Recently created government fund for secured infrastructure projects in Brazil

The other day a foreign investor who was looking into potential infrastructure projects in Brazil asked me whether the Brazilian Government makes use of Sovereign Guarantees, Bank Guarantees and/or SBLC’s to attract and secure foreign investors (ment).

At least for infrastructure, I believe the most suitable instrument would be the Brazilian Law 12.712/2012, Art. 32, which establishes the Infrastructure Guarantee Fund (or FGIE, Fundo Garantidor de Infraetsrutura).

This fund is managed by the Brazilian Guarantee Agency (or ABGF, Agência Brasileira Gestora de Fundos Garantidores e Garantias S.A.) and is operated through guidelines which regulate the direct guarantee awards (Regulamento de Operações para Outorga de Garantia Direta Pelo Fundo Garantidor de Infraestrutura), meant to offer risk coverage for noncompliance of pecuniary obligations assumed by the public partner in Public-Private Partnerships.

As of its latest report made publicly available (December 31st, 2017), this fund comprised the value of R$ 568.560.446,00 in total net assets (approx. USD 156.043.574,93 today; not very large due to its recent establishment), and applicable to specific concession operations including the following:

I – Major infrastructure projects included in the Growth Acceleration Program (or PAC, Programa de Aceleração do Crescimento) or strategic programs defined by the Executive Branch;

II – Projects resulting from Public-Private Partnerships in the form of Law 11.079/2004.

However, the exact answer to this question depends heavily on the sort of infrastructure project, value and nature of partnership sought in the country, amongst other specifics.

Brazilian Central Bank publishes Fintech regulations

On April 24th, 2018, the Brazilian National Monetary Council (CMN) approved Resolutions 4.656 and 4.657, which regulate the performance of financial technology companies (known as Fintechs) operating in the credit market.

According to Resolution 4.656/2018, Fintechs may operate within the following two frameworks:

  • Direct Credit Society, or SCD (Sociedade de Crédito Direto), through which Fintechs can lend money raised through investment funds, eliminating the bank as an intermediary; or
  • Person-to-Person Credit Society, or SEP (Sociedade de Empréstimo entre Pessoas), which allows for peer-to-peer lending operations within the established limit of R$15.000 per CPF (individual) or CNPJ (organizations).

In September of 2017, the Brazilian Central Bank had opened a request for comments on the subject (BC Public Consultation 55/2017). The new regulation is part of its + Agenda – the Bank’s strategy to increase competition in the National Financial System, foster credit offer, reducing the cost for the final borrower and increase legal certainty to operations.

 

REFERENCES:

Folha de São Paulo. Fintechs poderão concede crédito sem mediação de banco. May, 2018.

InternetLab. Banco Central regulamenta atuação de startups de tecnologia no mercado de crédito. April, 2018.

Banco Central. BC coloca em consulta pública atuação de Fintechs no mercado de crédito. September, 2017.

2018 Economic Outlook Brazil: Foreign Policy

This is the third chapter of the series of posts on the “2018 Economic Outlook Brazil” that is based on the Presidential Message delivered to the Brazilian National Congress in February, 2018 by President Temer. The official document, in its entirety, advises on the key national policies divided into five central pillars: Economy, Infrastructure, Social, Foreign Affairs and Public Administration.

Read below the policy highlights on Foreign Policy. The other posts are Regulated Markets and Structural Reforms.

1. Introduction

In a global scenario trending towards nationalism, Brazil continues to push forward a diplomacy of universalism by promoting multilateral dialogue and integration. Its foreign policy has been implemented towards the interests of economic recovery, job creation, border security and the promotion of welfare.

During the year of 2017, the Brazilian Government continued to give expression to the universalist vocation of its Foreign Policy. Beyond Latin America and the Caribbean, the Brazilian government tried to deepen its diplomatic relations with European countries, North America, Asia Africa and the Middle East. In 2017, Michel Temer visited China (during the BRICS summit), Norway, Portugal and Russia. He also participated in the meetings of G-20 in Hamburg, Mercosur in Mendoza, the UN General Assembly in New York and the WTO Ministerial Conference in Buenos Aires.

Its participation in multilateral institutions is also to be highlighted, having representatives working for the Inter-American Commission on Human Rights, Committee on the Elimination of Racial Discrimination, International Court of Justice and the International Law Commission. Brazil is also in the Presidency of the World Trade Organization.

