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    Brazil attractiveness-survey-2012-finalpdf Brazil attractiveness-survey-2012-finalpdf Document Transcript

    • Growing BeyondCapturing the momentumErnst & Youngs 2012 attractiveness surveyBrazil
    • 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: http://emergingmarkets.ey.com
    • 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
    • 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
    • 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 environment.by 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 country.is 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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$14.4b into the country — Rapid Transit (BRT) that will link the four demand for qualified manpower to meetRio especially — impacting 55 different different competition areas in the city. visitors’ demands. The Olympics alsosectors of the economy. Preparations for require expert advice in the constructionthe games are overseen by the Olympic Other essential projects for the Olympic of facilities, creating opportunities forPublic Authority (APO), a public Games include the creation of a media associations between Brazilian andconsortium that brings together federal, center and broadcasting facilities, foreign companies and the arrival ofstate and municipal representatives a modern anti-doping laboratory and skilled foreign professionals,” says Fortes.whose main assignment is to monitor and the construction of the velodrome anddeliver the infrastructure and services athletics stadium, as well as facilities Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 11
    • A record yearThe reality of foreign investment in BrazilPicture: Ibicui river and landscape, Brazil.12 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • A record year 39% increase in FDI projects since 2010. 507 projects in 2011, a record number. 161,166 jobs created in 2011. 75% activity. of total jobs generated from industrial 52% activities. of total projects driven by services 26% of FDI projects gather in Sao Paolo. 60% of the business respondents in favor of setting up operations in Brazil. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 13
    • A record yearPerformance 2011:FDI in Brazil reaches a record levelNumber of FDI projects Jobs created FDI by value (US$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 labor.in 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, www.frost.com, 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
    • 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, news.bbc. co.uk, accessed 11 July 2012; “Brazil and U.S. Accentuate Top five recipient countries by number of projects the Positive,” The New York Times website, www.nytimes.com, accessed 11 July 2012; “The ‘Chinafication’ Of Brazil,” Forbes Rank Top five countries Number of projects Change Value website, www.forbes.com, accessed 11 July 2012; “Wrapup 1-Brazil inflation slows more than expected,” Reuters website, 2011 vs. 2010 (US$m) 2010 2011 2011 www.reuters.com, 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 brazilianbubble.com, 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
    • 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, www.businessweek.com, accessed 30 April 2012.16 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • 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, www.economist.com, accessed 30 April 2012. the increasing sophistication in the business high value-added services. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 17
    • 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
    • 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$1b until 2022. IBM, which operated through 23 branch offices in 2010, plans to increase this number to 43 by 2015.* Source: Business Monitor International’s monthly regional report on political risk and macroeconomic prospects, Business Monitor International, March 2012. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 19
    • A record year Sector focus Manufacturing* Engines & turbines; industrial machinery, equipment & tools; paper, printing & packaging; rubber; space & defense; textiles; wood products FDI value and number of projects Number of jobs FDI projects (number) 21,822 94 FDI value (US$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, www.economist.com, accessed 30 April 2012; “U.S. sugar prices fall as supplies improve –Domino,” The Reuters website, uk.reuters.com, 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
    • 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$0.7b, creating 2,043 jobs in and business parks across the country, contact centers in the country.the country. The FDI projects in the have provided further incentives forsector were directed primarily to foreign firms to set up their offices in However, supply shortage of high-qualityfunctions such as sales, marketing and Brazil to focus on local customers and on properties in Sao Paulo, Rio de Janeirosupport; education and training; ICT and serving the wider Latin American market. and other major state capitals has led tointernet infrastructure; and customer sky-high lease prices in these areas,contact centers. The country has emerged as an important raising a concern for international customer contact center market for companies planning to establish their baseBusiness services are core to Brazil’s companies across the globe. Sao Paulo, in Brazil. Rio de Janeiro has the fourth-economy since the country acts as a major Rio de Janeiro and Minas Gerais are the highest office lease price in the world, andbase for companies with operations in Latin three most prominent regions for contact Sao Paulo the eighth-highest.America. Tax incentives and increased center establishments in Brazil. Companies* Source: “Dark side of Brazil’s rise,” The Wall Street Journal website, online.wsj.com, accessed 6 May 2012; “Brazil sambas onto offshore outsourcing stage,” Cio.com website, www.cio.com, accessed 5 May 2012; Marketbeat — Brazil, 2011, Cushman & Wakefield, 2011. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 21
    • A record year Sector focus Retail and consumer products (RCP)* Beverages; consumer electronics; consumer products; food & tobacco; textiles (for retail) FDI value and number of projects Number of jobs FDI projects (number) FDI value (US$b) 44 23,051 41 28 15,471 24 11,782 11,217 6.9 14 4.1 3.6 3.1 4,350 1.3 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Source: fDi Intelligence. Source: fDi Intelligence. Growth 2011 vs. 2010: +7.3% FDI projects +49.0% No. of jobs +91.9% FDI value The RCP sector in Brazil attracted 44 FDI company FEMSA and France’s L’Oréal are projects in 2011, 9% of the total number the key players in Brazil’s RCP sector. LOréal SA in the country. The sector created 23,051 Many RCP companies such as Nestlé, jobs, the second highest of all industries in Danone and Kraft Foods have announced French cosmetics group LOréal SA Brazil. plans to penetrate the Brazilian market (L’Oréal) established its subsidiary further. Leading players such as Carrefour in Brazil in 1959. LOréal Brazil The RCP sector is driven by the country’s of France and Wal-Mart of the US have a offers a complete portfolio of brands in increasing middle-class population. strong presence in the country. Online the country through various distribution Currently, more than 50% of Brazilians marketing, with the growth of the channels. Brazil is L’Oréal’s largest belong to the middle-class (C class — with e-commerce industry, has also contributed market for hair-care products a family income in the range of US$750 to to the RCP industry in Brazil. The majority in the world. LOréal plans to double US$3,229 per month). Almost 40 million of RCP investments are concentrated in its sales in Brazil and add 50 million Brazilians climbed to this class between the Southern region of the country; customers in the country by 2015 2003 and 2011. Brazil’s economically however, with upcoming growth in the by undertaking a host of measures that active population (age group 20–54 Northern part, companies plan to diversify include offering personalized makeup years) has increased by 12.3% to reach their investments. Although we see a services, strengthening retail channels 101.6 million in 2011 from 90.5 million in robust RCP sector in Brazil, many to compete with direct sellers and 2003. Brazil is undergoing a strong retail challenges still exist. High taxes have been investing in innovation to tailor expansion. It was ranked 1st in the 2011 imposed on imports to foster local its offerings to meet the needs of local A.T. Kearney Global Retail Development production. Logistics and infrastructure customers. LOréal Brazil also plans Index, up from 30th in 2002. Chile-based bottlenecks in Brazil continue to impact an investment of US$39m for retailer Cencosud, Mexico’s beverage not only RCP but other sectors as well. the construction of the Latin American Research and Innovation Center in Rio de Janeiro by 2014. * Source: Rapid-growth markets forecast, Ernst & Young, July 2012; “FDI in multi-brand retail: The next big thing in reforms, but roadblocks persist,” Knowledge@Wharton website, knowledge.wharton.upenn.edu, accessed 10 May 2012.22 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • Sector focusFinancial services*FDI value and number of projects Number of jobs FDI projects (number) FDI value (US$b) 4,152 35 33 2,464 19 20 12 1,050 767 1.7 581 0.2 0.3 0.6 0.6 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011Source: fDi Intelligence. Source: fDi Intelligence. Growth 2011 vs. 2010: +75.0% FDI projects +134.7% No. of jobs -3.3% FDI valueBrazil’s financial services sector attracted these include US-based Bank of America,35 FDI projects in 2011, the fifth most of Citigroup and Goldman Sachs Group; Banco Santander S.A.any sector in the country, and created Germany’s Deutsche Bank; Switzerland-2,464 jobs — an increase of 134.7% over based Credit Suisse; and China’s HSBC Banco Santander (Brasil) S.A.2010. The total FDI value of these projects bank. However, foreign banks face stiff (Santander), a subsidiary of Spainswas US$600m in 2011. competition in the Brazilian market, Grupo Santander, entered the Brazilian which is currently dominated by domestic market in 1957 through an operatingForeign banks have been establishing banks such as Itaú Unibanco, Bradesco agreement with Banco Intercontinentaltheir presence in the country to cater to and Banco do Brasil. do Brasil S.A. Through a series ofthe new generation of consumers who acquisitions coupled with an organicare seeking credit for businesses, real Brazil’s sophisticated financial system and growth strategy, Santander has grown toestate and goods among other things. structured investment funds industry become the biggest foreign bankDriven by its impressive growth across has also enabled the inflow of FDI into in Brazil today and the sixth-largest banksectors, Brazil has become an important the nation. The country’s insurance sector in the country by total assets. Santanderdestination for investment banks focusing has been open to foreign investors since has a strong footprint in the country withon increasing their revenues by targeting 1996, with the majority of the US firms 3,775 offices and service points,the rising investor class. As a result, represented through joint venture 18,419 ATMs and 25.3 millionseveral leading global investment banks arrangements. customers. Brazil accounted for 28%have established their Brazilian units; of Santander Group’s profits in 2011 — ahead of Spain, the UK and Mexico — making Brazil a strategic market for the group. Santander’s goals for the Brazilian market include adding 100 to 120 branches per year during 2011 to 2013, becoming the number one bank in customer satisfaction by 2013 and capitalizing on its global branding initiatives to become one of the top three banks in Brazil by 2013. The bank also aims to achieve a revenue growth between 14%–16% and to expand net profit by 15% on average in the fiscal years 2012 and 2013.* Source: Viewpoint: Brazil in focus, September 2011, Ernst & Young, 2011. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 23
    • A record year Sector focus Mining and metals* Mining and metals industry FDI value and number of projects Number of jobs FDI projects (number) 35 45,778 FDI value (US$b) 35,227 21 27,617 24,929 18 16 14 23.0 15,722 16.6 19.0 14.3 5.7 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Source: fDi Intelligence. Source: fDi Intelligence. Growth 2011 vs. 2010: +94.4% FDI projects +30.0% No. of jobs +32.6% FDI value The mining and metals sector attracted the Southeast and South regions, with 35 FDI projects in 2011, 7% of the total the Southeast having the largest share BHP Billiton number in the country. The sector created (43%), followed by the South (24%), 45,778 jobs, the highest in the country. the Northeast (16%), the Midwest (12%) BHP Billiton (BHP) formed a joint Brazil has one of the world’s largest and the North (6%). The huge untapped venture (JV) named Mineração Rio do mineral repositories and hosts the world’s mineral resources repository in the Amazon Norte (MRN — in which it has a 14.8% sixth-largest mining production. provides ample prospects for exploitation. share), with a bauxite miner, in Brazil The Government has developed the in 1976; MRN commenced operations Although Brazil’s mining sector was Manaus Free Trade Zone, a free trade area in 1979. BHP subsequently expanded affected by the 2008 financial crisis, that offers special tax incentives to projects its presence in the country through JVs. companies have been increasing for the Amazon region. BHP aims to increase its presence in investment since then. Brazil holds Brazil through its 50:50 iron ore mining leadership positions in the production The National Mining Plan 2030 foresees JV Samarco Mineração SA (Samarco). of various commodities — it is the world’s investments of approximately US$270b In 2011, Samarco commenced a largest producer of niobium; second- and threefold increase in gold, US$3.5b expansion program largest producer of iron ore and tantalite; iron and copper output by 2030. Risks to construct a fourth pellet plant, a new third-largest producer of bauxite; faced by the metals and mining sector concentrator and a third slurry pipeline and fifth-largest