Brazil is the second largest economy in the Western Hemisphere behind the United States, and the ninth 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 2019 with inflows of $72 billion, which increased 26 percent since Brazil announced its privatization plan that same year. In recent years, Brazil received more than half of South America’s total incoming FDI and the United States is a major foreign investor in Brazil. According to the International Monetary Fund (IMF), the United States had the second largest single-country stock of FDI by final ownership (UBO) representing 18 percent of all FDI in Brazil ($117 billion) behind only the Netherlands’ 23 percent ($147.7 billion) in 2019, the latest year with available data, while according to the Brazil Central Bank (BCB) measurements, U.S. stock was 23 percent ($145.1 billion) of all FDI in Brazil, the largest single-country stock by UBO for the same year. The Government of Brazil (GoB) prioritized attracting private investment in its infrastructure and energy sectors during 2018 and 2019. The COVID-19 pandemic in 2020 delayed planned privatization efforts.
The Brazilian economy returned to an expansionary trend in 2017, ending the deepest and longest recession in Brazil’s modern history. However, the global coronavirus pandemic in early 2020 returned Brazil to recession after three years of modest recovery. The country’s Gross Domestic Product (GDP) dropped 4.1 percent in 2020. As of March 2021, analysts forecast growth of 3.29 percent for 2021. The unemployment rate was 13.4 percent at the end of 2020. The nominal budget deficit stood at 13.7 percent of GDP ($196.7 billion) in 2020 and is projected to end 2021 at around 4 percent depending on passage of the 2021 budget. Brazil’s debt to GDP ratio reached a new record of 89.3 percent in 2020 with National Treasury projections of 94.5 percent by the end of 2021, while the Independent Financial Institution (IFI) of Brazil’s Senate projects 92.67 percent and the IMF estimates the ratio will finish 2021 at 92.1 percent. The BCB lowered its target for the benchmark Selic interest rate from 4.5 percent at the end of 2019 to 2 percent at the end of 2020, and as of March 2021, the BCB anticipates the Selic rate to rise to 5 percent by the end of 2021.
President Bolsonaro took office on January 1, 2019. In late 2019, Congress passed and President Bolsonaro signed into law a much-needed pension system reform and made additional economic reforms a top priority. Bolsonaro and his economic team have outlined an agenda of further reforms to simplify Brazil’s complex tax system and the onerous labor laws in the country, but the legislative agenda in 2020 was largely absorbed by response to the COVID-19 pandemic. However, Brazil advanced a variety of legal and regulatory changes that contributed to its overall goal to modernize its economy
Brazil’s official investment promotion strategy 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 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.
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, relatively rigid labor laws, and complex tax, local content, and regulatory requirements; all part of the extra costs of doing business in Brazil.
|TI Corruption Perceptions Index||2020||94 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2020||124 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2020||62 of 129||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2019||USD 81,731||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2019||USD 9,130||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
7. State-Owned Enterprises
The GoB maintains ownership interests in a variety of enterprises at both the federal and state levels. Typically, boards responsible for state-owned enterprise (SOE) corporate governance are comprised of directors elected by the state or federal government with additional directors elected by any non-government shareholders. Although Brazil participates in many OECD working groups, it does not follow the OECD Guidelines on Corporate Governance of SOEs. Brazilian SOEs are prominent in the oil and gas, electricity generation and distribution, transportation, and banking sectors. A number of these firms also see a portion of their shares publicly traded on the Brazilian and other stock exchanges.
Notable examples of majority government-owned and controlled firms include national oil and gas giant Petrobras and power conglomerate Eletrobras. Both Petrobras and Eletrobras include non-government shareholders, are listed on both the Brazilian and American stock exchanges, and are subject to the same accounting and audit regulations as all publicly traded Brazilian companies.
Given limited public investment spending, the GoB has focused on privatizing state–owned energy, airport, road, railway, and port assets through long-term (up to 30 year) infrastructure concession agreements, although the pace of privatization efforts slowed in 2020 due to the COVID-19 pandemic.
In 2019, Petrobras sold its natural gas distribution pipeline network, started the divestment of eight oil refineries, sold its controlling stake in Brazil’s largest retail gas station chain, and is in the process of selling its shares in regional natural gas distributors. While the pandemic resulted in a slowdown in the refinery divestments, momentum is increasing once again as of early 2021. Since 2016, foreign companies have been allowed to conduct pre-salt exploration and production activities independently, and no longer must include Petrobras as a minority equity holder in pre-salt oil and gas operations. Nevertheless, the 2016 law still gives Petrobras right –of first refusal in developing pre-salt offshore fields and obligates operators to share a percentage of production with the Brazilian state. The GoB supports legislation currently in Congress to further liberalize the development of pre-salt fields by removing Petrobras’ right-of-first refusal as well as production sharing requirements.
