billion, or the record level of 4.37% of GDP. The investment inflow, spread across various sectors of the economy, financed easily the current account deficit, which stood at $23.5 billion, or 1.3 percent of GDP. “This shows that direct investments have specific characteristics, linked to long-term decision and could be maintained even in years of weak economic activity,” said Fernando Rocha, head of Central Bank’s Economic Department. For 2017, the forecast is of $75 billion in FDI, or 3.82% of GDP. 

Article from Valor International Edition, Jan. 25, 2017

Reader Comments and Temer x Trump



A Facebook friend and reader, Innocent A. Nweze, wrote to alert that my 2017 prediction blog ( was more a rehash of 2016 then a forecast for the New Year. I answered Innocent with something to the effect that 2016 has not yet ended in Brazil and it is, as we say in futbol, only the prorogacao or added time. (As many acknowledge, nothing happens until the end of summer and Carnaval so still waiting for 2017 to begin around March 1.)

Still, here are his points in italics.

(1) Some sort of self-reexamination. A kind of “cleansing” if you like. Cleansing of the old, but are not certain what to replace the old. So what could be the impact of this sort of transition for Brazilians in 2017. Maybe the general impact on Latin America.

(2) Will there be a transformation of the Political System in 2017? Will there be a convergence of the political parties or will they remain splintered as is currently? Will the transformation be gradual or sudden and quick in 2017? What should we expect?

(3) Brazilian infrastructure and institutions. Good and bad, what is to be expected in 2017? Post 2017 too. Advanced Agriculture, deep expertise in deep sea drilling technologies, manufacturing, poverty alleviation for which Brazilian recently gained recognition, no matter how perfunctory. What should we expect in 2017, even in the near term?

(4) Politics and corruption and impact on the economy in 2017.

Point by point:

  • Certainly Brazil is going through self-examination, but how deep this goes is a question. If people are not educated and informed and capable of critical reflection, it is hard to go beyond the surface. Brazil has made tremendous quantitative strides since 1960 in expanding education and reducing illiteracy. However, the quality of education is not there. Information is also a major problem. Although Rede Globo is not as dominant as it used to be, it is still the most important media vehicle and, overall, does not make people think as much as making them think in one direction. And Globo is just the prominent tip of this iceberg. It is nice to suppose that access to social networking is breaking down this monopoly, but usage needs to further expand and important economic and media groups control the most popular sites.
  • Transformation of Brazil’s political situation is halting and slow. Temer’s major challenge, an area where he has made some important initiatives, is the economy. As I mentioned in the 2017 predictions, the PMDB and allies threaten the corruption investigations and seek the status quo where they receive a lion’s share of benefits. I don’t see party reform on the 2017/2018 agenda, as it is not in the personal interest of the politicians in Congress.
  • Brazil’s infrastructure is notoriously deficient. Some improvements are made through privatizing. But each privatization diminishes power politicians have to appoint and control so again they are not readily favorable. In addition, the country has been in recession and the government is bloated and fails to provide social and economic benefits. The recent administrations have overtaxed and spent poorly creating a black hole so there is little or no money for investments. Yes, there are areas of excellence such as the deep-sea extraction technology. But this technology is part of a larger system of worldwide petroleum production and political/economic management at Petrobras. Brazil needs to define where its national interest lie in the oil fields and how to best exploit them either in conjunction with multinationals or by itself. Alone, at the moment, Petrobras does not have the resources or even access to the funds necessary to take advantage of what it knows. So in the end, expect increases in poverty with rises in unemployment and only moderate or no gains at all in manufacturing. Even if Bolsa Familia (a good program) remains, it is not a solution to the basic problem of employment and production. Agriculture is increasingly important but hampered by lack of infrastructure and affected by fluctuations in demand and the weather.
  • Politics and corruption provides an interesting bridge to connect Temer and Trump and the international milieu. Temer and his cohorts threaten the progress of corruption investigations in Brazil. Trump, in his lack of transparency and given his past business dealing does not appear to be a paragon of moral rectitude. He has asked for the resignation of all ambassadors by his inauguration on Jan. 20. It will be a bit ironic if Liliana Ayalde, who the left views as a coup monger is replaced by someone more overtly favorable to US corporations and with a blind eye toward malfeasance whether it be by the oil companies, the NSA, or the CIA. So Ms. Ayalde may actually be missed. Apart from that Trump appears to have little interest in Brazil as a nation. He may praise Doria or Bolsonaro or even the developers of Trump Rio, but in the end he will do what is good for his own interests and those of his allies such as the presumptive Secretary of State Mr. Tillerson (formerly Exxon). Brazil and Temer may put up a stiff upper lip and smile but they should be disabused of the idea that Trump will do them any favors.

