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Brazil attractiveness-survey-2012-finalpdf

  1. 1. Growing BeyondCapturing the momentumErnst & Youngs 2012 attractiveness surveyBrazil
  2. 2. Emerging Markets CenterThe Emerging Markets Center is Ernst & Youngs “Centerof Excellence” that quickly and effectively connects youto the worlds fastest-growing economies. Our continuousinvestment in them allows us to share the breadth ofour knowledge through a wide range of initiatives, tools andapplications. This offers businesses, in both mature andemerging markets, an in-depth and cross-border approach,supported by our leading and highly globally integratedstructure.For further information on emerging markets,please visit:
  3. 3. Capturing the momentumErnst & Youngs attractiveness survey 2012Brazil Contents 3 Foreword 4 Executive summary 7 Brazil fact sheet 8 World economy outlook 8 Hope, actually 10 Positioning Brazil in the world economy 10 Global FDI surpasses pre-crisis average, but uncertainty prevails 12 A record year 14 Performance 2011: FDI in Brazil reaches a record level 16 FDI by function 18 FDI by sector 28 Where to: Southeast leads FDI; Northeast shows promise for the future 30 Where from: Brazil’s FDI investors 32 Investors’ plans for 2013: a majority have Brazil in mind 34 Great momentum 36 Brazil: Latin America’s leader 39 Brazilian cities: the undisputed leadership of Sao Paulo 42 Boosting growth 44 Strong confidence in Brazil 2015 45 Brazil’s most attractive sectors in the future: industry supporting services 48 Long-term vision: diversification needed 50 Brazil’s action plan 56 Methodology Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 1
  4. 4. Viewpoint Time for innovation Mauro Borges, Chairman, Brazilian Agency for Industrial Development (ABDI) In 2004, the Brazilian Government embarked on a drive to realize the full potential of the country’s industrial sector. It promoted strategies for science, technology, innovation and foreign trade. It was as part of this mission that the Brazilian Agency for Industrial Development (ABDI) was created. The agency, linked to the Ministry of Development, Industry and Foreign Trade (MDIC), liaises between Owing to the the public and private sectors, contributing to Brazil’s continental sustainable development through initiatives that drive dimension of industrial sector competitiveness. Brazil, it has “The mission is not a simple one, as we need to enormous overcome bottlenecks created by production costs,” says ABDI chairman Mauro Borges. “In Brazil’s relevance to the world. manufacturing sector, we have bottlenecks related to both the cost of capital and labor, and the cost of basic inputs. Part of this stems from taxation on production elements and on basic inputs. It is a legacy of the Brazilian industrialization process which must be removed.” Borges cites the example of the power tariff for the industrial sector. “About 50% of the cost comes from taxation. It is far more than the average price of energy in countries that are direct competitors of Brazil,” he says. Another point is the cost of labor. “Just remember that the cost for the company is almost twice the amount of salary that employees receive.” The increase in foreign competition, in the context of international crisis and uncertainty over the recovery of global demand, hinders the progress of Brazil’s industrial sector — which grew by only 1.6% in 2011. However, according to Borges, Brazil is positioned to become a global leader in manufacturing — an expectation also expressed by many foreign businessmen — because it has a decisive element for industrial success in the 21st century: the scientific knowledge base of new technologies. On one hand, Borges says, Brazil has the knowledge centers of excellence to support the industry in strategic sectors, such as biotechnology and microelectronics. On the other hand, it is expanding funding for this knowledge to be transformed into concrete initiatives. “Fortunately we have The Brazilian Development Bank (BNDES), the second largest development bank in the world, which is enhancing and reshaping its credit lines to technological innovation. And we also have The Financing Program for Studies & Projects (Finep) — an agency linked to the Science and Technology Ministry — that provides funding for studies and projects, that focus on credit. It is restructuring its funding lines and shifting from grants to credit.“ Development of the industrial sector is in line with a new economic reality that puts Brazil on the foreign investment map. “The most transcendent event of the last decade is our transformation into a middle-class country with a growing market of mass consumption. Owing to the continental dimension of Brazil, it has enormous relevance to the world.” If this was the biggest development in recent times, there is also a major obstacle, according to Borges: the bottleneck in infrastructure. “This involves two major challenges: physical capital infrastructure (particularly the area of transport logistics) and human capital infrastructure. Brazil falls some way short of the basic and technical training required for industry in the 21st century,” he says. “This is the problem that threatens our ability to take the big development leap.”2 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
  5. 5. ForewordForeword Tom McGrath Jorge Menegassi Americas Senior Vice Chair — Markets CEO, South America & Brazil Ernst & Young Ernst & YoungBrazil has come on in leaps and bounds to become a stable We believe that the next phase of foreign direct investmenteconomy. Despite the risks of an appreciating currency, (FDI) competition will target less tapped activities such asthe domestic market, driven by a burgeoning middle class, establishment of headquarters, research and developmenthas continued to be the backbone of the Brazilian economy. (R&D) centers and innovative business services, driven byThe strong footprint of Brazil on the global map is evidenced the entrepreneurial culture and stable political the fact that 60% of the respondents plan to invest in thecountry in the short term. The outlook for Brazil as an FDI destination is robust, with 83% of the investors believing that attractiveness will improve overBrazil leads the attractiveness scores in Latin America with the next three years. Investors perceive Brazil will be a leaderalmost 7 out of 10 business leaders declaring the country in the energy sector by 2020 with substantially improvedas the most attractive place to establish operations. Rising infrastructure, and they expect improvement in the educationdomestic consumption of goods and services, and a wide base system to bridge the skills gap and develop innovationof industrial and natural resources are the foundation capacity. Also, hosting the FIFA World Cup in 2014 and theof Brazil’s economy. Rio Olympic Games in 2016 is bound to attract international investors across a range of sectors. But Brazil also has toBrazil’s image as a commodity-rich nation attracts foreign make efforts to ensure a secure and smooth operationalinvestment, which creates challenges such as the unwelcome environment, increase transparency, reduce corruption andside effect of pushing the currency value upward. To keep create a simplified tax structure.the momentum going and de-risk Brazil from the side effectsof being commodity rich, the Government needs to continue Our first edition of the Brazil attractiveness survey includesto implement measures to diversify the economy toward a section on Brazil’s next phase of growth — driven by industryvalue-added and innovative activities. Insufficient qualified and the services sectors, as well as an analysis of the keypersonnel, high interest rates and a complicated tax system growth sectors, which we believe will drive FDI momentumare some other main challenges the Brazilian economy in the facing. We would like to thank all the decision-makers andIn terms of regional priorities, Sao Paulo clearly appeals most Ernst & Young professionals who have taken the time toto investors. In our survey, more than 55% of the investors share their thoughts with us.named Sao Paulo as the most attractive region in Brazil,followed by Rio de Janeiro (26%). The development of andpromotion to foreign investors of tier two cities are key toBrazil’s success in spreading the benefits of its economicdevelopment more evenly. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 3