In March 2021, Brazil approved legislation to reform Brazil’s natural gas markets, which aims to create competition by unbundling production, transportation, and distribution of natural gas, currently dominated by Petrobras and regional gas monopolies. Creation of a truly competitive market, however, will still require lengthy state-level regulatory reform to liberalize intrastate gas distribution, in large part under state-owned distribution monopolies.
Eletrobras successfully sold its six principal, highly-indebted power distributors, and the GoB intends to privatize Eletrobras through issuance of new shares that would dilute the government’s majority stake and in early 2021 submitted a legislative proposal to Congress to advance this process.
In March 2021, the GoB included the state-owned postal service Correios in its National Divestment Plan (PND). As in the case of Eletrobras, privatization will require further Congressional legislation.
In 2016, Brazil created the Investment Partnership Program (PPI) to accelerate the concession of public works projects to private enterprise and the privatization of some state entities. PPI takes on priority federal concessions in road, rail, ports, airports, municipal water treatment, electricity transmission and distribution, and oil and gas exploration and production. Since 2016, PPI has auctioned off 200 projects, collecting $35 billion in auction bonuses and securing private investment commitments of $179 billion, including 28 projects, $1.43 billion in auction bonuses, and commitments of $8.14 billion in 2020. The full list of PPI projects is located at: https://www.ppi.gov.br/schedule-of-projects
While some subsidized financing through BNDES will be available, PPI emphasizes the use of private financing and debentures for projects. All federal and state-level infrastructure concessions are open to foreign companies with no requirement to work with Brazilian partners.
In 2008, the Ministry of Health initiated the use of Production Development Partnerships (PDPs) to reduce the increasing dependence of Brazil’s healthcare sector on international drug production and to control costs in the public healthcare system, which provides services as an entitlement enumerated in the constitution. The healthcare sector accounts for 9 percent of GDP, 10 percent of skilled jobs, and more than 25 percent of research and development nationally. PDP agreements provide a framework for technology transfer and development of local production by leveraging the volume purchasing power of the Ministry of Health. In the current administration, there is increasing interest in PDPs as a cost saving measure. U.S. companies have both competed for these procurements and at times raised concerns about the potential for PDPs to be used to subvert intellectual property protections under the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
8. Responsible Business Conduct
Most state-owned and private sector corporations of any significant size in Brazil pursue corporate social responsibility (CSR) activities. Brazil’s new CFIAs (see sections on bilateral investment agreements and dispute settlement) contain CSR provisions. Some corporations use CSR programs to meet local content requirements, particularly in information technology manufacturing. Many corporations support local education, health, and other programs in the communities where they have a presence. Brazilian consumers, especially the local residents where a corporation has or is planning a local presence, generally expect CSR activity. Corporate officials frequently meet with community members prior to building a new facility to review the types of local services the corporation will commit to providing. Foreign and local enterprises in Brazil often advance United Nations Development Program (UNDP) Sustainable Development Goals (SDG) as part of their CSR activity, and will cite their local contributions to SDGs, such as universal primary education and environmental sustainability. Brazilian prosecutors and civil society can be very proactive in bringing cases against companies for failure to implement the requirements of the environmental licenses for their investments and operations. National and international nongovernmental organizations monitor corporate activities for perceived threats to Brazil’s biodiversity and tropical forests and can mount strong campaigns against alleged misdeeds.
The U.S. diplomatic mission in Brazil supports U.S. business CSR activities through the +Unidos Group (Mais Unidos), a group of multinational companies established in Brazil, which support public and private CSR alliances in Brazil. Additional information can be found at: www.maisunidos.org
Department of State
- Country Reports on Human Rights Practices (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/);
- Trafficking in Persons Report (https://www.state.gov/trafficking-in-persons-report/);
- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities (https://www.state.gov/key-topics-bureau-of-democracy-human-rights-and-labor/due-diligence-guidance/) and;
- North Korea Sanctions & Enforcement Actions Advisory (https://home.treasury.gov/system/files/126/dprk_supplychain_advisory_07232018.pdf).
Department of Labor
- Findings on the Worst forms of Child Labor Report (https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings);
- List of Goods Produced by Child Labor or Forced Labor (https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods);
- Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World (https://www.dol.gov/general/apps/ilab) and;
- Comply Chain (https://www.dol.gov/ilab/complychain/).
