The U.S. Department of State Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world. They analyze a variety of economies that are or could be markets for U.S. businesses.
Topics include Openness to Investment, Legal and Regulatory Systems, Dispute Resolution, Intellectual Property Rights, Transparency, Performance Requirements, State-Owned Enterprises, Responsible Business Conduct, and Corruption.
These statements highlight persistent barriers to further U.S. investment. Addressing these barriers would expand high-quality, private sector-led investment in infrastructure, further women’s economic empowerment, and facilitate a healthy business environment for the digital economy.
Executive Summary
Brazil is the second largest economy in the Western Hemisphere behind the United States, and the twelfth largest economy in the world (in nominal terms) according to the World Bank. The United Nations Conference on Trade and Development (UNCTAD) named Brazil the sixth largest destination for global foreign direct investment (FDI) flows in 2021 with inflows of $50 billion, an increase of 78 percent in comparison to 2020 but still below pre-pandemic levels (in 2019, inflows totaled $65.4 billion). In recent years, Brazil has received more than half of South America’s FDI inflows, and the United States is a major foreign investor in the country.
The Brazilian economy resumed growth in 2017, ending the deepest and longest recession in Brazil’s modern history. However, after three years of modest recovery, Brazil entered a recession following the onset of the global pandemic in 2020. The country experienced a recovery in 2021, with its Gross Domestic Product (GDP) growing 4.6 percent, but slowed down again in 2022, increasing only 2.9 percent. As of March 2023, analysts forecast 0.89 percent GDP growth for the year. The unemployment rate was 7.9 percent at the end of 2022, with around one-quarter of the labor force unemployed or underutilized. The nominal budget deficit stood at 4.68 percent of GDP ($89.39 billion) in 2022 and Brazil’s debt-to-GDP ratio dropped to 73.5 percent. Analysts expect the debt-to-GDP ratio to grow in 2023 with the new administration.
President Luiz Inácio ‘Lula’ da Silva (Worker’s Party/PT) assumed office on January 1, 2023. Among his campaign priorities, President Lula highlighted the need for tax reform to simplify the complicated Brazilian code, to attract investments, and to reindustrialize the Brazilian economy. The previous administration was able to advance some, but not all, reforms to reduce the cost of doing business in Brazil. Analysts foresee more favorable conditions with the Lula administration to complete tax reform, although they remain skeptical of the Government of Brazil’s (GOB) ability to pass reforms that would reduce the country’s primary deficit. The administration is also prioritizing the establishment of a new fiscal framework for controlling public debt to replace the current spending cap rule. It is expected that the new rule will be less stringent than existing rules since previous PT administrations have prioritized government spending.
Brazil’s investment promotion strategy traditionally prioritizes the automobile manufacturing, renewable energy, life sciences, oil and gas, and infrastructure sectors. Foreign investors in Brazil receive the same legal treatment as local investors in most economic sectors; however, there are foreign investment restrictions in the health, mass media, telecommunications, aerospace, rural property, and maritime sectors. The Brazilian congress is considering legislation to liberalize restrictions on foreign ownership of rural property. The new administration has stated support for public-private partnerships and concessions instead of privatizations.
Analysts contend that high transportation and labor costs, low domestic productivity, and ongoing political uncertainties hamper investment in Brazil. Foreign investors also cite concerns over poor existing infrastructure, rigid labor laws, and complex tax, local content, and regulatory requirements; all part of the extra costs of doing business in Brazil.
The impact of Russia’s war of aggression against Ukraine exposed some of Brazil’s fragilities in its production of certain commodities. Brazil’s strong dependence on imported fertilizers, particularly from Russia and Belarus, temporarily caused agricultural production concerns at the start of the war and impacted global food prices, boosting inflation. In addition, although Brazil does not rely directly on Russian energy commodities the hike in international energy prices contributed to the continuing rise in inflation locally.
To access the ICS for Brazil, visit the U.S. Department of State Investment Climate Statement website.