producer of copper, are lack of infrastructure, shortage of in the country. In 2011, BHP also tin and kaolim. skilled manpower, complex regulations, signed a letter of intent with the state insufficiency of geological mapping data government of Minas Gerais in Brazil The mining sector in Brazil is run by a mix of and overreliance on China as the primary to invest US$2.4b in an iron ore both global and domestic players, including export market for iron ore. Brazil’s huge production project. The project, Vale (Brazil), MMX (Brazil), BHP Billiton dependence on commodity exports also expected to become operational (British-Australian multinational), Rio Tinto makes the country vulnerable to the risks in 2017, would employ 1,100 people (British-Australian multinational) and associated with the volatile global and generate 1,100 indirect jobs. Barrick (Canada). The mining companies commodity markets. in Brazil are largely concentrated in * Source: “Brazil to triple gold, iron, copper output by 2030,” Reuters website, uk.reuters.com, accessed 10 May 2012.24 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • Sector focusChemicals* Chemicals; plasticsFDI value and number of projects Number of jobs FDI projects (number) 32 FDI value (US$b) 30 7,119 5,956 18 4,876 14 10 1.8 1.7 1,584 1,719 0.7 0.3 0.5 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011Source: fDi Intelligence. Source: fDi Intelligence. Growth 2011 vs. 2010: +6.7% FDI projects +22.1% No. of jobs +126.4% FDI valueThe chemicals sector in Brazil attracted culture, investment has been far below One of the key goals of this program32 FDI projects in 2011, 6% of the total the needs of the country, resulting in is to make Brazil a global leader in greennumber of FDI projects in the country, a chemical product trade deficit that chemicals. To tap the opportunity increating 5,956 jobs. grew from US$1.2b in 1990 to US$26.5b the green chemical industry, international in 2011. The 2010 National Pact for the players such as US-based Dow ChemicalBrazil’s chemicals industry is the seventh Chemical Industry, an initiative by the and Japan’s Mitsui have formed a JVlargest in the world. Production of chemicals Brazilian Association of the Chemical to establish an integrated biopolymerin Brazil supports agriculture, mining, oil Industry (ABIQUIM), which represents operation, using sugarcane ethanolextraction, industrial, transport, health care more than 140 chemical producers to produce bioplastics for packaging.and packaging sectors. comprising around 85% of industrial Despite being one of world leaders in chemical production in the country, has chemicals, infrastructure bottlenecks,The demand for chemicals in Brazil is met outlined steps to strengthen the industry. huge electricity costs (Brazil has thethrough net imports as investment in this It aims to promote competitiveness and third-highest power costs in the world),space has taken a back seat. Although sustainable development of the chemical high raw material prices, taxes, interestBrazil has three big national chemical industry by boosting investment and rates and an overvalued currency continuecompanies, and many large well-established overcoming challenges that hamper to pose threats to Brazil’s position at themultinationals with an integrated Brazilian new investments. forefront of the global chemicals market.* Source: “Bioplastics in Brazil: Beyond the Green Speech,” Frost & Sullivan website, www.frost.com, accessed 16 May 2012; “Exclusive: Brazil to cut electricity taxes to boost economy,” Reuters website, www.reuters.com, accessed 16 May 2012. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 25
    • A record year Sector focus Automotive* Automotive original equipment manufacturers (OEM); automotive components FDI value and number of projects Number of jobs FDI projects (number) 33 19,113 FDI value (US$b) 31 28 16,418 16,502 16,327 20 6.9 7,511 5.8 6.0 11 4.9 4.1 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Source: fDi Intelligence. Source: fDi Intelligence. Growth 2011 vs. 2010: +6.5% FDI projects -14.6% No. of jobs -12.9% FDI value The automotive sector in Brazil attracted The Government exempted 18 automakers 33 FDI projects in 2011, 7% of the total from the US, EU, Japan and Brazil from Fiat S.p.A. number in the country. The sector created paying a higher tax on autos in February 16,327 jobs, the fifth highest of all 2012. Several auto industry giants Fiat S.p.A. (Fiat), an Italian automobile sectors. Brazil is the world’s fourth-largest are present in Brazil; including Italian manufacturer, has been present in the car market and the biggest auto market automaker Fiat, Germany’s Volkswagen, Brazilian market since 1976 through in Latin America. Japans Nissan, and US automakers its subsidiary Fiat Automóveis. Fiat has General Motors and Ford Motor Company. been Brazil’s car market leader for the The robust performance of the sector has Brazil’s rapidly expanding consumer class last 10 years, selling cars catering to been spurred on by a combination of tax and low car density (137 cars per different consumer segments. breaks and buoyant domestic demand. 1,000 people), should further bolster According to Brazils automotive Stimulus measures undertaken by the demand for cars in the country. distribution federation Fenabrave, the Government of Brazil, including Fiat Uno became the best-selling car the Real Plan that created inexpensive However, an influx of cheap imports from in Brazil in March 2012, registering financing opportunities and the Bigger China and Korea threaten Brazil’s auto total sales of 23,109 cars. Fiat plans to Brazil Plan that extended a package industry. To mitigate these challenges, bolster investments in Brazil to the tune of loans to finance the working capital of the Government recently raised taxes of US$5.9b during 2011 to 2014 to small and medium-sized car parts makers on imported cars and plans to launch develop new products, processes and to help support local production, have a graded-tax-credit program effective technologies as well as to expand its resulted in huge growth for the sector. from 2013 to 2017 to grant a proportional production capacity. The company aims Also, the Government has stepped up tax credit corresponding with the amount to sell more than one million cars its efforts to encourage more FDI in car of strategic local content used by annually in Brazil by 2014. manufacturing and production of the manufacturer. automotive components by giving tax exemptions to companies that have a local production. * “Car parts makers: Vehicle-buying surge in Brazil fuels component sector,” The Financial Times website, www.ft.com, accessed 12 May 2012; “Eighteen automakers to be eligible for lower taxes, says Brazilian government,” IHS Global Insight Daily Analysis, 1 February 2012, via Dow Jones Factiva, © 2012, IHS Global Insight Limited.26 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • Sector focusCleantech* Alternative and renewable energyFDI value and number of projects Number of jobs 7,165 FDI projects (number) 13 FDI value (US$b) 11 4,836 4,532 8 4.3 3,474 6 3.8 3.0 3.5 1,462 2 0.8 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011Source: fDi Intelligence. Source: fDi Intelligence. Growth 2011 vs. 2010: -15.4% FDI projects +58.1% No. of jobs +14.1% FDI valueThe cleantech sector in Brazil attracted However, the Government of Brazil has11 FDI projects in 2011, 2% of the total announced that it will inject US$38b into Amyrisnumber in the country, creating 7,165 the ethanol sector over the nextjobs. Brazil has 15.3GW of renewable four years in the form of subsidized credit US-based Amyris, an integrated renewableenergy installed capacity and is ranked to revive ethanol production and to attract products company, has been investing in10th globally. investments in the sector. Under its Brazil’s cleantech industry. The company National Cleantech Strategy 2020, conducts its Brazilian operations for theThe country meets almost 50% of its Brazil aims to triple ethanol production. manufacture and trade of products throughenergy demand through renewable energy Amyris Brasil S.A. (Amyris Brasil),sources. Ethanol forms a critical part of The strategy aims to increase renewable its majority-owned subsidiary. AmyrisBrazil’s cleantech industry since 40% energy generation by 11.5GW by 2019, Brasil has been expanding its productionof the auto fleet and 90% of all new cars with a 10-fold increase in wind and capacity in Brazil by working with thesold in Brazil are flex-fuel, gasoline biomass energy generation. It also aims to country’s sugar and ethanol manufacturersblended with ethanol. The country is have smart meters installed in every home to produce biofuels and biochemicals.the second-largest ethanol producer by 2020 and to attain a 40% reduction The company has adopted a capital lightin the world after the US. Shell, BP, Bunge, in carbon emissions. Brazil will need to asset model wherein the producers investLS9, Dow and Amyris are significantly diversify its energy mix to tackle the a substantial portion of the sum required toinvesting in the Brazilian biofuel industry. challenges from deforestation, population establish the Amyris facility, and AmyrisRecently, some concerns have been raised displacement and power disruption. provides technology, plant designs andaround Brazil’s domestic supply shortage technical expertise. Amyris plans to investof ethanol following an output drop. approximately US$5b in Brazil by 2020 in partnership with local companies. Amyris is scaling up its renewable farnesene production in Brazil, branded as Biofene. Amyris Brasil has entered into agreements with Brazilian firms Usina Sao Martinho, Paraíso Bioenergia ETH Bioenergia, and Usina Alvorada to produce Biofene from 2012 to 2014. The company also has a partnership with Cosan to develop, produce and sell renewable base oils for the lubricants market.* “Brazil plans $38 bln sweetener to revive ethanol sector,” Reuters website, www.reuters.com, accessed 18 May 2012; “Brazil ethanol drive falters on domestic supply shortage,” Bloomberg website, www.bloomberg.com, accessed 18 May 2012; Cleantech matters: Seizing transformational opportunities, Global cleantech insights and trends report 2011, Ernst & Young, 2011. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 27
    • A record yearWhere to: Southeast leads FDI,Northeast shows promise for the futureBrazil exhibits differing characteristics important economic hubs, other cities have with a sharp drop observed in awarenessin each of its regions. The Southeast also started to attract foreign investors’ for any other location in Brazil. A staggeringand South lead the country in terms of attention. The 2014 FIFA World Cup, set 25% of all companies that have not yetinfrastructure development and educational to take place in 12 Brazilian cities, will also invested in Brazil cannot point to anyinstitutions. To diversify investments and promote the integration of investments specific location that would be attractiveeconomic development across the nation, in its various cities. However, corruption in Brazil, and the vast majority is completelythe Government has therefore introduced and bureaucracy remain as key challenges unaware of even the largest tier-two citiesvarious incentives for the Northeast and in many cities. within the country. For Brazil to succeedNorth regions. in spreading economic development Our survey results also demonstrate more evenly across the country, it will beBrazil has started to witness FDI across all the focus of foreign investors on the large mandatory to work on profiling its tier-twothe regions, led by its efforts to decentralize metropolitan areas in the Southeast. cities and to inform and educate foreigninvestments and workforce. While Sao Sao Paulo and Rio de Janeiro remain the top investors about opportunities outside ofPaulo and Rio de Janeiro remain the most priority for nearly 80% of the respondents, Rio de Janeiro and Sao Paulo.Southeast and South regions still remain investors’ priority• Southeast9 • Sao Paulo • SouthThe Southeast is the most attractive region Sao Paulo, the largest city in Brazil, has The South region has also been a focusin Brazil with cities such as Sao Paulo created a strong position in the industrial, area for investments since it offers qualityand Rio de Janeiro gaining the most commercial, financial, arts and entertainment infrastructure. It attracted 115 projectsattention. The Southeast region attracted arenas. Besides being a large industrial base, between 2007 and 2011, creating more901 projects between 2007 and 2011, it is also the financial center of Brazil. Rio than 48,000 jobs. Sectors includingcreating more than 250,000 jobs and de Janeiro is the second-most important automotive, manufacturing and ICT areaccounting for more than 55% of FDI Brazilian city, having foreign interest in ICT, of interest to foreign investors. Largeprojects. The projects are mainly directed manufacturing, tourism and energy sectors. European companies such as Renault andtoward ICT, manufacturing, business Another city in the region, Campinas, has Volkswagen have established presenceservices and retail sectors. The Southeast emerged as the technology city with sound in the region. Local government initiativescontributes more than 50% of the country’s IT, engineering and electronics infrastructure; in the development of the technologyGDP. The region also has availability of an efficient transport system; and proximity industry are expected to boost privateskilled manpower as important universities to suppliers. The presence of large investment in the region. The cities ofare located here. multinationals in Campinas, such as Bosch, Porto Alegre and Florianopolis have Hewlett Packard and Dell, is evidence of already created a strong image as9. fDi Intelligence. its dominant position in the ICT sector. technology destinations. FDI inflows by destination city Rank Region City Number of projects Change Infrastructure 2011 vs. development 2010 2011 Share in 2010 FDI 2011 1 Southeast Sao Paulo 93 134 26% 44% + 2 Southeast Rio de Janeiro 23 43 8% 87% + 3 South Curitiba 5 11 2% 120% - 4 Southeast Campinas 8 7 1% -13% + 5 South Porto Alegre 3 5 1% 67% - 6 North Manaus 8 5 1% -38% - 7 Southeast Taubate 1 4 1% 300% + 8 Northeast Salvador 4 3 1% -25% - 9 Northeast Recife 3 3 1% 0% - 10 Southeast Pindamonhangaba - 3 1% 0% + 11 Others 218 289 57% 33% Total 366 507 100% 39% Source: fDi Intelligence. +: Well-developed infrastructure / -: Infrastructure bottlenecks.28 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • FDI projects by region North - 11 12 Northeast - 21 23 • Many local governments in the North and Northeast of Brazil offer significant incentives to attract businesses to their regions. Incentives include deferment or reduction of the state-based value-added Midwest - tax (VAT), free land or free building 9 11 Southeast + leases and exemption from municipal 201 278 service tax (ISS). 