2. Migration and Refugee Crisis

In 2017, the new Migration Law entered into force, establishing the guidelines for the Brazilian migration policy through which the country has acted in the UN negotiations for a Global Compact on Migrations. The government is also working on improving its mechanisms for granting refuge. Aiming to facilitate the instructions on the process of request for refuge, an electronic ordering system is under development (Sisconare), which will give greater speed, reliability and security to the processes. A working group was also established for the revision of the resolutions of the National Refugee Council (Conare).

3. China

In 2017, China remained Brazil’s main trading partner, and an important source of investment. During the Presidential visit to China, bilateral agreements were signed in the areas of tourism, health and consumer product supervision. The bilateral cooperation also advanced through the launch of the Fund for Brazil-China Cooperation for the Expansion of Productive Capacity.

4. Africa

The African continent is a permanent priority to the Brazilian Foreign Policy. During the UN Assembly, in September, President Temer met with the President of Egypt, Mr. Abdel Fattah Al-Sissi, to discuss economic opportunities for both countries. In the same month, the Mercosur-Egypt free trade agreement entered into force. Egypt is the main destination of Brazilian exports to Africa.

In 2017, the Brazilian Foreign Minister visited Namibia, Botswana, Malawi, Mozambique, south Africa, Sao Tome and Principe, Ghana, Nigeria, Côte d’Ivoire and Benin. During these visitations, cooperation agreements were signed in areas such as visa facilitation, social security, and air transportation, reiterating the country’s commitment to socio-economic development and the consolidation of peace and democracy in West Africa.

5. BRICS

Within BRICS, progress was made towards the consolidation of the New Development Bank (NDB) with the approval of the 2017 – 2021 General strategy, which included the bank’s second batch of loans and the opening of its first regional office in South Africa. In its 2017 summit, BRICS signed the Plan of Action for Economic and Trade cooperation and the Customs Cooperation Strategy.

6. Middle East

Brazilian Diplomacy is also attentive to the geopolitical situation of the Middle East. It defends the two-State solution to the Israel and Palestine conflicts, based on International Law and opposing to the illegal construction of Israeli settlements in Palestine. President Temer met separately, in New York, with the Israeli Prime Minister and the President of Palestine.

In May 2017, the Brazilian Minister of Agriculture, Livestock and Supply visited Saudi Arabia, Qatar, the United Arab Emirates and Kwait, helping to maintain the Brazilian beef exports. To attract investments, the Brazilian government went on a mission to Saudi Arabia, Bahrein, Kwait and Qatar.

7. Regional Integration

In 2017, Brazil prioritized advances in economic-trade relations and in the areas of border cooperation, physical integration and the fight against transnational crimes within the Latin America and Caribbean region. In commitment to the Ushuaia Protocol, members of Mercosur voted on the indefinite suspension of Venezuela from participation in the bloc. In articulation with other 11 countries in the “Lima Group”, Brazil seeks to favor the return of democracy in Venezuela. Internally, an inter-ministerial group was designed to coordinate the reception of the Venezuelan migratory flow in the Northern region of Brazil. A Resolution of the National Immigration Council made it possible to grant temporary residence to Venezuelan nationals for two years.

In April, the Protocol of Cooperation and Facilitation of Investments of Mercosur was signed, and in December, the block agreed on the Protocol for Public Procurement. A free trade agreement started to be negotiated with the European Free Trade Association (EFTA), formed by Switzerland, Norway, Ireland and Liechtenstein. The negotiations for an FTA with the European Union are still under negotiations.

Brazil has also maintained an active participation in the Amazon Cooperation Treaty Organization (ACTO), especially in the illegal deforestation monitoring program, in the projects for water resources management and forest firefighting in the Amazon basin.

8. Foreign Trade

The results of the Brazilian foreign trade have contributed to the return to growth, as the country recorded a surplus of USD 67 billion in 2017. Both exports and imports recovered some of the dynamism lost during the crisis. In May, Brazil requested access to the Organization for Economic Co-operation and Development (OCDE) and, in attempt to speed operational processes, began the implementation of the Digital Origin Certificates and the Consolidated Portal for Trade.

It is estimated the start of production and exporting by companies located at the ZPE in Ceará (Export Processing Zone) has contributed to leverage the state economy. Other ZPEs are already in advanced stages of implementation in the states of Piauí and Mato Grosso.

Source: Presidential Message to Congress 2018 (adapted translation)

Brazilian government reduces import tariffs on ICT and capital goods

The Brazilian Foreign Trade Chamber (CAMEX) issued Resolutions No. 14 and 15/2018, reducing to zero percent the import tax on capital goods (780 items) and computer and telecommunications goods (50 items). The tariff reductions that entered into force on February 28th under the Brazilian Ex-tarifário regime are temporary and will be in place until December 31st, 2019 as established by the new resolutions.