In the end, we can hope for gradual improvements just because people in Brazil are generally positive and are gradually coming to recognize that their dependence on a paternal state is not productive and no longer tenable. Young people are unleashing a tremendous amount of entrepreneurial talent and given Brazil’s size and the wealth that already exists will eventually find a way to more equality and prosperity. It may take a hundred years and there are no guarantees but we need to have faith and hope.

Grading my Brazil Predictions for 2016


Optimistic Dilma in 2016 – Photo by Roberto Stuckert Filho


Some readers have followed, not necessarily religiously, this blog since it went public in January of 2013. Comments have generally been gracious and insightful.

As long-time readers know, I do a New Year’s prediction for how Brazil will fare over the coming 12 months. As part of this, it’s only fair to go back and assess what I got right and wrong. I’m giving my 2016 predictions a gentlemanly B-. Here, for verification, is the link to those year-old predictions:

My biggest 2016 prediction mistake was stating outright that President Dilma would not be impeached. I sincerely believed that she could and would marshal the political forces necessary for her survival. Instead, she went down with hardly a whimper and with little or no political or economic support. . A worsening recession, growing unemployment and above all, her indecisiveness in the economic sphere and her disconnect from Congress ultimately doomed her. Her incompetence and distance even from her own party showed her lack of political skill and desire to save her presidency.

While I missed on Dilma, I predicted correctly Cunha’s (former President of House and the main force in Congress behind the impeachment) ouster and Renan Calheiro’s survival (as the President of the Senate). Mr. Calheiros has indeed prevailed but notably weakened and will soon lose the presidency of the Senate. The new President, Michel Temer, has kept his distance from Calheiros preferring other cronies instead. In my predictions, I did not mention Temer (as I did not think he would actually take over) and I should have looked at his ambitions more closely.

On the economy, like most everyone, I correctly anticipated the continued recession but also expected the cycle to reach bottom by the end of the year and naturally perk up from there. It now appears that the upswing may not begin until the second or third quarter of 2017. The recession, the major increase in unemployment and the consequent lack of demand has kept inflation relatively low. I had expected inflation (again with Dilma) to hit or top 10% due to her maneuvering to please supporters. President Temer has pushed a cap on spending through Congress and this along with lack of demand has held inflation to around 6.5% in 2017 with a current tendency to fall. Brazil’s Central Bank is predicting inflation of less than 5% in 2017. While the official numbers appear reasonable, the impact of price increases certainly feels higher and more worrisome on the street.

Speaking of worrisome, Brazil is mastering the art of year-end crises. It used to be mudslides with summer rains creating havoc. These were largely man made catastrophes because of unregulated and uncontrolled development of unsafe areas. Because the deadly slides were associated with the seasonal downpours, they could be blamed on nature. Similarly, Zika was the New Year concern from 2015 to 16 when thousands of cases appeared and hundreds of babies were born with microcephaly. In this case, nature again was blamed but Brazilians also know that mosquitoes breed and propagate due to a lack of basic infrastructure and sanitation. By August and the Olympics, the pandemic was no longer an international threat and Brazil, as I predicted, successfully held the Games. Of course, the major beneficiaries were not the people of Rio but instead NBC and the Olympic Committee. Rio is now bankrupt and many of the so-called Olympics improvements are rapidly falling into disrepair. This 2017 New Year disaster cannot be blamed on nature but must be laid at the heart of the contradictions inherent in Brazil’s barbaric inequality and violent past. Prison riots in the first days of the year have caused well over 100 deaths and the government seems paralyzed in how to address the gangs that control the prisons, their historically abhorrent (mis)management, and the Justice system itself that operates willy-nilly and condemns the poor, black and powerless. The rebellions and deaths show the bankruptcy of the government and paradoxically the strength for those who have nothing to lose and know that life is cheap. The gangs rule in the absence of any other intervening power.