2010 2011+ Well-developed infrastructure- Infrastructure bottlenecks Source: fDi Intelligence. South + Note: The map denotes project numbers. 30 39 Region of 144 projects was not specified.Emerging Brazil: Northeast and North regions Midwest• Northeast Novartis, Unilever and InBev.10 Other The region has not fared well in attractingThe Northeast region has historically examples of development in the Northeast foreign investments. Only 38 projectsbeen low on the investment lists of foreign region include the recent announcement were recorded and 22,853 new jobs wereinvestors since it has been prone to poverty by Fiat of its plan to invest US$1.78b in created between 2007 and 2011. However,and poor economic development. However, an automotive OEM manufacturing project Brasilia, the capital city of Brazil, stillwith the launch of various social welfare in the Pernambuco state as well as in offers a potential investment climate withprograms (such as Bolsa Família), the the construction of a West-East railway demand for consumer goods and servicessituation is gradually improving. The region and a freeway. being driven by the city’s population that isattracted 93 investment projects between characterized by people with high per capita2007 and 2011, creating more than • North income.57,000 jobs, mainly in the manufacturing The North region is similar to the Northeastand metals and mining sectors. The in economic development and has thereforeexpansion of industrial complexes in lacked investors’ interest. The regionSuape is one of the major growth paths attracted just 48 investment projectsfor the Brazilian Northeast region. State between 2007 and 2011, creating aroundgovernments in the Northeast region of 42,000 jobs. However, the region hopesBrazil have been investing substantially to derive foreign commitments from thein infrastructure projects, thus enhancing 2014 FIFA World Cup because Manaus is aninvestment prospects for international integral part of it.companies. Demand from more than 55 10. “Brazil: country at a glance,” The World Bank website,million Brazilians residing in the region accessed 19 May 2012; “Brazil: Confidence is the keyword,”and fast growth has attracted several Forbes website, www.forbescustom.com, accessed 19 May 2012; “Brazil’s north-east: Catching up in a hurry” Themultinationals. These include Kraft Foods, Economist website, www.economist.com, accessed 19 May 2012. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 29
    • A record yearWhere from:Brazil’s FDI investorsThe US, Japan and a few of the European countries, including the UK, Germany and Spain, lead the FDI investmentactivity in Brazil. This can be attributed to their historical investment and trade agreements with Brazil. Also, the country’sproximity to other Latin American and North American markets makes Brazil more likely to become a key investmentdestination in the near to mid term.FDI inflows by source country Rank Country FDI projects Change Value Jobs created 2011 vs. 2010 (US$m) 2011 2011 2010 2011 Share in FDI 2011 1 United States 104 149 29% 43% 12,358 35,195 2 United Kingdom 20 45 9% 125% 12,248 21,040 3 Spain 36 37 7% 3% 4,483 7,660 4 Germany 33 36 7% 9% 3,045 8,678 5 Japan 23 36 7% 57% 4,954 14,069 6 France 18 26 5% 44% 4,899 13,704 7 Switzerland 12 19 4% 58% 330 1,729 8 China 10 17 3% 70% 4,487 9,049 9 Italy 6 15 3% 150% 1,832 7,215 10 Canada 11 13 3% 18% 1,002 1,479 11 Others 93 114 23% 23% 13,278 41,348 Total 366 507 100% 39% 62,916 161,166Source: fDi Intelligence.• United States11 • United Kingdom12 created 7,660 jobs. The strong ties betweenThe US continued to be the leading investor The UK emerged as the second-largest Brazil and Spain in terms of culture andin Brazil in 2011, in terms of the number investor in Brazil, both in terms of the language give an added incentiveof investment projects (149), value of number of FDI projects and their value, for investors from Spain to invest in Brazil.FDI (US$12,358m) and the number of which stood at 45 projects and US$12,248m Leading Spanish firms including Telefonicajobs created (35,195). This is largely respectively. The number of projects more and Iberdrola are present in Brazil andexplained by its geographic proximity and than doubled between 2010 and 2011. The have plans to boost their investment inthe existence and development of trade country also created 21,040 jobs for the the country in the coming years.agreements. US companies target the ICT, Brazilian economy in 2011. Several largemanufacturing, business services companies such as Rolls Royce, BP, Royal • Germany14and financial services sectors in Brazil. Dutch Shell and BG group have been present Another European country, Germany, in Brazil for many years. Investors from the initiated 7% of all FDI projects in Brazil inThe Overseas Private Investment UK seek FDI projects across the business 2011, creating 8,678 jobs; however, theCorporation, an organization that aims to services, manufacturing, mining and metals value of these projects remained low atpromote American companies overseas, and ICT sectors. US$3,045m. Brazil has been increasingis continuously enhancing the collaborative its dialogue and communication withinvestment climate between Brazil and the • Spain13 Germany. It has called on Germany toUS. To strengthen its ties with Brazil further, Spain has maintained its position among invest in the Brazilian economy to upgradethe US signed the Agreement on Trade the top five investors in Brazil in terms of its infrastructure as it gets ready to hostand Economic Cooperation in March 2011. the number of projects both in 2010 and the 2014 FIFA World Cup and 2016 2011. The country undertook 37 projects Olympics. Brazil also plans to attractLeading US multinationals, such as General in Brazil worth US$4,483m in 2011 and foreign investment from Germany toMotors, IBM, Dow Chemical Company and exploit its deep sea oil reserves. GermanyGeneral Electric Company have expanded 12. “Brazil-UK Trade and Economic Relations,” Embassy of is considering expanding its investments Brazil in London website, www.brazil.org.uk, accessed 28their presence in Brazil. These companies April 2012. in Brazil primarily in the areas of defensefocus on both domestic demand and exports. 13. “New FDI Record Set in Brazil,” IHS Global Insight Daily Analysis, 27 January 2012, via Dow Jones Factiva © 2012, IHS Global Insight Limited; “Spain’s Telefonica to invest 14. “Daimler Mulling Small Car Production Site In Brazil —11. “Brazil,” Office of the US Trade Representative website, $14.7 bn in Brazil through 2014,” Fox news Latino website, Report,” Fox business website, www.foxbusiness.com, www.ustr.gov, accessed 30 May 2012. latino.foxnews.com, accessed 30 April 2012. accessed 24 April 2012.30 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • and energy. German car majors such Also, Japanese companies are expected to consumer market has led to an increaseas Volkswagen and Daimler AG are also seek more growth opportunities outside in investments by small and medium-present in Brazil. These companies plan their home economy with their cash-rich sized Chinese companies in the country’sto make further substantial investments balance sheets. manufacturing area. With Brazil urgingin their Brazilian production facilities to Chinese companies to invest in non-rawcater to the growing domestic market. • Emerging relations with China16 material sectors, China’s investments China’s FDI project count in Brazil has are expected to be directed to sectors such• Japan15 grown 70% — from 10 in 2010 to 17 as technology, logistics and infrastructureThe number of FDI projects by Japan into in 2011. The country emerged as the in the future. The momentum of ChineseBrazil grew 57% to 36 in 2011. Japan’s share fifth-largest investor in Brazil in 2011 investment in Brazil is expected to increasein FDI projects was 7% with project valuing in terms of FDI value at US$4,487m; a as a result of a joint communiqué signedUS$4,954m in 2011. Brazil has consistently sixfold increase from its value in 2010. in 2011 to promote cooperation in tradeencouraged Japanese companies to invest China also ranked fifth with respect to and investment. However, differencesin Brazil’s development. A number of the number of jobs created in the country in culture, management style and lowerJapanese firms such as automaker Nissan, (9,049 jobs). Most of the Chinese FDI in Chinese labor protection standards cansteel producer Nippon Steel and cable Brazil can be characterized as resource- create challenges for the developmentmanufacturer Furukawa Electric have a seeking, with Brazils rich supplies of of Chinese business in Brazil.presence in Brazil. Japan’s need for natural oil, gas and minerals acting as majorresources due to its energy shortage and attraction for Chinese investors. As ChinaBrazil’s requirement for high technologies to requires diversity and high volumesbuild up its public infrastructure facilities has of natural resources, the country iscreated prospects for a strategic partnership sourcing these resources from Brazil.17between Brazil and Japan for mutual Moreover, the recent boom in the Brazilianinvestments. 16. “China invests $12.67b in Brazil,” The Economic Times website, articles.economictimes.indiatimes.com, accessed 24 April 2012; “China, Brazil to promote trade, investment15. “Japan’s number 2 automaker plans to increase production co-op,” China Daily website, www.chinadaily.com, accessed in Brazil,” MercoPress website, en.mercopress.com, accessed 26 April 2012. 29 April 2012; Invest in Brazil, 2011, Nikkei Business & Nikkei 17. Chinese Investments in Brazil, May 2011, China-Brazil Business Online, 2011. Business Council, 2011. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 31
    • A record yearInvestors’ plans for 2013:a majority have Brazil in mindIn general, is your group considering establishing or developingactivities in Brazil?Cant say (do not suggest) 9.3% Probably not 8.4% Yes, de nitely 33.5% 22.6% 59.8% of investors De nitely not plan to invest in Brazil 26.3% Yes, probablySource: Ernst & Young 2012 Brazil attractiveness survey. Total respondents: 250.When asked about investing in Brazil, a lot on the equilibrium between the future Despite this positive outlook, Brazil’s FDIinvestors had mixed responses. The consumption and investment patterns of numbers for the first quarter of 2012Brazilian economy’s strong foundations the country. depict a different picture from investors’mean that 60% of investors say they plan perceptions about expanding their activitiesto establish operations in Brazil, while 31% Factors that can deter investors include high in the country. Brazil recorded FDI inflowsdo not. interest rates and the complex Brazilian tax totaling US$5b in Q1 2012, a decline from regime. Companies investing in Brazil will Q1 2011’s US$23b. The country recordedBrazil has transformed itself from a country need to consider these in assessing likely 110 projects in the period (down 19% fromwith bleak economic prospects during outcomes for their investments.18 Firms that Q1 2011) creating 17,422 jobs (lower bythe 1970s, to a formidable force in the are not already established in Brazil have 70% than Q1 2011).global economy enjoying growth rates above greater concerns related to the challengesaverage world GDP growth in recent years. associated with the economy. Of the The ICT sector and the sales, marketingBrazil, which persistently underperformed companies that do not have a presence in and support function were the majorfor a long period, experiencing repeated Brazil, a surprising 64% have no plans for an areas of foreign investment in Q1 2012.crises and hyperinflation, has managed to investment in the country, as these players ICT accounted for the largest number ofreach a stable growth trajectory, making are not familiar with Brazil’s regulations and FDI projects in the quarter with 35 projects,the country attractive for investors. its business climate. followed by RCP (14 projects) andAttainment of political stability is one manufacturing (13 projects). The ICTcritical factor in this. Brazil has been able Companies that already have operations in industry also emerged as the strongest into maintain low risk for investors through Brazil are willing to face these challenges terms of FDI value in Q1 2012 (US$1.2b)its stable government. Brazil ranked above as they strongly believe that Brazil has and job creation (3,522). By function,some other Latin American countries such sound economic prospects. In our survey, sales, marketing and support attractedas Mexico, Argentina, Colombia and Peru, nearly 73% of the respondents said they the most FDI projects in Q1 2012 (43),in The Economist’s Political Instability do not consider relocating part of their creating 1,291 jobs. The reality of FDI inIndex 2009–10. activities from Brazil to another country. 