  6. 6. Executive summaryExecutive summaryWorld economy outlook The reality of foreign investment in BrazilHope, actually A record year• Hope, actually • Brazil in the global top five for FDIComing out of the financial crisis, the global economy started 2011 Brazil is the second most popular global destination in terms ofin recovery mode, admittedly weak and unbalanced, but nevertheless FDI value and fifth in terms of FDI projects. The number of FDIwith some hope and optimism. The prospects for the world economy projects in Brazil increased by 39% in 2011, to a record 507.may rely on the rapid-growth markets (RGMs) continuing to be These projects created an estimated 161,166 jobs.the drivers of growth and recovery. The group of 25 RGMs we monitorat Ernst & Young as a whole are expected to bounce back to achieve • Manufacturing brings 75% of the jobs, services bring 52% ofan overall GDP growth of 5.9% in 2013 and 6.5% in 2014. Forecasts the projectsby the International Monetary Fund (IMF) in its quarterly update Investors entered Brazil to establish factories as well as tap theproject the global economy to expand by 3.5% and 3.9% in 2012 rapidly growing services sector in 2011. While industrial activityand 2013 respectively. has brought the most jobs (75% of the total jobs), service activities have driven significant project numbers (52% of the total projects).• Global FDI surpasses pre-crisis average; however, uncertainty However, Brazil still needs to improve on its attractiveness forprevails strategic functions (headquarters, R&D centers and education andDespite the world economic turmoil, the total global inflows of FDI training). In 2011, Brazil received only 25 strategic projects.rose by 16% in 2011 — from its admittedly low basis in 2010 — toUS$1.5t, according to the United Nations Conference on Trade and • Where from?Development (UNCTAD). FDI inflows bounced back in all major The US, UK, Japan, Germany and Spain accounted for 59% of theeconomic groups: developed, developing and transition economies. FDI projects in 2011. China is emerging as a strong partner ofThe UNCTAD estimates that FDI flows will rise moderately in 2012 to Brazil, with investment and trade linkages increasing between theapproximately US$1.6t, based on the current prospects of underlying two countries.factors, including GDP growth and cash holdings by transnationalcorporations. • Information, Communications and Technology (ICT) and business services performance: heading toward a service-led attractiveness? Reality The ICT sector generated 105 FDI projects in Brazil in 2011. The sector emerged as the fourth-largest in terms of job creation in Brazil in 2011 with 17,724 jobs. Business services attracted 53 2nd: Brazil is the second most attractive global projects in 2011, constituting 10% of the total FDI projects, up by destination in terms of FDI value and fifth in terms of 8% on 2010, a record. Financial services attracted 35 FDI projects in number of projects. 2011 (7% of the total), up from 20 projects in 2010. 507 FDI projects were recorded in Brazil in 2011, • Sao Paulo remains the undisputed leader for FDI an increase of 39% since 2010. The top region for FDI in Brazil is the Southeast; Sao Paulo is garnering the most attention (26% of the FDI projects). Rio de Janeiro comes second with 8% of the projects. The third destination is Curitiba with 161,166 jobs were created in Brazil as a result of FDI. only 2% of the projects. The Northeast region is also emerging fast on the FDI radar; it attracted 93 investment projects and created 52% of the FDI projects in Brazil were generated more than 57,000 jobs between 2007 and 2011. by services activities. • 2013 investment plans Sixty percent of the business leaders surveyed indicated a positive 26% of FDI projects are established in Sao Paolo. outlook about setting up operations in Brazil in the near future; 33% of them highlighted firm plans for establishing activities in the country.4 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
  7. 7. Brazil, the investors’ view The future of attractiveness in BrazilGreat momentum Boosting growth• Brazil: the continent’s most attractive market • Action 1: improve skills and secure the operational environmentSeventy-eight percent of the survey respondents named Brazil as Of the survey respondents, 28.8% see the development of educationthe most attractive country in Latin America. Eighty-seven percent and skills as Brazil’s priority measure to increase its attractiveness.of investors consider Brazil’s market size to be its most attractiveasset. Brazil’s strong entrepreneurial culture (cited by 71.9% of the • Action 2: build innovation capacity and diversify sectorsrespondents) has further bolstered its position as a top choice for To build its innovation capacity, Brazil needs to focus on improvingforeign companies. education and training in new technologies according to 60.3% of investors. Our panel of investors also think Brazil should increase• An energy leader in the making tax incentives for innovative companies (29.7%) and develop jointBrazil’s oil and gas sector will drive the country’s growth in the research programs (26.1%). These measures will help developcoming years according to 44.2% of the investors. A staggering a more diversified economy, decreasing exposure to the volatility30.1% of the investors expect Brazil to be the leader in the of commodities markets (seen as the main sector driving growthenergy sector by 2020, a view driven by the discovery of for 44.2% of the investors).pre-salt reserves. • Action 3: promote Brazil’s regions• Questions on skills, costs and operating conditions Brazilian second cities are currently not on investors’ radar. Thirty-Labor skills rank fifth in Brazil’s most attractive criteria. Labor nine percent of respondents could not indicate a strong preferencecosts rank much lower (10th, which 40% don’t find attractive), for cities other than Sao Paulo and Rio de Janeiro. However,just ahead of the political, legislative and administrative Curitiba and Belo Horizonte have drawn investor votes; these wereenvironment (11th, which 41% don’t find attractive). The low- highlighted as preferred cities by 24.5% and 20.2% of the investors.quality, high-cost transportation system still remains a weak When asked about projects to increase the attractiveness of Brazil’sfactor for investors (only 43.4% mentioned it as attractive). cities, infrastructure development was the first reply from 55.8% of the respondents.• Strong confidence in the futureNearly 83.4% of the respondents believe Brazil’s attractivenesswill improve over the next three years. Perception 78% of survey respondents perceive Brazil as the most attractive country in Latin America. 60% of business leaders interviewed are considering setting up operations in Brazil (in 2013). 30% of investors expect Brazil to be the energy sector leader by 2020, a view driven by the discovery of pre-salt reserves. 60% of respondents consider the development of education in new technologies as the main driver to build Brazils innovation capacity. 56% of business leaders think infrastructure development is the priority to increase the attractiveness of Brazilian second cities. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 5
