Friday, September 18, 2009

Brazilian Capital Inflows Increased by 30.3%, 10th in the World, Best of the BRIC

This will interest those investing in Brazil or in the Brazilian ETF (EWZ). Brazilian newspaper O Estado de Sao Paulo reported today that In 2008 Brazil became the most internationalized economy of the BRIC nations, says a report based on UN data.

Contrary to what happened in the rest of the world, the flow of Direct Foreign Investments (DFI) to Brazil increased 30.3% in 2008 compared to 2007, to $45.1B. The country moved to 10th position in the world ranking of capital inflows. The world's DFI suffered a decrease of 14.2% to U.S. $1.697T for the same period.

The EWZ chart below shows the gains for buyers of EWZ this year alone:

Among the developed economies, the flow of DFI contracted by 29.2% to $962.3B. The growth of investment in Brazil surpassed the average of developing countries and countries in Latin America. For developing economies, the flow of investments increased 17.3% to $620.7B, and Latin America's growth was 13.2% to $144.4B.

The conclusion is from the report on the volume of Direct Foreign Investment in the world in 2008, prepared by the Brazilian Society of Transnational Corporations and Economic Globalization (Sobeet) with data from the United Nations Conference on Trade and Development (UNCTAD).

Leader of the BRICs
The report also said that last year Brazil became the most globalized economy of the BRICs (Russia, India, China, and Brazil). As for the ratio DFI and Gross Domestic Product (GDP) of each country, Brazil has the best ratio, 18.3%. It was the first time the country surpassed Russia in attracting investments relative to their GDP. Russia, which had led this ranking, received the investment equivalent to 12.7% of its gross domestic product. Investments in India were 9.9% of its GDP and China's, 8.7%. According to UNCTAD, the average foreign investment in the world relative to global GDP is 26.9%, which indicates that there is considerable growth potential for Brazil and other BRIC countries.

"Never has the perception of foreign investors been so positive about Brazil" said the president of Sobeet, Luís Afonso Lima. According to him, this improvement in the evaluation of foreigners is due to the good fundamentals of the Brazilian economy, which remained strong even amid the global economic crisis. He cited examples of inflation control, fiscal policy and especially the external sector.

Brazil is the 10th in the ranking
Brazil has risen four spots in the ranking of the major investment destinations last year. In 2007, Brazil ranked 14th, with investments of U.S.$34.6B. Last year, it moved up to 10th place, receiving the inflow of U.S.$ 45.1B. Strong economies such as those of Germany, Canada and Italy, lost positions and were behind Brazil in 2008. And according to UNCTAD, Brazil should further improve the ranking and reach 4th place by 2011.

According to Mr. Lima, Brazil should end this year receiving an $25B. "The value is lower than the last two years, but higher than those of other countries that are falling as much or more than us,".

The increase in DFI in 2008 also exceeded the growth of investment by domestic firms in the country, unlike what happened in the rest of the world. In Brazil, while DFI increased 30.3% from 2007 to 2008, the investment of domestic enterprises in the Gross Fixed Capital Formation (GFCF) grew 13.8%. "Others are seeing Brazil with a more favorable view than the Brazilians themselves. Also for the rest of the world, the growth forecast is not as good,"


Finally for foreign investors, although the size of the Brazilian economy, the growth of the domestic market and low cost of labor are factors that attract new investment, there are still barriers that prevent further expansion. Compared to the average of other countries, Brazil has a lower quality of infrastructure coupled with a still low efficiency of government. Also weighing against Brazil is the low number of international and bilateral agreements. During the past ten years, Brazil has signed just 12 double taxation agreements and two investment agreements. It is one of the lowest numbers in the ranking of countries, which puts the Brazil after Seychelles, Ivory Coast, Eritrea and Vanuatu.

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