2012 will ultimately be determined by In the 15% of companies that may move Brazil’s ability to take advantage ofIn the short term, investors can rely on operations, reasons for their possible its strengths and address the challengesBrazil’s domestic consumption growth story relocation are linked to their desire to the economy is facing.and reap benefits. The Government has also tap and develop new local markets andtaken various measures, including cutting to increase market share in anotherinterest rates, to create demand and boost existing market — rather than to perceivedindustrial competitiveness. However, shortcomings of Brazil as a location.the success of these measures will depend 18. Rapid-growth markets forecast, Ernst & Young, July 2012.32 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • ViewpointBrazil’s real estate boom Luiz Lopes, CEO, Brookfield BrazilThe Brazilian subsidiary of Canadian With the crisis in the Eurozone continuing Centro-Oeste region, and penetrate newassets manager Brookfield recorded total and the economic recovery in the US markets in the south of the country,sales of US$180m in 2006, the year it looking shaky, Brazil will become the especially in the cities of Curitiba andlaunched its initial public offering (IPO). second-largest real estate investment Florianopolis. The bulk of company salesFive years later, the companys financial market in the world in 2012, according to is concentrated in the average propertystatements recorded US$2.2b in a survey conducted by the Association of price range, valued at US$ 125,000.properties sales. This represents a 12-fold Foreign Investors in Real Estate (Afire). “We believe that the real estate marketincrease that has guaranteed Brazil The country is part of the investment will have solid growth for many years,a 22% market share of the company’s plans for 18.6% of respondents, with capacity to grow 8% to 10% perglobal business. who were drawn from companies and year,” says Lopez. funds that together control more than“The main reason for the attractiveness US$800b of assets under management In addition to Brazil’s strongof investment and growth in Brazil is that around the world. macroeconomic performance, optimismthe country has been growing fast and is underpinned by two other factors:it offers a huge number of opportunities, a young population with stable incomewith a low level of difficulty and risks. The main and strong demand for housing; and a hugeThe company is currently much greater reason for the housing shortage of 5.5 million properties.here than in Canada,” says Luiz Lopes, attractivenessBrookfield Brazil CEO. Currently, 10% of Brookfield’s real estate of investment investments are directed to Minha Casa,From the US$12b of assets under and growth in Minha Vida (My House, My Life),Brookfield Brazil’s management last year, the federal government’s low-cost39.7% were allocated in properties and Brazil is that the country housing program. “There is a third factor,19.9% in shopping centers. This is a good has been growing fast. not so visible yet, that we believe will beindicator of how sustainable GDP growth, a big hit for the next 30 years:the greater availability of credit and Brookfield Brazil’s strategy is to invest the exchange of shacks to apartments.a rising middle class that is able to buy in the areas in which most of the income Shantytowns represent a huge potentialtheir first house has boosted the real and businesses are currently concentrated, for new businesses,” concludes Lopez.estate industry over the last decade. such as the state of Sao Paulo and Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 33
    • Great momentumBrazil, the investors’ viewPicture: Amazon Forest, Para, Brazil.34 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • Great momentum 78% see Brazil as the most attractive country in Latin America. 87% of the investors see Brazil’s market size as its most attractive asset. 72% of respondents believe Brazil has a strong entrepreneurial culture. 42% of investors expect Brazil’s oil and gas sector to drive growth. 30% of respondents expect Brazil to be the leader in the energy sector by 2020. Pre-salt new opportunities. reserves discovery to open up Challenges to be addressed: skills, costs and operating conditions as well as low quality but yet high cost of transportation system. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 35
    • Great momentumBrazil:Latin America’s leaderBrazil emerged as the most attractive country respondents than Argentina (which was Led by a set of economic policy measures,for investment, named in Latin America’s next behind Brazil in awareness, along Brazil’s Class C (middle class) has expandedtop three by 78.4% of the respondents in with Chile). Brazil was also mentioned many from around 66 million people in 2003 toErnst & Young’s 2012 Brazil attractiveness more times overall than any other country. 105 million in 2011, and is expected to growsurvey. Brazil holds the top spot among Likely competitors for Brazil are to be found to 118 million by 2014. On the other hand,investors because of its robust economic in the large rapid-growth economies as well as the country’s poor classes have declinedfoundations: a burgeoning middle class, in the developed economies of the West. from a total of 96 million people in 2003rising domestic consumption for goods and Our respondents (49%) believe that China to 63 million in 2011. Brazil’s GDP per capitaservices and a wide base of industrial and is the largest competitor of Brazil, followed by increased at a compounded annualnatural resources. The country, in comparison India (14%) and the US (10%). From Latin growth rate (CAGR) of 11.8% betweenwith other Latin American economies, stands America, Argentinas GDP growth rate, which 2000 and 2011, larger than that for Latinout in terms of attractiveness; our survey was higher than Brazil in 2011, and its unique America’s other RGMs: Argentina (3.2%),findings suggest that Brazil has by far the sustainable development model can make Chile (9.7%) and Mexico (3.6%) duringhighest awareness and attraction. Brazil was the country a potential competitor for Brazil the same period.the first country mentioned by 10 times more in the long term.From a general point of view, could you list, in decreasing What is the criterion to evaluate howorder, the three most attractive countries in which to attractive Brazil is as a location for establishingestablish operations in Latin America? new activities?Brazil Brazils domestic market 78.4% 86.5%Argentina Quality of life, culture, social environment and language 44.6% 76.0%Chile Telecommunications infrastructure 42.9% 72.8%Mexico Entrepreneurial culture 17.9% 71.9%Colombia Local labor skills 17.0% 68.5%Peru Access to funding and local partnerships 8.8% 64.4%Uruguay 3.9% R&D availability and quality 61.7%Venezuela 3.2% Government initiatives on sustainable developmentParaguay 60.8% 3.1% Labor costsEcuador 59.4% 3.0% Political, legislative and administrative environmentCosta Rica 59.0% 1.9% EducationBolivia 53.2% 1.9% Transport and logistics infrastructureDominican Republic 43.4% 1.0% Flexibility in labor lawPanama 41.4% 0.7% Corporate taxationHonduras 32.7% 0.4%Belize Source: Ernst & Young 2012 Brazil attractiveness survey. 0.4% Total respondents: 250.None 3.8%Cant say 8.6%Source: Ernst & Young 2012 Brazil attractiveness survey.Total respondents: 250.36 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • Viewpoint How to serve 40 million new customers Ivan Zarur, CFO, McDonald’s Brazil Over the past decade, more than the fast food industry in Brazil. From 2001 represented 43%. As they spend more 30 million Brazilians have risen out of to 2011, the number of franchising supply time away from home, they have poverty and moved into the middle class. chains operating in the country increased increased their spending on fast food. This figure is equivalent to the total from 113 to 481. The market turnover population of Canada. Research conducted was nearly US$9b last year alone, For McDonalds, the first challenge is to by Fundação Getúlio Vargas (FGV) shows according to the Brazilian Franchising increase its number of outlets. In Canada, that an additional 12 million people will Association (ABF). for example, 1,400 restaurants serve a have reached the middle class by 2014, population of 32 million people. In Brazil, when the country hosts the FIFA World “Globally, Brazil is one of the top 10 there are about 670 outlets catering for Cup, another 5 million may be driven in markets for McDonald’s. It is one of the 200 million inhabitants. “Considering that the same direction. fastest-growing countries next to China,” our per capita income has been approaching says Ivan Zarur, CFO of McDonalds Brazil. that of more mature economies, there is In Latin “Regionally, Brazil is a fundamental power room for growth,” says Zarur. and a leader. In Latin America, we are now America, we are analyzing what Brazil is doing and what Another challenge is manpower. With now analyzing Mexico might do,” he says. According to family incomes now higher, fewer parents what Brazil the ABF, in 2011, McDonalds was the need their children to work. So youngsters second-biggest franchise network in Brazil are continuing to study and looking forward is doing and by sales and the fifth by number of stores. to college. As a consequence, hiring staff what Mexico might do. has become problematic. “It is increasingly Sustaining growth and meeting the new difficult to find, hire, train and retain staff: This new group of people with purchasing demand brings a high number of 55% of our restaurants are inside shopping power, combined with the stability of challenges for companies in this sector. centers, where competition is fierce. income and employment in the last In Brazil, women represent 54% of the This is by far the biggest challenge our decade, has directly impacted upon labor market — 10 years ago, they industry faces,” says Zarur.According to Nielsen’s Q4 2011 global support for firms has further bolstered • Questions on Brazil’s businessconsumer confidence findings, Brazil its position as a top choice for foreign environment and operational costsrecorded the highest consumer confidence companies. In October 2011, Brazil was Brazil’s political environment comparedin Latin America with an index of 112, the ranked as the third-best country among with those of RGMs such as Russia,fifth-highest score among the 56 countries the G20 at providing young entrepreneurs India and China has made it reasonablymeasured globally. Brazil offers many with a favorable environment for business.20 attractive for international firms, with 59%opportunities to investors in the thriving of the respondents pointing to this option.sectors of infrastructure, manufacturing, • Mixed perception on HR skills However, the huge opportunities presentedoil and gas, and tourism.19 Our survey revealed a range of views about by Brazil need to be weighed against Brazil’s local labor skills. Of the companies the shortcomings associated with operating• Market opportunities and not yet present in Brazil, only 56% identified in the country. A low-quality and high-cost entrepreneurship as Brazil’s main workforce skills as a basis for investing in transportation system still remains a weak assets the country — as opposed to 76% of those factor for investors (only 43.4% mentionedNearly 86.5% of investors indicated Brazil’s already established in Brazil. While R&D it as an attraction) as it leads to operationaldomestic market as a criterion that makes was indicated as influential by 61.7% of inefficiencies. High labor costs comparedit an attractive location for establishing new investors, education was highlighted by with other RGMs such as Russia, China andactivities. Brazil’s economic growth has 53.2%. The country still lags behind the G20 Mexico, along with rigid and inflexible laborcreated a huge domestic market with vast average in terms of university education regulations, continue to raise concernsbusiness opportunities. This draws investors and R&D according to Ernst & Young’s The for foreign companies. A high corporateto set up their facilities in the country. Nice Côte d’Azur 2011 Entrepreneurship tax rate of 34%, compared with its LatinIts strong entrepreneurial culture (cited Barometer. R&D as a function accounted for American peers such as Chile (18.5%)by 71.9% of the respondents) comprising only 2% of the total FDI projects undertaken and Mexico (30%), also dampens investorsa favorable business climate and funding in Brazil from 2007 to 2011. interest in Brazil.19. Reuters; Nielsen Global Consumer Confidence Q42011 report; The Financial Times; CIA world factbook; Fundação 20. The Nice Côte d’Azur 2011, Entrepreneurship Barometer Getulio Vargas (FGV); The Economist; Bloomberg. report, October 2011, Ernst & Young, Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 37
    • Great momentum Viewpoint Brazil’s US$70b boost Ricardo Trade, Operations & Competition Executive Director of the 2014 FIFA World Cup Local Organising Committee (LOC) In two years’ time, an estimated audience The figures consider investments in quality,” says Ricardo Trade, Operations of around three billion people will turn on infrastructure, new businesses and & Competition Executive Director of the their television sets to watch one of the direct and indirect impacts on 2014 FIFA World Cup Local Organising the world’s greatest sporting competitions employment generation, income, Committee (LOC). The current team of and the most popular one, the FIFA World the national production of goods and 80 employees from this private company Cup, which will be held in Brazil in 2014. services, visitor spending and tax has the responsibility to develop the In addition to the television audience, collection. Tourism alone may bring in logistics of transporting delegations, over 600,000 foreign tourists are around US$3b. Besides generating great officials and guests of FIFA; analyze more expected to visit the 12 host cities. international visibility, the World Cup can than 240 football training facilities to An event of this magnitude requires potentialize the attractiveness and select 64 that may be used for team extensive preparation. A study by interest from foreign companies training; set up the 12 different press Ernst & Young Brazil, in collaboration with and investors looking for development centers; and be in frequent contact with Fundação Getúlio Vargas (FGV), throws opportunities and business in Brazil. the host cities and government agencies light on the different ways in which the to guarantee that the stadiums, airports World Cup will affect the Brazilian The World Cup and public services will run properly economy and shows how the event offers during the tournament. many opportunities for growth. is a huge opportunity “The World Cup is a huge opportunity The direct investments of over US$11b in terms of promoting our image. It is in terms of by the Government and the private sector a chance to show that we have adequate on infrastructure (stadiums and their promoting public and private services; that Brazil surroundings, airports, highways, hotels our image. is a safe country; and that there is much and urban planning), are expected to more here than Rio de Janeiro