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 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.

South African trade mission to Brazil

The South African delegation on a trade mission to Brazil was receptioned in the city of Curitiba this past week by the local trade association (ACP) in partnership with the Federation of Industries in the State of Paraná (FIEP). The mission received the support of the consulate general of South Africa in São Paulo and the Department of Trade and Industry of South Africa, and was composed by delegates from the wine industry, energy, civil engineering, architecture and tourism sectors.

Many of the delegates, specialy from the construction sector, were involved in the preparation for the World Cup 2010 in South Africa, and had the goal of identifying business opportunities in Brazil in order to transfer know how for the preparation of the upcoming World Cup 2014. Juliana Michelon Alvarenga from Aldeota Global, accompained by Wagner Giovani Silva, a technology manager from SOCIESC, a regional educational institution for technology development, met with a couple of the companies during the business rounds.

During the first meeting with Mr Fumani Dlomu, the director for Avuxeni Construction CC, a company from Highveld that provides electrical engineering services, the subject addressed was the solar energy market in SouthAfrica. According to Mr Dlomu, the sector is expanding and continuous growth is foreseen specially for low income housing programs. The equipment is today imported from China and specially Korea, being the later the equipments with better efficiency than chinese solar technology. He also mentioned that it is very promising to promote transfer of technology to South Africa. Aldeota Global also presented information on the Ex-Im Bank financing alternatives for importing US solar energy systems into Africa.

The last meeting was with The Western Cape Investment and Trade Promotion Agency of South Africa (WESGRO). The head of international trade and development, Mrs Seanne Kube, mentioned her concerns about how tough the Brazilian market is when in their attempts to conquer market share with the South African products. She also spoke about the well developed medicine technology capacity of the country and how the first open heart transplant was sucessfully executed in South Africa.

Aldeota Global also presented a pac to the members of the delegation with a document containing the highlights from the study recently published by The World Bank in partnership with IPEA, the Institute of Applied Economic Research, entitled Bridging the Atlantic, Brazil and Sub-Saharan Africa: South-south partnership for growth. The highlights were on the investment and economic complementarities between Brazil and African countries.

Market research: Business environment in Brazil

Economy: Brazil is a developing country, currently facing great economic growth. Middle class is changing its consuming habits as a response to income increase and easier access to credit, but still suffers from great economic inequality and great shortage of qualified technical manpower, especially in the ITCs and engineering sectors. This enhances the obstacles to the appropriate infrastructure expansion needed in order to meet its economic growth, but it also represents an opportunity for foreign investors and specialized technical manpower. Abundant natural resources and strong agribusiness, mineral and energy sectors.

Most industrial economic activity, which includes automobiles, steel, petrochemicals, computers and steel, is focused around the southeastern states of Rio de Janeiro, Minas Gerais, and São Paulo. Brazil’s agricultural sector is well diversified and the country is a world leader in producing sugarcane, coffee, soybeans, and orange juice. [1]

There are a number of promising areas for foreign exports and investment, including: agricultural equipment; agriculture; aircraft and parts; airports; computer software; e-commerce; highways; insurance; iron and Steel; IT hardware; medical equipment; mining; oil and gas; pharmaceuticals; pollution equipment; ports; railroads; safety and equipment; telecommunications and tourism. [2]

Foreign trade overview for 2011.1, compared to 2010.1 [3]

  • International trade in Brazil reached a record USD 223,6 bi. A 30,1% growth over the same period in 2010.

  • Basic goods exports increased 44%, semi-manufactured 29,6%, manufactured 19,1% and industrialized 50,3%

  • Destination markets: Exports to Asia showed a 37,9% increase, along with 23,9% for Latin America and the Caribbean, and 31,4% for the European Union.

  • For imports, the acquisition of raw materials and industrial supplies and materials represented 45,5% of total, while 21,5% where of capital goods. This shows strong correlation with productive investments.

  • Consumer goods imports increased 31,1%, fuel and oil 39,2%, capital goods 27,5% and raw material and industrial supplies and materials 24,8%.

Society and Culture

Brazil is a democratic and federation structured society, with a population of over 190 million people of vast ethnic and cultural diversity. Increase of minimal wage and expanded coverage of income transfer policies in past years have contributed to the recent changes in its distribution pyramid. [4]

Demography [5]

  • Metropolitan areas concentrate major population groups with large demographic density disparity between regions.

  • Lower fecundity and birth rates indicate the reduction of children and teenage population, while the increase of life expectancy shows older population growth. According to UN statistics, life expectancy in Brazil reaches 72,9 years.

Education

  • In 2009, the population between 18 and 24 years old with 11 years of schooling was extremely low, at 37,9%. In the same year, 48,4% of students aged between 18 and 24 were at a graduation level of study.

  • In 2009, the illiterate population was still at 9,7% (14,1 million people). From this group, 32,9% were 60+ years old and 52,2% lived in the northeast region of the country. It is also a fact that Brazilian women are more literate than men.

Households

  • There was a total of 58,6 million households in Brazil. 85% (49,8 million) located in urban areas, averaging 3,3 people per household (2009).

  • Only 62,6% of urban households were connected to the water supply and sewage systems, and offered waste management services. (North: 13,7%; Northeast: 37%; Southeast 85,1%)

  • 49,1% of households had a landline while 83,1%  of households had at least one person with a mobile phone. This is a reflection of the high cost of landline phone services and the absence of such service in many locations.

  • Internet access: 31,5%. Computer possession: 39,3%. An important note is that internet access needs great investments regarding service offer and accessible prices.

  • Two million children aged between 5 and 15 were under some type of labor; 44% of them located in Brazil.

  • 48,5% of low income families where situated in northeast (2009).

People

  • The elderly population of 60+ years old accounted for 11,3% of the population. 55,8% of this group were women, and 30,7% had less than one year of schooling.

  • In 2009, 48,2% of the population declared being of white race (mostly European ethnicity); and a growth of indigenous population in rural and urban areas.

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[1] US Department of Commerce. Doing Business in Brazil. Access on August 31, 2011.

[2] Ibid.

[3] MDIC. Balança Comercial. Access on August 24, 2011.

[4] Portal Brasil. Business Environment in Brazil. Access on August 24, 2011. pp. 28-29.

[5] IBGE. Síntese de indicadores sociais. Access on August 24, 2011.