Last year, I also mentioned the continuity of the corruption investigations and, especially the Lava Jato (Car Wash) with its revelations of unprecedented bribery and the chummy network of exchanges between construction companies, politicians and political nominees positioned to take bribes and distribute contracts favoring the “empreiteiras” (construction companies) and their political allies.   Again, thinking that Dilma would hold on to power, I imagined the extension of the investigations to other areas such as the National Development Bank (BNDES) and more specific projects like the transposition of the San Francisco River. Indeed, there has been mention in this direction but no action. Instead, the Temer government sought to quietly dismantle the main investigations and it has only been through strong public pressure within Brazil and from abroad including the US Department of Justice that the prosecutions actually survive.

Interestingly as predicted, Brazil continues to receive massive amounts of FDI (Foreign Direct Investment) some 69 billion in 2016. Some of this money is going into the primary sector for land purchases, soybean and pulp plantations. Other sectors are less clear, with industry in decline, the money is likely going to opportunistic acquisitions in manufacturing or processing (i.e. the Petrobras sale of the notorious costly refinery in Pernambuco negotiated recently for 10 cents to the dollar. Other investments are going into education, services, distribution and logistics. Still these have not sufficed to revive the economy. More money is starting to come from China but the Chinese still lack confidence in how to deal with Brazil.

Unfortunately, Dilma’s ouster is still yielding negative returns for Brazil’s institutions. While she was bad, her replacement has not improved the economic situation, slowed the firings, enhanced productive investments or inspired confidence. Dilma, though apparently personally honest, could or would not govern.   President Temer’s rectitude is perhaps less certain. His government is corrupt and weak but more politically adept in dealing with the venal politicians in Congress. Hopefully, the electoral court will not have time to disqualify the Dilma/Temer slate, which would force Temer out and the indirect election of a new interim president who would have filler role to the elections of 2018. If this happens, it will further confuse the public and inhibit the possible emergence of candidates not tied to corrupt schemes or past malfeasance.

Pulling off the Olympics and winning the missing gold medal for the first time in futbol* were the high points, and now Brazil continues to flounder but such is the world in 2017.

*The Olympic gold medal was only major soccer title that Brazil had never won.

2017 Predictions for Brazil – Happy New Year ???


For the last several years, I have started the year with a guessing exercise and have attempted to predict certain political, economic and other events in Brazil. Often I have erred but have occasionally been correct. For example, I did not predict Germany winning the Cup in 2014 and much less the 7 x 1 thrashing. However, last year I did correctly state that Brazil would pull off the Olympics as an event made for TV and the country did so in spite of all the negatives that preceded and now follows. I have been right about the direction of the economy but off on the quantitative predictions say for the exchange or inflation rate. Educated guesses both hit and miss.

Thinking about 2017 and those that might read this, it might be more interesting to look at topics not directly related to Brazil’s political economy, and instead, examine other vagaries of the New Year. On New Year’s Eve, those that celebrated did so wearing all white clothes, new undergarments and overtly or covertly thought about blessing that Iemanjá might bring. Brazilian desires are fairly universal. Almost all seek health, prosperity, spiritual blessings and love for themselves and their families. Some also wish for the passing of the current government, the end to the many tiresome ongoing scandals and occasionally some Brazilians were even pleading for respect for the environment reflecting perhaps a larger global awareness in the collective conscience.

Of course, Brazil’s New Year was marred not only by scandals and crimes, but also the mass murders that took a dozen lives in Campinas and then the one allowed by Brazil’s perpetually abhorrent prison system which led to some 50 to 60 plus deaths and many convicts on the loose in the state of Amazonas.