and Sao have a knock-on effect that will inject “The biggest challenge is to manage Paulo. Above all, it is our chance to show additionally over US$56b into the country, a competition with continental distances, our ability to host an event of this considering all the productive chain. where you need to transport people, magnitude. It is a big leap forward,” In total, the World Cup might generate ensure safety and efficient services and concludes Trade. over US$71b between 2010 and 2014, monitor the progress of works in order to and create over 3.6 million jobs per year. have everything ready on time and with38 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • Brazilian cities:the undisputed leadership of Sao PauloSao Paulo maintains strong investment prospects while Rio de Janeiro rides high on Olympic spiritWhat is the most attractive Brazilian city?Sao Paulo 56.8%Rio de Janeiro 24.6%Brasilia 4.2%Curitiba 1.2%Porto Alegre 0.9%Belo Horizonte 0.6%Cant say 11.7%Source: Ernst & Young 2012 Brazil attractiveness survey. Total respondents: 250.In Ernst & Young’s 2012 Brazil attractiveness business parks and an affluent consumer Rio de Janeiro is also emerging as a preferredsurvey, 56.8% of investors named Sao Paulo, class. One of the main differentials of investment target, getting a boost from itsBrazil’s largest city, as the most attractive the city when compared with Brazil’s other recent oil discoveries and winning the bid tometropolis in the country, with another cities and regions is Sao Paulo’s logistics host the 2016 Olympic Games. The city offers24.6% of the respondents favoring Rio and transportation infrastructure, which is opportunities in sectors such as tourism,de Janeiro. made up of a network of modern highways, energy and infrastructure. However, an international airport and developed Rio de Janeiro’s high crime rate continues toSao Paulo has established itself as waterways and railroads. Sao Paulo also be an impediment for multinationals.22a prominent industrial and commercial has a good, professional education systemhub for Brazil. The most important and is home to several important research Brasilia, the country’s capital and the focalbanking institutions in Brazil and the world, institutions, which together help promote point for the Federal Government, was namedas well as the largest stock exchange and stimulate economic and technological as the city of choice by 4.2% of the investorsin Latin America, BM&F BOVESPA, development in the city.21 in our survey. The city’s young and well-are located in the city. Sao Paulo presents educated population with a high per capitaconsiderable competitive advantages to 21. “Oil Investment in Brazil Continues,” Riotimesonline income creates an appealing investment website, riotimesonline.com, accessed 24 May 2012;investors for establishing and expanding “Skilled Labor Force,” Investe Sao Paulo (Sao Paulo’s climate for international companies. Agency For The Promotion Of Investments Andtheir presence. These include a highly Competitivenes) website, www.investe.sp.gov.br, accessed 25 May 2012; “Reasons to Invest in SP,” Investe Sao Paulo 22. “Brazil: Creatively coming out ahead,” Forbes website,qualified workforce, well-developed website, www.investe.sp.gov.br, accessed 25 May 2012. www.forbescustom.com, accessed 24 May 2012. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 39
    • Great momentumBrazil’s second cities face a critical lack of awarenessRespondents could not indicate a strong Belo Horizonte has a thriving mining What are the three most promisingpreference for cities other than Sao Paulo and industry backed by its rich mineral Brazilian second cities?Rio de Janeiro. Nearly 39% of investors faced resources, particularly iron ore, and fast- (excluding Sao Paulo and Rio de Janeiro)a challenge in identifying a promising city emerging biotechnology and IT sectors as Curitibaoutside Brazil’s traditional business regions. well as good connectivity and infrastructure. 24.5% Foreign investors, particularly those that Belo HorizonteHowever, Curitiba and Belo Horizonte, have not yet established their operations 20.2%both capital cities of their respective states in Brazil, must be made more aware of the Recife 15.6%Paraná and Minas Gerais, were named country’s geography. Porto Alegreby more than one in five respondents, 14.6%receiving nominations from 24.5% and The Government needs to come up with Campinas20.2% of investors respectively. Curitiba has a campaign highlighting the attributes of 11.9%gained importance as an IT hub due to its the different cities, encouraging investors Salvador 11.2%growing talent pool and low wages, along to choose from a broader range of Brasiliawith factors such as a good transportation locations. This is particularly important 9.2%system and ease of connectivity to other because the high cost of real estate in Fortalezaregions of Brazil. Incentives in the form of Rio de Janeiro and Sao Paulo might make 6.0%tax exemptions and supportive infrastructure these locations unappealing for offshored Natalthrough establishment of facilities such services business. 4.6% Florianopolisas software and technology parks have 2.7%also helped to build an attractive business Manausenvironment in the city.23 2.2% Goiania23. “Curitiba,” Israel Economic Mission in Brazil website, 1.9% www.brazil-israel2016.com, accessed 28 May 2012. Campo Grande 1.7% Vitoria 1.0% Belem 0.8% Riberao Preto 0.7% Foz do Iguaçu 0.5% Santos 0.4% Palmas 0.4% Cant say 38.9% Source: Ernst & Young 2012 Brazil attractiveness survey. Total respondents: 250.40 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 41
    • Boosting growthThe future attractiveness of BrazilPicture: Fernando de Noronha island, Brazil. 42 42 Er Ernst Ernst Youngs 2012 Brazil attractive ess survey Capturing the momentum Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum rn oungs 012 Brazil attractiveness su vey Capturing th oungs 2012 Brazil attracti ungs r i t a iv ivene survey Captu ing ur e a ur n omentu omentu mentu t
    • Boosti growthBo sting growthBoosting growthBoosting gr wth oo t ro t 83% of respondents believe Brazil’s attractiveness will improve over the next three years. Improve skills and secure the operational environment. 29% of investors see development of education and skills a priority. Build innovation capacity and diversify sectors: 60% of investors say improving education and training in new technologies can build Brazil’s innovation capacity. Promote Brazil’s regions. 56% of respondents cite infrastructure development as key in the attractiveness of Brazil’s cities. Ern Ernst Youngs 2012 Brazil at ractivene survey Ca tu in th momentu Ernst Youngs 2012 Brazil attractiven ss survey Capturing the momentum Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum r oun oungs u Brazil attractiveness survey Capturing razi r i tt activ ne i urvey ap ur ng e ome om tu 43 43
    • Boosting growthStrong confidencein Brazil 2015Over the next three years, do you think the attractiveness of Brazil as a placefor your company to establish or develop activities will ...?Improve 83% of investors think that the 83.4% attractiveness of Brazil will improveStay the same over the next three years.13.6%Decrease 2.3%Cant say (do not suggest) 0.7%Source: Ernst & Young 2012 Brazil attractiveness survey. Total respondents: 250.Investors are ready to bet on Brazil’s prospects According to the Economist Intelligence Various investors have shown interest inin the medium term. According to our survey Unit (EIU), Brazil is expected to attract Brazil in the medium term. For instance,results, 83.4% of the respondents believe sustained inflows of FDI in the medium in 2012, BG Group announced a US$2bthat Brazil’s attractiveness will improve over term as the country’s domestic market size, investment in R&D in the Brazilian oil andthe next three years, 41.7% consider that natural resource endowment and political gas sector, and US-based aluminum rolledthis improvement will be most substantial. and macroeconomic stability will partly products maker Novelis plans to investOnly 2% of all the respondents believe that compensate for deficiencies in the business US$400m in Brazil to raise productionconditions in Brazil will deteriorate, illustrating environment. Economic growth, along capacity to meet the expected increase instrong investor confidence in the country with a sustained increase in real incomes, domestic consumption. The Government ofgiven its mixed economic performance is expected to create new opportunities Brazil will need to create a more favorablein 2011. By contrast, only 38% of the for investors in the consumer goods and environment for investments, includingsurvey respondents believe that Europe’s retailing industries. The pre-salt layer private investments, to tackle logisticalattractiveness will improve in the medium discovery will also create new avenues bottlenecks that hinder growth.24term, with 22% expecting a decrease. for growth in the oil-related industries. 24. . “Brazil Business Environment: Country forecast Brazil August 2010,” The EIU website, store.eiu.com, accessed 24 May 2012.44 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • Brazil’s most attractive sectors in the future:industry supporting servicesBrazil’s oil and gas sector is expected todrive the country’s growth in the comingyears according to 44.2% of investors. ViewpointThe sector attracted 33 projects during2007 to 2011, with a total value of The challenges of the oil industry in BrazilUS$5.7b, which created 7,312 jobs in thecountry during this period. Brazil’s oil and André Araujo, President, Shell Brazilgas sector is not only creating industrial Only a handful of activities are as international players to its upstreamprojects, but also end-to-end services relevant to today’s strategic growth market, according to Ernst & Young.projects. Oil and gas projects create agenda in Brazil as the exploration of oilemployment in business services; design, and gas in the pre-salt fields. The “The pre-salt is a unique opportunity fordevelopment and testing; and sales, and operational and technological challenges Brazil, and Shell wants to contribute tomarketing and support functions. involving the exploration and production the development of this huge production in deep waters are expected to generate potential,” says André Araujo, PresidentThe country’s oil and gas sector has huge investments of approximately US$250b of Shell Brazil. Shell has stakes in a blockpotential with the recent discovery of vast over the next 10 years, according to a located in the pre-salt Santos Basin, theproven reserves in an area called the joint study conducted by Ernst & Young BMS-54, which is still in the explorationpre-salt layer. In addition to increasing Brazil and Fundação Getúlio Vargas. phase. Overall, the company has 10Brazilian oil production, development of Another study by Banco Nacional de blocks of exploration, development andthe pre-salt area is expected to boost job Desenvolvimento Econômico e Social production in Brazil — five onshore andopportunities in the country as more and estimates that the domestic demand for five offshore. Of these, two have beenmore foreign companies invest in oil and goods and services in offshore producing oil and gas on a commercialgas exploration and production. The boom exploration and production is around scale: Parque das Conchas and Bijupirá-anticipated by the oil and gas sector is US$400b. Salema, both located at the Camposexpected to have positive spillover effects Basin in Rio de Janeiro State. Thefor other industries such as equipment average oil production of these twomanufacturing and to lead to greater R&D The Government blocks was approximately 80,000 barrelsinvestments. Growing demand, coupled and the private a day in 2011. Over the next 18 months,with incentives for novel and innovativetechnologies to explore the pre-salt sector should the company will drill 8 to 12 wells in its concession areas.reservoir, has encouraged international be workingcompanies such as GE, Siemens, IBM, together. “The fiscal adjustment is likely to be aSchlumberger, FMC Technologies andBaker Hughes to establish their R&D I believe we are on the decisive factor in attracting investors to Brazil. This applies for any industry, butcenters in Brazil. right track. especially for the oil and gas industry. That is because any project ofVarious leading global operators have In Brazil, the pre-salt oil fields lie exploration, development and productiona presence in Brazil’s oil and gas sector. 2,000–7,000 meters deep underground will result in long-term commitments andKey operators include Total SA, Technip, in an area of approximately 800km in will demand a high degree of investment.Chevron, Royal Dutch Shell, Repsol, BG length off the coast. It is estimated that The country must have a clear and stableGroup, Sinopec, ONGC and Statoil. With those fields hold 70 billion to 100 billion regulatory framework to continueseveral oil fields under development and barrels of oil and gas. It is an amount attracting investors. Brazil has honoreda large portion of the pre-salt province area which — if confirmed — would turn Brazil the contracts so far. Its a long journey inyet to be sold, around 80 different operators into an energy superpower and see it rise which the Government and the privatehave confirmed their plans to invest an to sixth position among the largest sector should be working together.estimated total of US$330b in Brazil in holders of reserves in the world. In the I believe we are on the right track,”the next 10 years. Significant outlays are past few years, the pre-salt fields have concludes Araujo.expected in areas such as exploration, attracted the attention of 36 majorevaluation, production, construction ofships, drilling and production units. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 45