  8. 8. Executive summary Picture: panoramic view of tropical beach, Fernando de Noronha. Cover picture: sandy coastline, Brazil.6 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
  9. 9. Brazil fact sheetCapital Administration Bordering countriesBrasília, Brazil consists of 26 States Argentina, Bolivia, Colombia, Frenchlocated in the Midwest region and one Federal District Guiana, Guyana, Paraguay, Peru, Suriname, Uruguay, Venezuela Land area 8,459,417 sq km Population (July 2012) 205.7 million (fifth most populous country in the world) Proportion of urban population in total 84.6% (2011) Age structure (2011) 0–19 years (32.8%); 20–54 years (50.9%); 55 & above (16.3%) Languages Official language: Portuguese (also the most widely spoken language) Note: other common languages in Brazil include Spanish (border areas and schools), German, Italian, Japanese, English and a large number of minor Amerindian languages President Dilma Rousseff (since 1 January 2011) Vice President Michel Temer (since 1 January 2011) GDP (2011) US$2.5t (sixth-largest economy in the world) RGMF expects Brazil to become the fifth-largest economy by 2017; GDP US$3.3t GDP — real growth rate (2011) 2.7% GDP per capita — PPP (2011) US$11,600 Distribution of family income — 51.9 Gini index (2012) GDP composition by sector (2011) Brazil: Agriculture (5.5%); Industry (27.5%); Services (67%) China: Agriculture (10.1%); Industry (46.8%); Services (43.1%) India: Agriculture (17.2%); Industry (26.4%); Services (56.4%) Public debt (2011) Brazil: 54.4% of GDP; China: 43.5% of GDP; India: 51.6% of GDP Labor force (2011) 104.3 million Unemployment rate (2011) 6.0% Inflation (2011) 6.5% Stock exchange BM&FBOVESPA (third-largest exchange in the world by market value; leading exchange in Latin America) Central bank Banco Central do Brasil SELIC rate (base interest rate) 8% (July 2012) Federal corporate income tax rate 34% Federal individual income tax rate 27.5% State value-added tax 0%–25% Major international airports Brasilia International Airport Rio de Janeiro Galeao Antonio Carlos Jobim International Airport Sao Paulo Guarulhos International Airport Major seaports Ilha Grande (Gebig), Paranagua, Rio Grande, Santos, Sao Sebastiao and Tubarao Major cities Sao Paulo, Manaus, Natal, Porto Alegre, Recife, Rio de Janeiro, Salvador and Santos Time zone Three hours behind Greenwich Mean Time (GMT) Currency unit Brazilian Real (BRL) Exchange rate (2011) US$1 = 1.67251 BRL; INR1 = 0.03557 BRL; CNY1 = 0.258875 BRL Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 7
  10. 10. World economyoutlookHope, actuallyComing out of the financial crisis, Although many RGMs are likely to witness National and regional differences do existthe global economy started 2011 in slower expansion in 2012 at 4.9%, these among emerging market economies, andrecovery mode, admittedly weak and economies are expected to remain engines significant growth differences are openingunbalanced, but nevertheless with of global recovery, with growth expected to up this year. Asian RGMs are projected tosome hope and optimism.1 However, accelerate in the medium term. The group see higher growth rates of 6.2% in 2012the global economic recovery started to of 25 RGMs we monitor at Ernst & Young compared with RGMs in the EMEIA andslow down in the second half of the year as a whole should bounce back to achieve the Americas region that are expectedwith prospects dimming, investor and an overall GDP growth of 5.9% in 2013 and to expand at 4.0% and 3.2% respectively.consumer confidence weakening again 6.5% in 2014. Strong RGM performers in 2013 areand risks sharply escalating during the expected to be Brazil (+5.1%) and Chilefourth quarter. Economic growth in many The continued emergence of an (+4.8%) in the Americas; India (+7.5%),developed economies came to a standstill economically active middle class, Kazakhstan (+7.0%) and Qatar (+6%)toward the end of 2011 as many Western combined with favorable demographics, in EMEIA; China and Hong Kong (+8.3%),economies came face-to-face with the fuels growth of domestic demand that is Vietnam (+6.9%), Indonesia (+6.6%)likelihood of a double-dip recession. the backbone of growth in the emerging and Thailand (+6.5%) in Asia.The increased uncertainties in the world. A sustained increase in trade amongEuropean Monetary Union, continued high emerging markets will help further insulate The IMF in its July 2012 quarterly updatesovereign debt and respective austerity economic development from unfavorable projects that the global economy willprograms now showing their real impact developments in the western hemisphere. expand by 3.5% and 3.9% in 2012 andon GDP growth are the main forces holding Those developing markets that rely on 2013 respectively, versus the 3.5% andback economic recovery in the West. energy exports may see some short-term 4.1% growth projected in April 2012 for variation; however, the mid- to long-term these years. Our map shows the projectedRapid-growth economies recently showed outlook remains strongly positive as energy GDP growth rates for both major Westernsome softening in their unprecedented prices are poised to increase further. economic zones and RGMs, with Brazilgrowth trajectory, firstly with the impact Investments into emerging markets will clearly continuing to outperform growthof the financial crisis and, more recently, remain strong as Western companies are expectations in the West and around halfreduced demand for commodities and seeking to participate in this projected of the emerging economies.a slowdown in exports of manufactured growth and the emerging markets aregoods caused by developments in Europe. themselves using their favorable financial positioning to drive development.1. Rapid-growth markets forecast, Ernst & Young, July 2012.8 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
  11. 11. World economy outlookPicture: Pantanal wetlands, Brazil.Summing it all up: signs of recovery emerge, but downside risks prevail World RGMs 3.9 3.5 3.9 6.3 4.9 5.9 Russia 4.3 4.0 3.1 UK 0.7 0.2 1.4 Euro area 1.5 -0.3 0.3 US Japan 1.7 2.0 2.3 -0.7 2.4 1.5 China Mexico 9.2 7.5 8.4 India 3.9 3.8 3.8 7.5 5.7 7.5 Colombia 5.9 4.5 4.2 Brazil 2.7 2.2 5.1 South Africa Argentina 3.1 2.8 3.8 Chile 5.9 4.7 4.8 8.9 3.3 3.5 Real GDP growth rates (%) 2011 2012 2013Sources: World Economic Outlook (WEO): Growth resuming, dangers remain, April 2012, IMF 2012. Rapid-growth markets forecast, Ernst & Young, July 2012. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 9