The Brazilian Ex-tarifário regime consists of the temporary reduction of the tax on imports of goods when there is no equivalent national production. The special customs regime is intended to promote a reduction in the cost of investments and to produce a multiplier effect on employment and income on differentiated segments of the national economy. Camex Resolution No. 66/2014 established the rules for the concession of the Ex-tarifário regime.

2018 Economic Outlook Brazil: Regulated Markets

This is the second chapter of the series of posts on the “2018 Economic Outlook Brazil” that is based on the Presidential Message delivered to the Brazilian National Congress in February, 2018 by President Temer. The official document, in its entirety, advises on the key national policies divided into five central pillars: Economy, Infrastructure, Social, Foreign Affairs and Public Administration.

Read below the policy highlights on Regulated Markets. The other posts are Structural Reforms and Foreign Policy.

1. Oil & Gas

Law No. 13.586 of December 28, 2017 was part of a broad set of measures that altered the regulatory framework for the oil sector. The act aimed to increase competition in the exploitation of reserves and thereby increase the income absorbed by taxpayers in the form of tributes, royalties, special participations, signature bonuses or oil surplus.

Decree No. 9.128 of 2017 extended the benefits of Repetro until 2040. This is a special customs regime for importing and exporting goods for research and drilling activities of oil and natural gas. This regime has been in place since 1999 and aims to equate the taxation of the oil sector in Brazil with the practices of other producing countries.

Resolution No. 17/2017 from the National Council for Energy Policy (CNPE) established the Petroleum and Natural Gas Exploitation and Production Policy, which defines the guidelines for policy implementation for the planning and realization of public bids. Resolution 10/2017 from CNPE establishes the schedule for the bidding rounds of blocks and fields for oil & gas exploitation and production for the biennium 2018-2019.

There was a change in the clause of Research, Development and Innovation of the Programme for the Competitiveness of the Productive Chain, Development and Improvement of Suppliers of the Petroleum and Natural Gas Sector (Pedefor, Decree No. 8.637 of 2016): A percentage of 30% to 40% of eligible expenditure in PD&I should be destined to universities or research centers; 30% to 40% for programs, and the remainder to qualified activities defined by the concession itself.

2. Mining

Throughout 2017, the Brazilian government reviewed the legislation of the mineral sector, with the objective of restoring the credibility and legal certainty demanded by the investors. Provisional Measure No. 789 (converted into Law No. 13.540/2017) provides for the Financial Compensation for the Exploration of Mineral Resources (CFEM); Provisional Measure No. 790, amends the Mining Code (Decree-Law no. 227/1967); and Provisional Measure No. 791 (converted into Law 13.575/2017) creates the National Mining Agency (ANM) for the regulation of the mineral sector, substituting the former National Department of Mineral Production (DNPM).

3. Electricity

The Brazilian government issued new legislation in 2017 to support and encourage the process of privatization. This is the case of Decree No. 9.192/2017, which regulates the bidding process and the respective transfer of share control of electricity distribution companies controlled by Eletrobras. Provisional Measure No. 814/201 gives incentives for the transfer of share control and includes Eletrobras in the National Program for Privatization.

4. Basic Sanitation

Population in Brazil still faces serious problems related to access to basic sanitation services, despite advances promoted by the last legislation revision enacted by Law 11.445/2007. There are deficiencies mainly in the water supply and treatment and sewage collection and treatment services.

There is a general understanding that it is necessary to increase legal certainty aiming at investment expansion. As per current regulatory framework, the country has more than 50 regulating agencies in the sector, with municipal, regional and statewide outreach. This multiplicity of actors contributes to the context of low investments due to the intertwined complexity of rules. The government is considering changes in Law 9.984/2000 in order to assign to the National Water Agency (ANA) new competences for the coordination of services in basic sanitation.

5. Telecommunications

The General Telecommunications Law No. 9.472/1997 was published two decades ago and, given the rapid technological innovations in the sector, a regulatory reform is urgently necessary, since the concession of fixed telephony becomes less attractive in relation to emerging broadband technologies. The Draft Bill PLC 79/2016 that is under discussion in the Federal Senate is proposing legislation reform in order to reverse the obligation of investment in fixed telephony in favor to investments in broadband expansion.

Source: Presidential Message to Congress 2018 (adapted translation)