    • Boosting growthWhich three of the following business Brazil has approximately 14.0 billion program launched in March 2009.27sectors do you perceive as driving barrels of proven oil reserves and The program, which has entered its secondBrazil’s growth in the next two years? 14.7 trillion cubic feet of proven natural phase, aims to build two million homes gas reserves. The Government of Brazil for low-income groups before 2014, andOil and gas plans to seek international capital to involves subsidies to fund, construct and 44.2% fund the development of these complex sell these affordable houses.Real estate and construction 27.7% resources and to establish a productionTourism sharing agreement (PSA) for the pre-salt Tourism remains another prominent 27.3% province. However, shortage of skilled labor sector in Brazil. This is borne out byAgriculture and food industry due to insufficient training and education the responses received from 27.3% of 27.3% programs continues to plague the Brazilian the investors in our survey. Factors suchTransport industry and automotive oil and gas industry.25 as Brazil’s natural beauty and improved 20.7% tourism infrastructure have placed itConsumer goods 20.3% The Brazilian real estate and construction among the best tourist destinationsMining market is expected to witness robust in the world and acted as a major magnet 18.6% growth as highlighted by 27.7% of the to international visitors. Sao Paulo andInformation and communication technologies, IT respondents. Brazil’s booming economy Rio de Janeiro, important economic 16.4% and safer investment environment has hubs in Brazil, possess remarkableLogistics and distribution channels made the country’s real estate market a hot infrastructure that has paved the way 13.3% spot for global investors. The 2012 survey for business tourism by way of events,(IT services, consulting, audit, communication etc.) of the Association of Foreign Investors in conferences and conventions. Their natural 10.7% Real Estate (AFIRE) placed the Brazilian landscapes have also acted as a strong real estate market second in terms of attraction for leisure tourists. The World 9.0% attractiveness in 2012 — above China and Economic Forum (WEF), in its 2011Cleantech 7.6% all the countries in Europe. Also, Sao Paulo Travel & Tourism CompetitivenessPharmaceutical industry and biotechnologies was identified as the 4th-best city for real Index, ranked Brazil first among the 7.2% estate investment in 2012, up from its 26th 139 countries for its natural resources.Utilities place last year.26 The housing construction According to the International Congress 3.1% segment in the country has received and Convention Authority, Brazil rankedHeavy industry an enormous push from the Brazilian ninth as an international event destination 1.6%None Government’s Minha Casa, Minha Vida (My measured by number of meetings 0.4% House, My Life), an affordable housing organized in 2010.Cant say 3.0% 25. “Brazil At Risk Of Becoming One Big Petrobras,” Forbes website, www.forbes.com, accessed 28 May 2012; “Brazil:Source: Ernst & Young 2012 Brazil attractiveness survey Country analysis briefs,” Energy Information Administrationsurvey. Total respondents: 250. website, www.eia.gov, accessed 29 May 2012; “Skills shortage in Brazil’s oil industry,” The Financial Times 27. “India, Brazil and South Africa Address the challenge website, www.ft.com, accessed 28 May 2012. of slums,” The World Bank website, wbi.worldbank.org, 26. “Foreign R.E. investors: Buying but seeking improved accessed 27 May 2012; “Minha Casa, Minha Vida Phase fundamentals and FIRPTA reform,” Business Wire, 1 Two,” Riotimesonline website, riotimesonline.com, accessed January 2012; “U.S. is top 2012 property investment pick,” 28 May 2012; “Minha Casa Minha Vida Development,” ABS-CBN news website, www.abs-cbnnews.com, accessed Riotimesonline website, riotimesonline.com, accessed 28 May 2012. 28 May 2012.46 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • The country’s potential as a touristdestination, however, still remainsuntapped. According to the World Tourism ViewpointOrganization, Brazil recorded 5.2 milliontourist arrivals in 2010, fewer than other Economy boosts tourism in Brazilcountries in the Americas such as Mexico(22.4 million) and Canada (16.1 million). Ricardo Amaral, CEO, Royal Caribbean InternationalArrivals in many Asia Pacific regions alsoremained higher than Brazil with Malaysia The opening of an office in Sao Paulo In comparison, foreign tourists who visitedreporting 24.6 million tourists, Hong Kong three years ago was the first sign that Brazil last year spent US$11.8b.20.1 million, Thailand 15.8 million and Brazil had become a strategic marketSingapore 9.2 million. for Royal Caribbean International, This boost to tourism has attracted the American giant that has operated in the attention of the international majorThe Government of Brazil has been actively the global cruise industry since 1968. cruise operators. Offering local packagespromoting tourism in the country through with prices similar to internationalpromotional campaigns as well as by vacations, the 20 vessels circulating theproviding funding options. In 2010, Embratur, Operating Brazilian coast carried 792,750 touriststhe country’s Tourist Board, launched the costs are high (99,000 of them foreigners) in the 2010campaign, Brazil is Calling You, to encourage to 2011 season. A joint study conductedbusiness and leisure visitor flows into Brazil and there are by the Brazilian Association of Maritimeand to highlight the opportunities in the significant Cruises — of which Amaral is President —nation. The marketing initiative is part infrastructure and the Fundação Getúlio Vargas showsof Brazil’s Plano Aquarela 2020 strategy, that the cruise industry contributedwhich aims to achieve approximately a 300% problems despite recent a total of US$650m to the Brazilianincrease in foreign currency inflows from improvements. economy during the last season.international tourists to garner US$17.6band secure 113% growth in international Brazilian executive Ricardo Amaral has At the end of 2011, Brazil moved aheadtourism with 11.1 million inbound foreign accumulated the functions of CEO in of the UK to become the sixth-largestvisitors by 2020. Looking at the growth Brazil, Latin America and the Caribbean. economy in the world. Brazil’s economicprospects for the sector in the coming years, “The operations of multinationals are rise has seen it become more central toBrazil’s Ministry of Tourism along with BNDES often determined by geographical the global operations of companies suchhas opened a credit line totaling US$0.5b factors, but the business ends up being as Royal Caribbean. “But there are still(BRL1b) to fund upgrades, expansion and driven by results. Three years ago, my major challenges ahead. Operatingconstruction of new hotels in the country.28 position was based in Miami and now costs are high and there are significant it is in Brazil, the worlds second top infrastructure problems, despite recent office in terms of results,” says Amaral. improvements. The taxes and fuel costs28. “Brazil is leading the Travel & Tourism economy in Latin make operating a cruise in Brazil 25% America,” The World Travel & Tourism Council website, www.wttc.org, accessed 25 May 2012; “Brazil tourism The strategic restructuring did not more expensive than in other countries. board unveils Aquarela 2020 outlining international promotion as 2016 Olympic host city,” PR Newswire, happen by chance. The movement Because of this, the country loses 16 December 2009. of more than 30 million people from competitiveness,” says Amaral. poverty to the middle class over the past decade has boosted Brazil’s tourism “However, the complexity of operations industry. Last year, the expenditure in Brazil is also an interesting and of the 3.5 million Brazilians traveling positive element. It has a very specific abroad reached US$21.2b — legal and tax environment and the 28% higher than the previous year. expertise gained here can be taken to The Brazilian Central Bank described other markets.” this spending as an all-time high. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 47
    • Boosting growthLong-term vision:diversification neededHow do you see Brazil in 2020? Foreign investors see five main areas in with one of the best education and higher which Brazil is expected to become more learning systems. The country needs toA leader in the energy sector 30.1% attractive. While 30.1% of investors see build its innovation capacity, stimulateSubstantially improved infrastructure Brazil as the leader in the energy sector its R&D efforts and develop its education 24.2% by 2020 due to the discovery of pre-salt system to build a highly qualified workforce.A leading country in the green economy reserves, 24.2% of respondents expect 23.8% substantially improved infrastructure in the • Shared services centers29Among the worlds leading destinations country. Nearly 24% of respondents think Geographical and time zone proximity tofor manufacturing 23.2% Brazil will become a leading country in the Latin American nations, as well as to theA leading tourist destination green economy due to its strong position US and Canada, has drawn a number of 20.8% in biofuels production and consumption; outsourcing players to the Brazilian economy.A regional and global hub for operations 23.2% expect manufacturing to grow The country has become an important 13.0% significantly and another 20.8% see the location for companies to establish theirA leader in innovation country developing into a leading tourist business process outsourcing (BPO) offices, 7.7% destination in the long run. shared services centers (SSC), call centersA leader in high value-added services 5.2% and offshore delivery centers.Among the worlds leading destinations The abundance of natural resources hasfor shared services centers benefited Brazil by enabling the economy However, a deficiency of English-speaking 5.1% to grow, while also creating a challenge by personnel in Brazil presents a challengeA country with one of the best educationand higher learning systems drawing FDI away from value-added sectors for investors willing to commit their3.3% and innovation-based services. funds in establishing their contactOther centers in the nation. Global English3.2% Concerns remain in the long term for Brazil Corporation’s Business English Index 2012None as only 5.2% of investors see it as a leader (measures Business English proficiency 1.1%Cant say in high value-added services; 5.1% view it as4.1% the leading destination for shared services 29. “GlobalEnglish Business English Index reveals skills centers and only 3.3% of the respondents shortage and unequal odds for international businessSource: Ernst & Young 2012 Brazil attractiveness success in 2012,” The GlobalEnglish Corporation presssurvey. Total respondents: 250. expect Brazil to emerge as the country release, www.globalenglish.com, 3 April 2012.48 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • Viewpoint Brazil’s auto industry still in the fast lane Cledorvino Belini, Chairman, Fiat Brazil The automotive industry continues to up to 4% in 2012. “The Brazilian market explain the strength of the Brazilian set new records in Brazil. Only a year has been experiencing an unprecedented automotive industry. There are after registering the best performance phase in its history,” says Cledorvino 45 different brands and more than in its history, the industry’s sales Belini, Chairman of Fiat Brazil and head 2,000 models and versions of vehicles totaled 3.63 million units in 2011, of Anfavea. “Four years after a crisis available to Brazilian consumers. an increase of 3.4% on 2010, when that has shaken economies that are As Belini says, even with fierce sales had reached 3.51 million units. traditionally stronger, Brazil is one of the competition, the market still offers great According to statistics released by few countries with real growth prospects. opportunities for growth. The federal the National Association of Automobile As a market with potential for vehicle government is recognizing its value. Manufacturers (Anfavea), production sales expansion, we lag behind only the In September 2011, for instance, in 2011 had amounted to a record US and China,” he says. the tax on industrialized products (IPI) 3.4 million units, a rise of 0.7% on for imported models was raised, in a bid the previous year. Brazil is one to stimulate local car factories. Fiat sells the most light commercial of the few “In Europe, where the rate of vehicles in Brazil. In 2011, the Italian countries with motorization has already reached two carmakers factory in Betim, a city in people per vehicle, the car market real growth Brazil’s Minas Gerais State, produced is almost saturated. However, in Brazil, 762,181 cars, compared with 757,418 prospects. where there is one car for every six in 2010. Betim is considered to be Fiat’s people, there is still great demand to be Stable employment and income, together biggest manufacturing plant outside Italy. met,” concludes Belini. with easy access to financing, partly The company predicts annual growth ofin the workplace) highlighted a lack of Relatively few high school students have from Brazil for one year of study atBusiness English proficiency in Brazil with a technical degree. Companies in Brazil colleges and universities in the US to boosta score below 4.0, placing the country at have to spend a considerable amount of innovation and education in the country.a disadvantage in the global marketplace. money every year to qualify their workers.Brazil scored 2.95 in 2012, lower than Russia The shortage of qualified workers is Brazil needs to diversify itself by focusing(3.60), China (4.44) and India (5.57). particularly acute in Brazil’s IT sector. on higher value-added services if it wantsBrazil needs to enhance the English-speaking According to Brasscom, the country will to insulate itself from the volatility incapabilities of its population in order to lack about 750,000 IT workers by 2020. commodities markets — and provide itsthrive on a global basis. population with the opportunity of higher- The Government of Brazil needs to bolster skilled and better-paid employment.• Value-added services, and education and expand measures such as the Pronatec This needs to be supported with favorable and higher learning30 project (part of the Bigger Brazil Plan) government policies that provide anA weak higher education system has that offers educational financing lines enabling environment for innovationresulted in a shortage of skilled labor in to young professionals and recent school in the country.Brazil. A study by the Institute for Applied leavers. The goal of the initiative is toEconomic Research highlighted the lack qualify four million people, by 2014, inof required skills in Brazil’s workforce. different areas of technology. Brazil needs to increase its impetus on programs such30. “Brazil Science Without Borders Undergraduate Program,” as Science Without Borders, which provide Institute of International Education website, www.iie.org, accessed 28 May 2012. scholarships to undergraduate students Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 49