  12. 12. World economy outlookPositioning Brazil in the world economyOwing to Brazil’s macroeconomic stability However, in the medium term, growth measures in the pipeline on the upside. Otherand growing domestic demand, the country is projected to pick up to 5.1% in 2013 and factors such as the country’s increasing tradehas withstood the waves of crisis with 4.8% in 2014, driven largely by domestic with China and any uplift in the US economyresilience.2 After a brief pause in Q3 2011, consumption. Growth-supporting measures, will also benefit Brazil.Brazil’s economy returned to growth in the such as lowering of lending rates by theyear’s final months as domestic spending central bank and additional fiscal stimulus by Achieving the Government of Brazil’srebounded in response to government the Government, will provide further impetus. ambitious goals for economic growth overstimulus measures, including tax cuts. The risks to the country’s growth forecast the medium term requires a shift in focusGDP growth in 2012 is expected to slow to in 2013 now appear more balanced rather away from using fiscal policy to stimulate2.2%, as opposed to the earlier forecast of than skewed to the downside. Although demand and toward investment in3.1%, due to a less favorable global outlook. Brazil remains exposed to the fallout from infrastructure and education, which are a more pronounced deterioration in global the biggest constraints the economy2. Growth resuming, dangers remain, April 2012, IMF economic conditions, there is the potential is facing. Without this investment, 2012; WEO update: Global recovery stalls, downside risks intensify, January 2012, IMF 2012; Global Economic for growth to accelerate more rapidly than GDP growth is forecast to average only Prospects January 2012, The World Bank, 2012; Rapid- growth markets forecast, Ernst & Young, July 2012. expected given the counter-cyclical policy around 4% per annum during 2015–20.Global FDI surpasses pre-crisis average,but uncertainty prevailsGlobal FDI inflows Despite the world economic turmoil, In developed economies, much of the(US$t) the total global inflows of FDI rose by growth in FDI resulted from cross-border 16% in 2011 — from its admittedly low M&As, particularly within Europe. FDI 2.0 basis in 2010 — to US$1.5t, according to inflows into the European Union (EU) 1.7 the UNCTAD. FDI inflows bounced back increased 32.2% to reach US$420.7b 1.5 in all major economic groups: developed, in 2011. The US remained the largest 1.3 developing and transition economies. recipient of foreign investment in 2011, 1.2 attracting US$226.9b; 15% up Developing and transition economies from 2010.3 accounted for 51% of global FDI in 2011 as their inflows reached a new record high, at The UNCTAD estimates FDI flows will rise an estimated US$776b, driven primarily moderately in 2012 to approximately 2007 2008 2009 2010 2011 by robust greenfield investments. The US$1.6t, based on the currentSource: UNCTAD. developing countries’ rise was supported prospects of underlying factors, includingNote: this data includes greenfield and expansionprojects and M&As. by a 10% increase in Asia and 16% increase GDP growth and cash holdings by transnational in Latin America and the Caribbean. Brazil corporations. It expects only moderate captured the highest share (31%) in Latin growth in all three groups — developed, American and the Caribbean inflows of FDI. developing and transition economies. Inflows of capital into Africa continued to decline marginally for the third consecutive year. Egypt, Libya and Tunisia experienced sharp falls largely reflecting the unstable 3. Global Investment Trends Monitor, January 2012, UNCTAD, situation after the Arab Spring. 2012; World Investment Report, July 2012, UNCTAD, 2012.10 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
  13. 13. ViewpointThe Rio 2016 Olympics:a great source for investment opportunities Márcio Fortes, President of Olympic Public AuthorityBy hosting a succession of high-profile related to the Olympics — respecting for each individual sport, such as canoeglobal events over the next four years, deadlines and basic requirements from slalom, which requires complex hydraulicBrazil will enhance its standing in the the IOC and the 41 international sports engineering that cost £90minternational arena. They are “Rio+20,” federations involved with the event. at the London Olympics. “Without thosethe UN world conference on sustainable facilities there is no competition.development in 2012, the FIFA “Since Rio’s candidature, we have aimed We can’t afford mistakes and everythingConfederations Cup in 2013, the FIFA to demonstrate that the city has must be ready a year in advance for testWorld Cup a year later, and, finally, the proactive management involving the events,” he says.Olympic Games 2016 in Rio de Janeiro. three levels of government — municipal,Preparations for the Rio Olympics have state and federal — with major projects Another major concern is to providebeen transforming the city since 2009, of urbanization, sanitation, housing accommodation for the “Olympic family,”when the nomination was ratified by the and urban transportation. Regardless of which includes athletes, technicalInternational Olympic Committee (IOC). the Olympics, those projects taken committees, referees and other together show that the city is moving professionals directly involved in forward and will continue to do so,” says the competition. It’s expected Rio 2016 The Olympics the President of APO, Márcio Fortes. will involve 11,000 athletes, are a great 40,000 journalists and approximately source of Fortes, former Minister of Cities under 80,000 volunteers. “The Olympics are Lula’s Government, refers to projects such a great source of attraction of attraction of as the cleaning up of the Gloria Marina investments. The hospitality industry, investments. and the Lagoa Rodrigo de Freitas, which for instance, has an unprecedented will host the nautical competitions; opportunity for expansion in Rio andA study conducted by the Foundation the revitalization of Rio de Janeiro’s port, brand new legislation has encouragedInstitute of Administration (FIA) where the harbor will be deepened to the construction of hotels. There areestimates that public and private receive up to six tourist ships; and the also major opportunities in transportinvestments in the games infrastructure urban mobility projects such as the Bus and restaurants, and there is an urgentwill inject US$14.4b into the country — Rapid Transit (BRT) that will link the four demand for qualified manpower to meetRio especially — impacting 55 different different competition areas in the city. visitors’ demands. The Olympics alsosectors of the economy. Preparations for require expert advice in the constructionthe games are overseen by the Olympic Other essential projects for the Olympic of facilities, creating opportunities forPublic Authority (APO), a public Games include the creation of a media associations between Brazilian andconsortium that brings together federal, center and broadcasting facilities, foreign companies and the arrival ofstate and municipal representatives a modern anti-doping laboratory and skilled foreign professionals,” says Fortes.whose main assignment is to monitor and the construction of the velodrome anddeliver the infrastructure and services athletics stadium, as well as facilities Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 11
  14. 14. A record yearThe reality of foreign investment in BrazilPicture: Ibicui river and landscape, Brazil.12 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
  15. 15. A record year 39% increase in FDI projects since 2010. 507 projects in 2011, a record number. 161,166 jobs created in 2011. 75% activity. of total jobs generated from industrial 52% activities. of total projects driven by services 26% of FDI projects gather in Sao Paolo. 60% of the business respondents in favor of setting up operations in Brazil. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 13