While wishing for God’s blessings, love, peace and prosperity, the question that confronts the population is: Has God renounced his Brazilian citizenship causing the country to lose its way? Many fear this to be true. With the economy collapsing, unemployment growing, street crime, and total cynicism about the politicians, Brazilians are indeed pessimistic and lacking in hope. Brazil’s “new middle class” is rapidly sinking with debt and unemployment, while those that have a bit more are being constantly assaulted by taxes and new tariffs. The latest creative gem is the tax on Netflix and other streaming services.  There is a general feeling of impotence in spite of the desire to want and seek betterment with the passage of the old year. The current president has rejection ratings as high impeached Rousseff but at least he still has a majority in Congress and in that represents an improvement over his predecessor. President Temer, at times, seems to be taking the message of fiscal control seriously and has succeeded in pushing through an amendment to cap government spending. But, at the same time, he has failed to control current expenditures and has appeared to be at the mercy of the vested interests in the bureaucracy and in Congress that effectively circumvent stated intentions and weaken the already precarious legitimacy through special favors and privilege. Without his own votes and by sending a mixed message, Temer appears weak and may not be able to finish out his term if street demonstrations and the Lava Jato investigation turn against him. Recently, Veja magazine, a prominent opponent of the previous administration, put the President’s much younger and attractive wife on its cover in what appears to be an attempt to deflect criticism and attention from the President himself.

Newly elected mayors took office on January first. Interestingly, most new mayors of Brazil’s major cities are not from the President’s party or the PT party of the previous administration. The new mayors may represent new faces and the disenchantment but still their populist actions (street sweeping in Sao Paulo and giving blood in Rio) while voting or approving increased salaries for councilmen and bureaucrats portray the ongoing realities of Brazilian politics. It is still pay to play and negotiate benefits and deals once in power.

Politics tends to depress people and not only in Brazil, but it is important not to lose sight of multiple currents and events that have been emerging. The connectivity and activism on Brazil’s social media is of major importance. People have used social media to mobilize support of say anti corruption and individual expression in a fairly effective manner. However, the tendency in Brazil, as elsewhere, is to only listen to those who are similar and reject or not associate with those of different views. Many Brazilians condemned the wanton killers of a street vendor who had defended an LBGT person but Brazil’s machismo and homophobia still are deeply embedded nevertheless. Feminist movements, artists, actors, intellectuals, students and minorities of all types are finding ways to organize. Still racism, sexism and the traditional power structure reinforce all of the traditional differentiations. While Brazilians are favorable to democracy, their ardor has waned and increasingly the authoritarian temptations once again reemerge. Thus it is again common to hear calls for military intervention, for jailing all the “bad” actors and for killings by death squads or militias to supposedly rid society of its bad elements. For many there is still a disassociation between means and ends.   Perhaps a majority still fails to recognize the rule of the law must be accompanied by respect for the individual and that the individual actions need to be rewarded and/or punished based not on class, gender, race or wealth but on the merits and consequences of the actions as judged by the law. The arrest, conviction and actual jail time for elite businessmen and politicians in the recent years show progress in the direction. However, the hundreds of cases associated with the Petrobras and other related scandals are still different and distinct from the millions of cases, indignities and crimes, which most directly touch Brazil’s poor. If you are white, college educated, dressed appropriately and a man, you will still be treated with much greater deference at all levels than someone who is poor, dark skinned and female.

Last year was difficult in Brazil. The house seemed to be slowly crumbling as the economy continued its slide and fiscal crisis wore down the already inefficient public services. Brazil’s institutions have been damaged by the impeachment but have also shown resiliency in the ongoing investigations and the arrest and jailing of notorious figures such as Eduardo Cunha, the former Speaker of the House of Representative. Brazil is seesawing back and forth on its path to economic development and democratic construction. It has a long way to go but perhaps in 10 years we will look back and see that the country had to go through a deep crisis to find its path. On the other hand, though, it is also possible that Brazil and the rest of the world may succumb to demagoguery, apocalyptical visions, authoritarianism and involution. This new year of 2017 will only be another stepping stone on the path to something better or perhaps something not as great as we might desire. To a certain extent, the direction will depend on how and if people participate, act and actually feel empowered to make a difference.