    • Boosting growthBrazil’s action planAction 1: Improve skills and secure the operational environmentAccording to you, what measures Of our survey respondents, 28.8% believe average of 34%. Another study by FGVshould Brazil prioritize to improve its that development of education and skills will predicts a deficit of 800,000 professionalsattractiveness in the coming years? have a high impact on Brazil’s attractiveness. in Brazil’s industry by 2014. Amid this strong demand for skilled professionals,Develop education and skills 28.8% Brazil’s steady growth in the past decade development of Brazil’s education systemInvest in major infrastructure and urban projects has amplified the industry’s requirement is an imperative step.31 28.5% for a qualified and productive workforce.Increase incentives against corruption The country, however, faces a shortage Investing in major infrastructure and urban 23.8% of skilled labor with the gap being more projects was cited by 28.5% of respondentsLower corporate taxation pronounced in the case of firms willing to as a key focus area to enhance Brazil’s 23.6% hire managers, technicians and engineers. prospects. The Government has beenImprove urban security undertaking several measures to improve 23.2% According to the 2011 survey of talent the country’s infrastructure.Ensure a more transparent tax system shortages conducted by employment 17.1%Lower labor costs services company ManpowerGroup, 31. “Brazil faces highest skills gap in Americas-Manpower,” Reuters website, www.reuters.com, accessed 26 May 2012; 14.9% 57% of Brazilian employers face difficulty “Brazil’s Boom Needs Talent,” The Wall Street Journal website, online.wsj.com, accessed 28 May 2012; “LatinSupport high-tech industries and innovation filling vacant positions due to lack of American Markets Aim for a New Decade of Gains,” The(cleantech, IT, logistics, creative sectors, life sciences, etc.) available talent, compared with the global New York Times website, www.nytimes.com, accessed 24 May 2012. 6.5%Facilitate access to credit 6.2%Promote small and medium-sized enterprisesdevelopment 5.9% Growth Acceleration Program Phase (PAC II)Relax competition rules 2.8% Water and electricity During 2011 to 2014, Brazil plans to 3%Other Sewage, security and Schools spend US$526b (BRL959b) to increase urban development 2% 1.4% 6% the country’s energy production capacity;None Transportation build new homes and schools; improve 0.7% 11% transportation, water and electricityCant say 49% provision and enhance sewage, security 1.7% Energy and urban mobility.Source: Ernst & Young 2012 Brazil attractiveness survey.Total respondents: 250. 29% Construction Source: Business Monitor Internationa, Presidencia da Republica, Brazil. Sporting events Hospitality Public safety Brazil’s planned spending on the 12 cities 1% 0% hosting the FIFA World Cup in 2014 Ports 3% amounts to US$21b (BRL39.4b). This is allocated to areas such as increasing urban Airports 21% Urban mobility mobility; upgrading stadiums, airports and 40% ports; hospitality; and improving public safety. The Brazilian Government has also earmarked US$7b (BRL12.5b) for 35% Rio to host the Summer Olympic Games Stadiums in 2016. Plans include improvements in Source: Presidencia da Republica, Brazil. sports facilities, accommodation, transport infrastructure and security and technology.50 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • Viewpoint Effective public management Jorge Gerdau Johannpeter, Member of Board of Directors, Competitive Brazil Movement (MBC) Improvement of public governance and difficulties are always more complex,” Brazil’s strategic efforts on three key management, driven by greater efficiency says Gerdau, who is today a member issues: education, logistics and tax reform, and competitiveness, is key to Brazil’s of the Board of Directors at MBC. particularly on cumulative tax systems. development. There is currently a lack of transparency The difficulties over tax, to the extent that nobody This is one of the missions in which the knows the actual tax burden embedded businessman Jorge Gerdau Johannpeter are political in products and services. By taking is engaged, through the Competitive Brazil rather than a strategic approach, we would eliminate Movement (MBC). The MBC, a non- technical and between 50% and 60% of Brazil’s existing governmental organization recognized tax management problems,” says Gerdau. as a Civic Organization of Public Interest, these political Turning to another key priority, he adds: was created to improve the competitiveness difficulties are always “It is necessary to invest in education, of private organizations sustainably more complex. particularly in the initial phase of learning, and the quality and productivity of public to provide citizens with good education organizations, with the objective of raising According to Gerdau, in order for Brazil to programs and professional skills.” the quality of life for Brazilians. fulfill its full potential, a strategic debate is necessary. He emphasizes that the Gerdau also points to Brazil’s current legal “Technically, overcoming the shortcomings economic success of many Asian countries certainty as one of the major factors that stand in the way of Brazil’s further was only possible thanks to their clear attracting investment to the country. progress will not be easy. Although and effective strategic definition. According to him, none of the other BRIC the technology is available, the major countries can match Brazil’s level of legal obstacles to innovation in national public “Since 2007, Brazil’s average growth rate certainty. Gerdau identifies the emotional management have a strong political has been leveling at 2.5%, because we involvement Brazilian entrepreneurs have ingredient. The difficulties are political haven’t managed to establish our goals with their country as another asset. rather than technical and these political adequately. At present, I would concentrateAll these investments by the Brazilian in connection with corruption allegations of additional supporting informationGovernment will substantially develop suggests a tougher approach in government. regarding the use of resources. This majorthe country’s infrastructure, creating The National Congress is also considering a modernization process intends to changean enduring legacy of benefits. draft bill that would create direct liability for the governmental behavior on all levels individuals and other entities caught trying focusing on the aspect of intergenerationalCorruption and bureaucracy in business to bribe foreign public officials. Corporate equity. It is expected to enhance thealso raise concerns among investors. penalties could include fines of up to 20% of transparency and accountability of the publicNearly 23.8% of the respondents indicated annual revenues and a ban on participation sector in the country.that increasing incentives to lower corruption in bidding for government contracts.would help the country become more Investors not yet active in Brazil areattractive. Fraud, bribery and corruption In 2011, Brazil allowed the OECD to review more concerned about security in itsare significant issues in Brazil. A recent public sector integrity in the country, urban areas than companies alreadystudy by the Federation of Industries of Sao the first such report into a G20 country. operating in the country. Brazil’s citiesPaulo found that corruption costs Brazil By 2014, the Brazilian Government plans have started taking measures to addressbetween 1.4% and 2.3% of its GDP each year, to implement the International Public the problem of crime — improving securityroughly US$146b. Brazil was ranked 73rd Sector Accounting Standards (IPSAS) by establishing a more effective policeout of 182 countries in the Transparency for the federal level and for the state level presence; however, this needs to beInternational Corruption Perceptions Index as well as for all municipalities. IPSAS communicated to foreign investors.2011.32 The country’s current administration are globally accepted high-quality publicis, however, seeking to address the problem; sector accounting standards that requirethe recent resignation of several ministers and promote the recording and reporting of government assets and liabilities on32. 12th Global Fraud Survey, Growing Beyond: a place for an accrual basis as well as the disclosure integrity, Regional insights: Brazil, Ernst & Young, 2012. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 51
    • Boosting growthAction 2: Build innovation capacity and diversify sectorsWhat are the main areas of reform to improve Brazil’s innovation capacity?Improve education and training in new technologies 60.3%Increase tax incentives for innovative companies 29.7%Develop joint research programs 26.1%Develop a culture of innovation and creativity 17.1%Develop entrepreneurship 13.6%Develop venture capital and other nancial tools 8.3%Other 1.4%Cant say 8.0%Source: Ernst & Young 2012 Brazil attractiveness survey. Total respondents: 250.The Government of Brazil stimulates Brazil is also one of the most attractive However, Brazil still lags behind in itsinnovation through the Innovation Law in the countries for young entrepreneurs. pace of innovation. It was ranked 47th incountry.33 The law allows private companies Yet challenges such as high tax rates and the publication by INSEAD,36 The Globalto fund public institutions to carry out red tape when starting a business still Innovation Index 2011, behind other RGMsresearch on their behalf. It also encourages abound for young entrepreneurs in Brazil. such as the Czech Republic (27th), Chinathe public and private sectors to share staff The Government, however, has launched (29th) and Poland (43rd). Respondentsand facilities such as laboratories. programs over the years to provide in Ernst & Young’s Brazil attractiveness survey financial support to start-up firms. With 2012 said that Brazil will have to improveIn 2007, Brazil launched a new four-year an aim to help innovative new companies education and training in new technologiesscience plan with a view to strengthening in their initial phase of development, the (according to 60.3% of them), increase taxthe role of science, technology and Brazil Innovation Agency (FINEP) invests incentives for innovative companies (29.7%),innovation. The plan included focusing on in a grant program called The PRIME and develop joint research programs (26.1%)strategic priorities such as increasing human Program (Primeira Empresa Inovadora). to enhance its innovation capacity.resources in scientific research, enhancing Together with various local and foreigneducational infrastructure, and promoting banking groups, BNDES has created a • Improve education and training inindustrial innovation by offering tax rebates fund, Fundo Garantidor de Investimento, to new technologiesand funds to companies to undertake R&D stimulate lending to Brazilian SMEs. There Brazil needs to focus on improvingactivities. Brazil’s Ministry of Science and are also agencies to support innovation, education and training in new technologies.Technology (MCT) initiated the second such as The Brazilian Service to Support A large number of investors cited the lackphase of this plan for the period from 2011 Micro and Small Businesses (SEBRAE), of skilled workforce in the country asto 2014 to expand R&D in the nation. As which focus on promoting competitive a problem. The country’s spending onpart of this plan, the MCT will provide more and sustainable development of micro and R&D needs to ramp up. In terms of R&Dfunds to finance research and innovation in small enterprizes as well as on fostering as a percentage of GDP, Brazil rankedsmall and medium-sized enterprizes.34 entrepreneurship.35 30th, below other RGMs such as the Czech Republic (23rd) and China (24th) in33. “Government of Brazil and ECLAC Create Programme to Train Promoters of Science and Technology,” ECLAC website, www.eclac.cl, accessed 24 May 2012; “The many facets of innovation in Brazil,” Thomson Reuters website, 35. The Nice Côte d’Azur 2011, Entrepreneurship Barometer thomsonreuters.com, accessed 26 May 2012. report, October 2011, Ernst & Young, 2011; “Brazil 36. Acronym for the French name “Institut Européen34. “Brazil economy: More stimulus,” The Economist Intelligence launches US$23b science plan,” Scidev.net website, d’Aministration des Affaires” or European Institute of Unit website, viewswire.eiu.com, accessed 23 May 2012. www.scidev.net, accessed 22 May 2012; infoDev. Business Administration.52 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • the 2011 Innovation Index. The Government onshore (at least 8 of the 12 production agreements with several educationalis taking steps to improve this situation. steps in the case of light vehicles, and institutions, including the Federal 10 of the 14 production steps for heavy University of Rio de Janeiro, PontificalRecently, Brazil signed an agreement with vehicles); and undertaking energy- Catholic University of Rio de Janeirothe United Nations Economic Commission efficiency evaluations for at least 25% of and University of Campinas to developfor Latin America and the Caribbean the vehicles. By 2017, companies will be projects in drilling and reservoir recovery(ECLAC) to provide training programs required to spend 0.5% of their revenue on optimization. FMC Technologies partneredfor the promotion of new science, R&D, as well as double their investment in with the Federal University of Rio detechnology and innovation policies in Latin engineering to 1% of revenue.37 Janeiro in 2010 to establish a technologyAmerica. These programs are organized in center in Brazil.cooperation with universities and scientific • Develop joint research programs38research institutions. The Brazilian Government has also been The Government has signed cooperation undertaking measures to encourage agreements with different countries• Increase tax incentives for cooperation between universities and to boost collaborative R&D activities. innovative companies industry. As a direct result, 27% of all The Canada-Brazil Framework AgreementBrazil provides tax incentives to companies patents in Brazil are owned by universities. for Cooperation on Science, Technologyaiming to stimulate an environment of and Innovation, signed in 2010, allowsinnovation across the country and enhance Several foreign companies are undertaking Canada and Brazil’s industry, academiaits competitiveness in domestic as well research and innovation in Brazil through and Government to collaborate on jointas foreign markets. In April 2012, the partnerships with universities in order to R&D projects, scientific workshops andGovernment of Brazil announced four leverage the existing R&D infrastructure of conferences. Brazil also entered intocriteria for automakers to take advantage the country. Baker Hughes has cooperation an agreement with the EU in 2005 toof a reduction in vehicle tax. In order encourage cooperation in a wide range 37. “Bigger Brazil Plan: $16b in taxes breaks to fight surging realto become eligible for lower taxes, auto and cheap imports from China,” Forbes website, of scientific and technological areas.39companies will need to meet at least three www.forbes.com, accessed 22 May 2012. 38. “Brazil becoming, ‘the grown-up BRIC,’ according toof the four — which include investing at Thomson Reuters report,” Thomson Reuters website, thomsonreuters.com, accessed 22 May 2012; “Rice’s Bakerleast 0.15% of gross revenue in R&D; Institute to partner with Brazilian think tank Fundação 39. “Canada-Brazil Relations,” The Government of Canadaspending at least 0.5% of revenue on Getúlio Vargas,” Rice University news release, news.rice.edu, website, www.canadainternational.gc.ca, accessed 23 May accessed 29 March 2012; “Canada-Brazil Relations,” The 2012; “Policy framework: Brazil,” European Commission,engineering; establishing production Government of Canada website, www.canadainternational. Research–International Cooperation website, ec.europa.eu, gc.ca, accessed 23 May 2012. accessed 23 May 2012. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 53