  16. 16. A record yearPerformance 2011:FDI in Brazil reaches a record levelNumber of FDI projects Jobs created FDI by value (US$b) 161,166 63 507 124,125 127,406 47 45 44 366 289 88,430 268 165 48,901 19 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011Source: fDi Intelligence. Source: fDi Intelligence. Source: fDi Intelligence.Against the backdrop of a deteriorating acted as a major stimulus for international However, Brazil faces some challengesexternal environment — an uncertain companies to invest in Brazil. Furthermore, related to shortage of skilled workforcegrowth outlook for the US and a heightened Brazil’s hosting of the 2014 FIFA World Cup and the quality of its infrastructure, thatEuropean sovereign debt crisis — FDI in and the 2016 Olympics will contribute to act as impediments for global companiesBrazil surged in 2011. The number of FDI infrastructure development and attracting to invest in it.projects in Brazil increased by 39% to reach additional FDI into the country.4 Our research507 projects and FDI investment picked up panel confirmed these strengths in Brazil Lack of qualified personnel is a key weaknesspace with 43% growth in 2011. with respondents citing the large domestic of the Brazilian economy. According to market, the long-term economic growth research undertaken by the NationalSince 2007, the number of FDI projects trajectory and the wealth of natural resources Industry Confederation (CNI), 69% ofhas continuously risen, indicating investors as the most significant advantages for the the 1,616 companies interviewed faceconfidence. However, the sum invested country. A large number of our respondents difficulties due to the lack of skilled a project has been dependent on the also mentioned the openness of Brazilian Fifty-two percent of industrial firms indicatedmacroeconomic conditions. In 2009 society, which embraces diversity of race that the poor quality of basic education isand 2010, while the number of projects and religion — an important factor for foreign one of the main impediments to workersincreased, the risky global economic investors who might seek to locate personnel gaining qualifications. The problem isoutlook kept the value invested relatively in the country. particularly acute in the case of companieslow. The average value of an FDI project seeking to recruit top technical anddeclined from US$175m in 2008 Brazil recorded 507 projects in 2011, an management talent. Measures undertakento US$120m in 2010, mainly due to increase of 39% over 2010 and the highest by Brazils former President Lula da Silvainvestors’ unwillingness to commit large growth rate achieved among the countries have improved access to education in theamount of funds, then increased slightly on the list. It ranked second in terms of country. Further, ruling President of Brazilto US$124m in 2011. FDI value, behind China and ahead of India, Dilma Rousseffs focus on enhancing Brazils the US and the UK. The average value of a higher education is expected to create aA growing middle class, strong domestic project in Brazil in 2011, at US$124m, was nation with a more productive labor force.demand and huge untapped reserves of higher than in China (US$71m) and India Initiatives, such as Brasil Maior (Biggernatural resources has placed Brazil as a (US$63m). In comparison with its Latin Brazil) launched by the Government ofkey investment destination among global American peer group, Brazil clearly stands Brazil in 2011, that focus on increasingcompanies with an emerging market-focused out with our survey suggesting that Brazil the country’s competitiveness, enhancingportfolio. Supportive government policies, has by far the highest awareness among productivity, raising investments andincluding tax incentives for foreign investors foreign investors. stimulating technological innovation, shouldtargeting local production and content, reinforce investors confidence in the mid to 4. “Emerging Markets: Brazil and Chile,” Frost & Sullivansimplification of licensing procedures and website,, accessed 25 April 2012; “New FDI long term.regulatory framework, subsidized credit Record Set in Brazil,” IHS Global Insight Daily Analysis, 27 January 2012, via Dow Jones Factiva, © 2012,and easy financing options have also IHS Global Insight Limited.14 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
  17. 17. Viewpoint Brazil sets records in FDI Fernando Blumenschein, Projects Coordinator, Getulio Vargas Foundation (FGV) Latin America raised US$153b in FDI of the country in Latin America as a more production and consumption of goods in 2011, a record for the region, consolidated democracy, along with and services over the past decade. representing 10% of the global amount respect for the continuity of its policies and “Another factor is the diversification of in the same period. The leader in the rules and the transition of power. “In some the economy. Of all the Latin American region, Brazil was the destination for ways, this differentiates Brazil from other economies, and even globally, Brazil has 43.8% of investment – totaling US$66.7b, countries. The democratic continuity is an been attracting investments that would the largest amount in a single year in the important issue which is globally noticed,” not be directed to countries with smaller history of the country, according to data defines Blumenschein. markets, with less diversification or with released in May by the UN Economic a less appealing logistical position. Brazil Commission for Latin America and the has natural resources, tourism and Caribbean (ECLAC). “Big economies Brazil has agribusiness potentials and a diversified around the globe have been increasingly natural processing industry and a wide range of investing in Brazil for a number of exports. These advantages place the reasons. One key point is the country’s resources, country ahead of many global geographical size within Latin America. tourism and economies,” says Blumenschein. When it comes to logistics and geopolitics, Brazil’s geographical location allows agribusiness A further factor would be Brazil’s corporations to use it as a strategic entry potentials and a diversified macroeconomic stability, based on fiscal point to the continent,” says Fernando processing industry. stability, public spending consistency and Blumenschein, Projects Coordinator an inflation targeting policy. “Our for Getulio Vargas Foundation (FGV), The Projects Coordinator for FGV also monetary policy framework has been one of the top higher education highlights the size of the consumer implemented for years and is still institutions in Brazil. market, which saw the arrival of more improving. Taken together, these factors than 30 million people who were lifted provide predictability and certainty for The reasons for the attractiveness of Brazil out of poverty and into the middle class investors and the arrival of capital is are more than just geographical, adds the in recent years, and a better distribution increased,” concludes Blumenschein. expert. One important factor is the position of income that has maximized theHigh interest rates and a complicated tax The Brazilian economy is benefiting commodity-rich status is the drainingsystem also remain key concerns for the significantly from its commodity boom, of resources away from other industryeconomy. Brazil’s growth stalled in the which attracts foreign investment and sectors. The shortage of talent coupledsecond half of 2011 mainly due to the makes the economy thrive. However, this with the strong Brazilian real creates antighter monetary and fiscal policies adopted also leads to an unwelcome side effect additional risk of deindustrialization ofby the Government amid spillover from of pushing the value of the currency the Brazilian economy. In the wake of theEurope’s debt crisis. The country’s central upward. This currency appreciation Brazilian economy’s focus and dependencebank is now undertaking measures to puts a huge burden on the export on commodities, the Government needsstimulate investment and to spur economic competitiveness of the country, with to undertake initiatives to diversify thegrowth through measures such as interest many of its manufacturers struggling to economy and create a push towardrate reductions, tax cuts and a relaxation of remain competitive on the world stage. developing and promoting value-addedbank lending requirements.5 Another risk emanating from Brazil’s and innovative activities and sectors.5. “Cash boost for schools in Brazil,” BBC website,, accessed 11 July 2012; “Brazil and U.S. Accentuate Top five recipient countries by number of projects the Positive,” The New York Times website,, accessed 11 July 2012; “The ‘Chinafication’ Of Brazil,” Forbes Rank Top five countries Number of projects Change Value website,, accessed 11 July 2012; “Wrapup 1-Brazil inflation slows more than expected,” Reuters website, 2011 vs. 2010 (US$m) 2010 2011 2011, accessed 28 April 2012; “Brazil Economic Update,” Deutsche Bank, 9 February 2012, via ThomsonONE. 1 United States 1,522 1,707 12% 57,275 com; “Brazil blames all of its problems on the exchange rate, but keep ignoring structural reforms,” Bloomberg website, 2 China 1,344 1,409 5% 100,688, accessed 30 April 2012. 3 United Kingdom 941 1,014 8% 36,039 4 India 774 932 20% 58,261 5 Brazil 366 507 39% 62,916 Source: fDi Intelligence. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 15
  18. 18. A record yearFDI by function 6% 9% 10% 5% 3% 4% 13% 27% 52% 75% Source: fDi Intelligence. 59% Industry includes: manufacturing, logistics, distribution & transportation, FDI in other functions electricity. Services includes: sales, marketing & support, business services, 37% FDI in strategic functions design, development & testing, customer contact center, technical support center, maintenance & servicing, ICT & internet infrastructure, shared services center. FDI in services Strategic functions includes: headquarters, research & development, education & FDI in industry training. Other functions includes: retail, construction, recycling, extraction. Number of Job creation FDI valueFDI projectsIndustrial activities bring jobsDuring 2011, investors committed Brazil’s strong position in the minerals Over the past decade, Brazil hasUS$62.9b in Brazil, 59% of which space. Automotive, which has aroused experienced fast growth on the back ofwent into the industrial sector. A total of interest from various European companies, its rich commodity base. However, the190 projects and 120,774 jobs (75% of can easily target the domestic population country will have to look to other areasthe country’s total of new FDI jobs), with with growing disposable income. for development to diversify further andan average of 636 jobs per project, were to shield itself from the huge volatilitycreated by the industrial sector. The presence Our survey participants ranked oil and gas inherent in the global commodities markets.of natural resources and vast land has as the top sector to attract FDI driven by Investment in industrial activity, includingalways made Brazil attractive for industrial the recent discovery of the pre-salt layer infrastructure, along with a strong cultureactivities. The country ranks sixth in the off the coast of Southern Brazil. Real estate of entrepreneurship, will help to drive a shiftworld in labor force size. However, due to and construction came next, creating from commodities toward manufacturedits long reliance on commodities and imports an expectation that large infrastructure goods. Between 2011 and 2014, Brazil’sof manufactured goods, FDI in industrial projects will be put in place over the next National Economic and Social Developmentactivity has not attained its full potential. few years. Unsurprisingly, agriculture and Bank (BNDES) forecasts that the county’s tourism rank high for investors as well as industrial and infrastructure sectors willWhen investing in industrial projects in consumer products, mining, transportation receive a total investment amounting toBrazil, investors target the following sectors: and automotive. The difference between US$906b (BRL1.6t). According to BNDES,industrial machinery, equipment & tools existing FDI projects and investor sentiment Brazil’s manufacturing industry is expected(32 projects); automotive (26 projects); revealed by the survey is interesting to to receive US$422b (BRL741b), andand metals (20 projects). During 2011, note, showing potential not only for oil infrastructure and construction projects arethe metals sector topped industrial projects and gas but also for agriculture, consumer projected to receive US$484b (BRL848b)in job creation, attracting 38,613 jobs, and products, and tourism that is yet to during the same period.6automotive came in second (15,515 jobs). manifest in investment dollars.Investment in the metals sector underlines 6. “BNDES Sees 1.6 Trillion Reais of Brazil Investment 2011– 2014,” The Businessweek website,, accessed 30 April 2012.16 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
  19. 19. Services bring the projectsBrazil received 262 support services However, these projects lack in both scale services projects, dominating the sectorprojects in 2011, recording the highest and size, costing investors on average and providing evidence of Brazil’s growinggrowth rate (53%) and accounting for 52% US$65m and creating about 79 jobs per importance among vendors across theof the investment projects in the country. project, in comparison with industrial projects world. However, it created only 17% of theThe services sector remains integral to (average size of project: US$196m; total support services jobs, with an averagethe Brazilian economy since it contributes average job creation per project: 636). of 25 jobs per project.approximately 67% of the GDP. The servicessector in Brazil is driven by its large urban • Sales, marketing & support recorded • Business services continue topopulation (80%) compared with some the highest share within services sector attract investorsother RGMs such as India (40%) and The sales, marketing and support sector The business services function contributedChina (around 50%). attracted 141 projects, 54% of the 27% of the services projects, the second highest for services. Brazil has a mix of Function FDI projects FDI share Change Jobs created ICT, financial services, life sciences and 2011 2011 vs. 2010 2011 2010 2011 real estate, hospitality and construction Sales, marketing & support 92 141 54% 53% 3,530 under the umbrella of business services. Business services 44 71 27% 61% 3,218 Business services recorded a growth of 61% Design, development & testing 12 23 9% 92% 6,091 in FDI projects during 2011 on account Customer contact center 5 3 1% -40% 3,729 of increased perception of Brazil as a hot Technical support center 3 1 0.4% -67% 206 destination for business services. According Maintenance & servicing 3 3 1% - 131 to a 2011 European Commission study, ICT & internet infrastructure 11 20 8% 82% 3,791 Shared services center 1 - - -100% - leading foreign IT firms accounted for Services total 171 262 100% 53% 20,696 40% of the industry’s revenues.Source: fDi Intelligence.Strategic functions: shaping the future of Brazil’s attractivenessBrazil still needs to improve on its spends 1% of its GDP on research — half the environment and government focus onattractiveness for strategic functions. developed world’s rate, but almost double R&D functions. Brazil’s BNDES also supportsIn 2011, Brazil received only 25 projects the average in the rest of Latin America. companies with financing options to promoteof this type, up from 19 in 2010. These innovation and R&D.created 4,997 jobs or 3% of the total There were 13 FDI headquarters projectsFDI jobs in 2011. The