    • Boosting growthAction 3: Promote Brazil’s regionsIn your opinion, what are the projects that best contribute to develop Brazilian cities’attractiveness and visibility to foreign investors?Major infrastructure projects 55.8%International sports events 27.4%Innovative business parks 22.1%International promotion campaigns 18.6%International cultural events 12.0%Established reference investors or personalities 8.1%None 2.3%Cant say4.7%Source: Ernst & Young 2012 Brazil attractiveness survey. Total respondents: 250.Investors consider infrastructure growth US$872.4b (BRL1.59t) for upgrading Twenty-two percent of the respondentsa key attraction in Brazil. When asked the country’s infrastructure. This is expected highlighted innovative business parks as anabout projects that would increase the to result in further economic growth attraction to different cities in Brazil. Apartattractiveness of Brazil’s cities, infrastructure and greater influx of foreign investment from providing the much-needed facilitiesdevelopment was the first choice for more into Brazil.40 for foreign investors to set up their offices,than half of the respondents. these parks offer incentives in the form of The hosting of the forthcoming FIFA World low taxes.The Brazilian Government has been Cup and Olympic Games, cited by 27.4%undertaking significant infrastructure of investors, will also enhance Brazilian International promotion campaigns,spending as part of its multi-year PAC cities’ prospects. The Government plans selected by 18.6% of the respondents,program, aiming to promote growth to improve infrastructure across the cities have also driven investors toward differentby creating an efficient and extensive hosting these events.41 Brazilian cities. Apex-Brasil, the country’sinfrastructure network across all regions trade and investment promotion agency,of the country. PAC injected US$276b 40. “My House My Life Brazil,” Minha Casa Minha Vida website, organizes various seminars and forums to myhousemylifebrazil.com, accessed 24 May 2012; “PAC 2,”(BRL503.9b) in the first phase of the Brazil government website, www.brasil.gov.br, accessed 23 present the investment opportunities of theprogram, 2007–10. Phase two of the May 2012. country to foreign investors. 41. “My House My Life Brazil,” Minha Casa Minha Vida website,program, broken down into two periods myhousemylifebrazil.com, accessed 24 May 2012; “PAC 2,” Brazil government website, www.brasil.gov.br, accessed 232011–14 and post-2014, allocates May 2012.54 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 55
    • AppendixMethodologyErnst & Young’s 2012 Brazil attractiveness survey is based on a twofold methodology that reflects:1 The attractiveness of Brazil to foreign investorsOur evaluation of the reality of FDI in However, every project has to create new inward investment projects are undertaken,Brazil is based on fDi Markets, UNCTAD jobs directly. Project creation and number in which activities, by whom and, of course,and Brazilian government sources such of jobs generated are widely available where. To map these real investments carriedas the Banco Central do Brasil. The fDi on FDI. As defined above, FDI includes out in Brazil, Ernst & Young used data fromMarkets database tracks new greenfield equity capital, reinvested earnings and fDi Markets. This is the only online databaseand expansion FDI projects. Joint ventures intracompany loans. However, many analysts tracking cross-border greenfield investmentsare only included where they lead to a new are more interested in quantifying projects covering all sectors and countries worldwide.physical (greenfield) operation. Mergers in terms of physical assets, such as plant It provides real-time monitoring ofand acquisitions (M&A) and other equity and equipment, in a foreign country. These investment projects and job creation withinvestments are not tracked. There is no figures, rarely recorded by institutional powerful tools to track and profile companiesminimum size for a project to be included. sources, provide invaluable insights as to how investing overseas.2 The perceptions of and outlook for Brazil and its competitors according to foreign investorsWe define the attractiveness of a location research was conducted by CSA Institute were identified using Dun & Bradstreetas a combination of image, investors’ in May 2012, via telephone interviews, Family Tree and verified through individualconfidence and the perception of a country based on a representative panel of 250 company websites. Dun & Bradstreet is oneor area’s ability to provide the most international decision-makers. The of the worlds leading and longest-establishedcompetitive benefits for FDI. The field companies with international development business information companies.Profile of companies surveyed Profile of companies surveyed Profile of companies surveyedGeography Job title Respondents per sector Others Latin America Finance directors Sector RespondentsNorthern Europe 1% 3% 49% Industry, automotive, energy 41% 4% Marketing and Commercial director Consumer 25% Asia 22% Private and business services 17% 12% Managing director/SVP/COO Chemical and pharmaceutical 10% 7% industries Director of Development Telecommunication infrastructures 7% 32% 7% and equipments, high-technology North America equipment Others 48% Western Europe 16%Profile of companies surveyedTurnover Less than More than US$204m US$2.04b 31% 27% 42% Between US$205m and US$2.04b56 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 57
    • Ernst & Young in BrazilErnst & Young is a leader in advisory, tax, assurance and Our key market sectors are oil and gas, mining & metals, consumertransactions in Brazil. Established in 1950, our Brazil practice products, telecommunications and construction.is comprised of a team of 4,500 professionals in 12 cities.Our people work toward the organization’s vision of being We are recognized as the leader in the professional servicesa trusted business advisor that contributes to the success of industry and distinctions we receive encourage us to continueits clients by creating confidence and value. striving for excellence.Ernst & Young teams up with companies with high potential Ernst & Young Brazil has been elected for two consecutivefor growth and is dedicated to effectively helping them identify years as one of the Best Companies to Start a Career by oneand capitalize on business opportunities in Brazil and the world. of the most important magazines in Brazil, Exame/Você S/A, while the Ernst & Young University is recognized as one ofGrowing markets require innovative thinking and evolving the best corporate universities in Brazil.practices for businesses to succeed. Many leading Brazilianand multinational companies have chosen Ernst & Young In 2012, Ernst & Young was the first organization in the professionalto advise them on the most demanding aspects of the fast- services segment to reach the top level of transparency in governanceevolving business climate. Ernst & Young provides services and environmental, social and economic performance in its firstto a large number of leading Brazilian and multinational sustainability report, in accordance with the Global Reportingcompanies. Initiative (GRI) guidelines.58 Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum
    • • Our publications Sustainability Report Sustainable Brazil series • 2011 • An outlook on the oil, ethanol and gas markets In our first sustainability report, we present the most salient information The Sustainable Brazil series provides on our activities in Brazil as well as on wellgrounded projections on the main the policies and tools which guide our daily sectors of the Brazilian economy including activities. We also set forth the principles analyses and perspectives on the housing, and procedures which orient the company’s energy, consumer products, industrial corporate governance, management and and agribusiness industries, as well as relations with its stakeholders. a special study on the World Cup 2014 and the Oil & Gas sector. Rapid-growth markets forecast Ernst & Young’s 2012 European attractiveness survey • Summer edition, July 2012 • Growth, actually Our analysis in this quarter’s Rapid-growth markets forecast suggests that rapid-growth Despite the fragility of the Eurozone markets are likely to weather the ongoing economy, inward investment continued to Eurozone crisis and remain engines of global rise in Europe in 2011, with the total number growth, though many will see expansion of projects significantly higher than pre-crisis slow this year. Their expansion is expected levels. That’s according to Ernst & Young’s to accelerate once more in 2013, helping 10th annual European Attractiveness stimulate a wider pick-up. Survey, which examines Europe’s attractiveness for foreign direct investors. Ernst & Young’s 2012 Africa Ernst & Young’s 2012 India attractiveness survey attractiveness survey • Building bridges • Ready for transition This survey analyzes Africa’s attractiveness Foreign investors see India as an attractive as an investment destination, providing investment option, despite the uncertain an overview of Africa’s strengths and global economic climate according to Ernst challenges, as well as an outlook for FDI into & Young’s 2012 Indian Attractiveness a selection of African countries. It highlights Survey, which combines an analysis of that despite a surge in FDI across the FDI into India, along with a survey of continent, negative perceptions of Africa global executives on their views about the linger among those not yet doing business potential of the Indian market. on the continent. Ernst & Youngs 2012 Brazil attractiveness survey Capturing the momentum 59
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    • Ernst & YoungAssurance | Tax | Transactions | AdvisoryAbout Ernst & Young ContactsErnst & Young is a global leader in assurance, tax, transaction Antonio Vitaand advisory services. Worldwide, our 152,000 people are united South America & Brazil Advisory Managing Partnerby our shared values and an unwavering commitment to quality. Tel.: + 55 11 2573 3707We make a difference by helping our people, our clients and our E-mail: antonio.vita@br.ey.comwider communities achieve their potential. Marly ParraErnst & Young refers to the global organization of member firms Executive Director — Marketing Departmentof Ernst & Young Global Limited, each of which is a separate Tel.: + 55 11 3054 0445legal entity. Ernst & Young Global Limited, a UK company limited E-mail: marly.parra@br.ey.comby guarantee, does not provide services to clients. For more Ines Hotteinformation about our organization, please visit www.ey.com. Media Relations Manager© 2012 EYGM Limited. Tel.: +55 11 3054 0419All Rights Reserved. E-mail: ines.hotte@br.ey.comEYG No. AU1256 Sandra Sasson Marketing and Communications Director In line with Ernst & Young’s commitment to minimize Emerging Markets Center its impact on the environment, this document has been Tel: +30 (0)210 2886 032 printed on paper with a high recycled content. Email: sandra.sasson@gr.ey.comThis publication contains information in summary form and is therefore intended for Bijal Tannageneral guidance only. It is not intended to be a substitute for detailed research orthe exercise of professional judgment. Neither EYGM Limited nor any other member Global Media Relationsof the global Ernst & Young organization can accept any responsibility for loss Tel: +44 (0)20 7951 8837occasioned to any person acting or refraining from action as a result of any material Email: btanna@uk.ey.comin this publication. On any specific matter, reference should be made to theappropriate advisor.The opinions of third parties set out in this publication are not necessarily the opinionsof the global Ernst & Young organization or its member firms. Moreover, they shouldbe seen in the context of the time they were expressed.EMEIA MAS E021.0612ED NoneGrowing BeyondIn these challenging economic times,opportunities still exist for growth.In Growing Beyond, we’re exploringhow companies can best exploit theseopportunities — by expanding intonew markets, finding new ways toinnovate and taking new approachesto talent. You’ll gain practical insightsinto what you need to do to grow.Join the debate at www.ey.com/growingbeyond.