slow pace of FDI in Brazil in 2011, up from 7 in 2010. With Our survey results make it clear that Brazilgrowth into strategic functions is mainly stability in the political environment, and is perceived as a highly attractive domesticcaused by the lack of top management improvement in infrastructure and living market with several foreign investorstalent, resulting from the country having conditions, more companies are expected setting up production facilities to cater tohistorically neglected to invest in education to set up headquarters in Brazil. Also, as the growing demand in the country. Salesand training because of its overreliance global companies seek to increase flexibility and marketing offices rank second as theseon commodities. However, Brazil is now by providing greater management autonomy investments enable local production facilitiesfocusing on R&D and investing in training to regional offices, Brazil has an opportunity to operate successfully in Brazil’s domesticand education to become a known player in to attract more FDI headquarters projects market. Foreign investors, however, do notthis field. According to The Economist,7 Brazil to oversee and manage business operations seem to show a significant intent to establishis the world leader in research on tropical across the Latin American region. hub locations in Brazil that would providemedicine, bioenergy and plant biology, and offshore business services or R&D functions. The competition for FDI into strategic In order to attract such investment, Brazil7. “Science in Brazil — Go south, young scientist — An functions will become more intense with needs to take steps to create a push toward emerging power in research,” The Economist website,, accessed 30 April 2012. the increasing sophistication in the business high value-added services. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 17
  20. 20. A record yearFDI by sectorLeading sectors of FDI In transition Lagging behind• ICT and manufacturing • Financial services • Real estate, hospitality andICT and manufacturing are the top two sectors Financial services attracted 35 FDI projects constructionfor number of FDI projects in Brazil attracting in 2011 (7% of the total), up from 20 Brazil’s real estate, hospitality and construction105 and 94 FDI projects respectively, in projects in 2010. Even though foreign banks sector attracted 12 FDI projects, and created2011. The ICT sector emerged as the fourth have been establishing their presence in a total of 4,075 jobs in the country in 2011.largest in terms of job creation in Brazil, in Brazil, the country still remains dominated Although Brazil is growing as a leisure and2011 with 17,724 jobs. Investors interested by domestic banks such as Itaú Unibanco, business destination (by way of events,in manufacturing are pouring money into Bradesco and Banco do Brasil. conferences and conventions), the countryestablishing their facilities to cater for both is yet to reach its full tourism potential.domestic and export demand. The sector • Mining and metals The investment in this sector is expected tohas shown strength in terms of employment Mining and metals also recorded 35 projects, gain traction as Brazil prepares to host thegeneration; it created 21,822 jobs in 2011. and created the most jobs at 45,778 in 2011. FIFA World Cup in 12 cities in 2014 and the With one of the largest mineral repositories Summer Olympic Games in Rio de Janeiro in• Business services in the world, this sector in Brazil provides 2016. However, of all the host cities, only RioBusiness services attracted 53 projects in strong prospects for foreign investors. de Janeiro, Sao Paulo and Curitiba are well2011, constituting 10% of the total number prepared to accommodate the tourists duringof FDI projects, up from 8% in 2010. • Automotive these sporting events, with other cities facingThe rising share of the business services Automotive attracted 33 FDI projects a total projected deficit of hotel rooms. Thesector evidences Brazil’s slow transition in Brazil in 2011, generating employment challenge to overcome this deficit will requirefrom a commodity-dependent country for 16,327 people, the fifth highest in the industry to expand and adjust its capacity,to a services-led nation. the country. Buoyant consumer demand thus demanding significant investments.8 and the easy availability of credit have• Retail and Consumer Products led to the growth of the sector. • Cleantech (RCP) Brazil is building its position in the cleantechThe RCP sector has been driven by the • Chemicals industry. It is the third-largest producercountry’s ever-increasing middle class and Brazil’s chemicals industry, which stands and consumer of biodiesel in the world.growing consumption power. In 2011, the seventh in the world, recorded 32 FDI projects Almost 50% of Brazils demand for energysector accounted for 9% of all FDI projects in 2011; the sector remains modest in terms is met through renewable energy sources.and created the second-most jobs at 23,051. of foreign investment. However, FDI activity in the sector remained low with 11 projects.Top 15 sectors by FDI projects • Energy Rank Sector Number of projects Share Change Jobs Value The energy sector attracted 8 projects in in 2011 2011 vs. created (US$m) 2010 2011 2010 2011 2011 2011, remaining low on the FDI radar for 1 ICT 69 105 21% 52% 17,724 14,780 now, but with abundant oil and gas reserves 2 Manufacturing 47 94 19% 100% 21,822 4,678 and recent discovery of the pre-salt layer, it 3 Business services 29 53 10% 83% 2,043 687 presents big opportunities in the long run. 4 Retail and consumer 41 44 9% 7% 23,051 6,872 products (RCP) • Life sciences 5 Financial services 20 35 7% 75% 2,464 600 Life sciences recorded 8 FDI projects in 2011, 6 Mining and metals 18 35 7% 94% 45,778 18,965 down from 15 projects in 2010. Brazil 7 Automotive 31 33 7% 6% 16,327 6,034 would need to enhance its R&D culture 8 Chemicals 30 32 6% 7% 5,956 1,677 9 Transport and logistics 17 17 3% 0% 2,689 725 to promote greater foreign investment in 10 Equipment 11 16 3% 45% 7,519 375 the life sciences sector. 11 Real estate, hospitality 17 12 2% -29% 4,075 969 and construction • Aerospace 12 Cleantech 13 11 2% -15% 7,165 4,290 Aerospace recorded 4 FDI projects in both 13 Energy 4 8 2% 100% 3,517 2,047 2010 and 2011, although the number of 14 Life sciences 15 8 2% -47% 752 108 jobs created decreased from 542 in 2010 15 Aerospace 4 4 1% 0% 284 110 to 284 in 2011. Total 366 507 100% 39% 161,166 62,916Source: fDi Intelligence. 8. Sustainable Brazil, 2011, Ernst & Young, 2011.18 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
  21. 21. Sector focusICT* Software & IT services; communications; semiconductorsFDI value and number of projects Number of jobs FDI projects (number) 17,724 FDI value (US$b) 105 69 14.8 8,571 53 7,827 49 47 10.6 6.4 3,621 2,907 2.4 1.3 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011Source: fDi Intelligence. Source: fDi Intelligence. Growth 2011 vs. 2010: +52.2% FDI projects +106.8% No. of jobs +130.5% FDI valueICT in Brazil attracted 105 FDI projects Other government measures are alsoin 2011, 21% of the total number in the major boosters for the sector, such as IBM Corporation (IBM)country. The sector created 17,724 jobs, incentives including tax exemptions.the fourth highest of all industries in Brazil Already several foreign industry giants are US-based IBM has been in Brazil sincein 2011. present in Brazil, including Toshiba, IBM, 1917. The company provides end-to- HP, Accenture, Capgemini, Infosys and end solutions to several companies inBrazil’s ICT sector is the world’s seventh Tata Consultancy Services. the country. According to the Brazilianlargest and is the leader in Latin America. Association of Information TechnologyThe National Broadband Plan, opening The telecoms market also has large, and Communication (Brasscom), thethe cable TV market to telephone carriers established foreign players such as company came top (by total revenue)and companies with foreign ownership Vivendi (France), Telefónica (Spain), of all IT-BPO exporters in Brazil in 2010.exceeding 49%, will increase demand for Telmex (Mexico) and TIM (Italy). In April 2012, IBM formed a strategicIT products and services. The Brazilian Brazil’s IT market has a distinct regional partnership with Brazilian businessGovernment’s targets for 2014, which structure, with most of the spending group EBX Group. Under the terms ofinclude extending broadband access to 68% accounted for by Sao Paulo and Rio de this agreement, IBM can acquire 26%of the population; launching 4G services Janeiro. Challenges persist, such as of SIX Automacao, a subsidiary of EBXin 80% of the metropolitan areas; and 100% high dependence on imported electronic Group, with a focus on the oil and gastelephony coverage in rural areas, will act components and a shortage of skilled operations sectors. The companiesas key drivers for infrastructure investments workforce. These challenges have put would also work together to launch agoing forward. Brazil on the 39th position in the 2011 Joint Industry Solutions Center at SIX IT Industry Competitiveness Index, Automacao. The center would behind India (34th) and China (38th). undertake research programs focused on natural resources and sustainability. EBX Group would also outsource its IT operations to IBM for approximately US$1b until 2022. IBM, which operated through 23 branch offices in 2010, plans to increase this number to 43 by 2015.* Source: Business Monitor International’s monthly regional report on political risk and macroeconomic prospects, Business Monitor International, March 2012. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 19
  22. 22. A record year Sector focus Manufacturing* Engines & turbines; industrial machinery, equipment & tools; paper, printing & packaging; rubber; space & defense; textiles; wood products FDI value and number of projects Number of jobs FDI projects (number) 21,822 94 FDI value (US$b) 4.7 11,041 47 38 3.2 6,301 18 1.4 3,539 12 0.7 2,169 0.6 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Source: fDi Intelligence. Source: fDi Intelligence. Growth 2011 vs. 2010: +100% FDI projects +97.6% No. of jobs +46.4% FDI value The manufacturing sector in Brazil Competitive manufacturers, with export attracted 94 FDI projects in 2011, capability, are an important element of ArcelorMittal 19% of the total number in the country. the dynamism and stability of the Brazilian The sector created 21,822 jobs, the third economy. BASF, Siemens, ArcelorMittal Luxembourg-based ArcelorMittal highest of all the industries in Brazil and Doosan are the players that have (Arcelor) operates in Brazil through its in 2011. Our survey confirms the invested in the country’s manufacturing subsidiary ArcelorMittal Brasil S.A. attractiveness of Brazil as a location for sector during 2011. and is the largest steel producer in the manufacturing activities with 52% of country. The company has a strong respondents seeking investment into Although Brazil’s cost of labor is higher presence in Brazil for long and flat steel. setting up a factory or production unit than that in other emerging economies, Arcelor’s Brazilian unit plans to boost in the country. such as China and India, it is still competitive its output of iron ore, a key ingredient in comparison with developed market for making steel, by 65% to 7.1 million The President of Brazil Dilma Rousseff’s economies such as the US, Japan and tons in 2013. Through its Andrade and Bigger Brazil Plan, launched in August the Eurozone. Brazil faces threats from Serra Azul mines in Brazil’s state of 2011, aims to increase productivity and the developed world’s “manufacturing” Minas Gerais, Arcelor supplies iron ore boost the role of industrial manufacturing of high-tech goods as well as from to its own steel plants in Brazil and also in the country’s economy. Its key measures the low-cost and skilled labor of other sells it to local customers. The move is include tax breaks on exports and a emerging nations. These factors, coupled part of the company’s global strategy reduction of the 20% welfare tax to 0% for with appreciation of Brazil’s currency, to boost self-sufficiency in iron ore sectors that are sensitive to the exchange have increased the import of manufactured production. Arcelor is also in talks rate and are labor intensive — such as goods into the country. In addition, a with Brazilian steelmaker Usinas apparel, footwear, furniture and software. complex tax system adds to the difficulties Siderurgicas de Minas Gerais SA to set The policy also makes BNDES responsible faced by the manufacturing sector. up a consortium and make a joint bid for financing innovation and investment for an iron ore port area — Area do Meio undertaken by companies. port — in the Rio de Janeiro state. * Source: “Energy in Brazil — Ethanol’s mid-life crisis,” The Economist website,, accessed 30 April 2012; “U.S. sugar prices fall as supplies improve –Domino,” The Reuters website,, accessed 28 April 2012; Sustainable Brazil: horizons of industrial competitiveness report, April 2011, Ernst & Young, 2011.20 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
  23. 23. Sector focusBusiness services* Business services; leisure & entertainment FDI value and number of projects Number of jobs FDI projects (number) 4,316 FDI value (US$b) 53 37 2,484 2,250 29 2,043 23 0.7 9 0.2 0.2 353 0.1 0.1 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Source: fDi Intelligence. Source: fDi Intelligence. Growth 2011 vs. 2010: +82.8% FDI projects -9.2% No. of jobs +309.8% FDI valueBrazil’s business services sector attracted funding for companies focusing on R&D, such as HCL, Wipro, Teleperformance,53 projects in 2011 with an FDI value along with a surging number of technology Genpact and Sitel, have their customertotaling US$0.7b, creating 2,043 jobs in and business parks across the country, contact centers in the country.the country. The FDI projects in the have provided further incentives forsector were directed primarily to foreign firms to set up their offices in However, supply shortage of high-qualityfunctions such as sales, marketing and Brazil to focus on local customers and on properties in Sao Paulo, Rio de Janeirosupport; education and training; ICT and serving the wider Latin American market. and other major state capitals has led tointernet infrastructure; and customer sky-high lease prices in these areas,contact centers. The country has emerged as an important raising a concern for international customer contact center market for companies planning to establish their baseBusiness services are core to Brazil’s companies across the globe. Sao Paulo, in Brazil. Rio de Janeiro has the fourth-economy since the country acts as a major Rio de Janeiro and Minas Gerais are the highest office lease price in the world, andbase for companies with operations in Latin three most prominent regions for contact Sao Paulo the eighth-highest.America. Tax incentives and increased center establishments in Brazil. Companies* Source: “Dark side of Brazil’s rise,” The Wall Street Journal website,, accessed 6 May 2012; “Brazil sambas onto offshore outsourcing stage,” website,, accessed 5 May 2012; Marketbeat — Brazil, 2011, Cushman & Wakefield, 2011. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 21