Brazil has laws, regulations, and penalties to combat corruption, but their effectiveness is inconsistent. Several bills to revise the country’s regulation of the lobbying/government relations industry have been pending before Congress for years. Bribery is illegal, and a bribe by a Brazilian-based company to a foreign government official can result in criminal penalties for individuals and administrative penalties for companies, including fines and potential disqualification from government contracts. A company cannot deduct a bribe to a foreign official from its taxes. While federal government authorities generally investigate allegations of corruption, there are inconsistencies in the level of enforcement among individual states. Corruption is problematic in business dealings with some authorities, particularly at the municipal level. U.S. companies operating in Brazil are subject to the U.S. Foreign Corrupt Practices Act (FCPA).
Brazil signed the UN Convention against Corruption in 2003 and ratified it in 2005. Brazil is a signatory to the OECD Anti-Bribery Convention and a participating member of the OECD Working Group on Bribery. It was one of the founders, along with the United States, of the intergovernmental Open Government Partnership, which seeks to help governments increase transparency.
In 2020, Brazil ranked 94th out of 180 countries in Transparency International’s Corruption Perceptions Index. The full report can be found at: https://www.transparency.org/en/cpi/2020/index/nzl
From 2014-2021, the complex federal criminal investigation known as Operação Lava Jato (Operation Carwash) investigated and prosecuted a complex web of public sector corruption, contract fraud, money laundering, and tax evasion stemming from systematic overcharging for government contracts, particularly at parastatal oil company Petrobras. The investigation led to the arrests and convictions of Petrobras executives, oil industry suppliers, including executives from Brazil’s largest construction companies, money launderers, former politicians, and political party operators. Appeals of convictions and sentences continue to work their way through the Brazilian court system. On December 25, 2019, Brazilian President Jair Bolsonaro signed a packet of anti-crime legislation into law, which included several anti-corruption measures. The new measures include regulation of immunity agreements – information provided by a subject in exchange for reduced sentence – which were widely used during Operation Carwash. The legislation also strengthens Brazil’s whistle blower mechanisms, permitting anonymous information about crimes against the public administration and related offenses. Operation Carwash was dissolved in February 2021. In March 2021, the OECD established a working group to monitor anticorruption efforts in Brazil.
In December 2016, Brazilian construction conglomerate Odebrecht and its chemical manufacturing arm Braskem agreed to pay the largest FCPA penalty in U.S. history and plead guilty to charges filed in the United States, Brazil, and Switzerland that alleged the companies paid hundreds of millions of dollars in bribes to government officials around the world. The U.S. Department of Justice case stemmed directly from the Lava Jato investigation and focused on violations of the anti-bribery provisions of the FCPA. Details on the case can be found at: https://www.justice.gov/opa/pr/odebrecht-and-braskem-plead-guilty-and-agree-pay-least-35-billion-global-penalties-resolve
In January 2018, Petrobras settled a class-action lawsuit with investors in U.S. federal court for $3 billion, which was one of the largest securities class action settlements in U.S. history. The investors alleged that Petrobras officials accepted bribes and made decisions that had a negative impact on Petrobras’ share value. In September 2018, the U.S. Department of Justice announced that Petrobras would pay a fine of $853.2 million to settle charges that former executives and directors violated the FCPA through fraudulent accounting used to conceal bribe payments from investors and regulators.
Resources to Report Corruption
Petalla Brandao Timo Rodrigues
International Relations Chief Advisor
Brazilian Federal Public Ministry
Setor de Autarquias Sul (SAS), Quadra 01, Bloco A; Brasilia/DF
R. Bela Cintra, 409; Sao Paulo, Brasil
+55 (11) 3259-6986
11. Labor Policies and Practices
The Brazilian labor market is composed of approximately 100.1 million workers, including employed (86.2 million) and unemployed (13.9 million). Among employed workers, 34 million (39.5 percent) work in the informal sector. Brazil had an unemployment rate of 13.9 percent in the last quarter of 2020, although that rate was more than double (28.9 percent) for workers ages 18-24. Low-skilled employment dominates Brazil’s labor market. The nearly 40 million workers in the informal sector do not receive the full benefits formal workers enjoy under Brazil’s labor and social welfare system. Since 2012, women have on average been unemployed at a higher rate (3.15 percentage points higher) than their male counterparts. In 2020, the difference reached 4.5 percentage points. Foreign workers made up less than one percent of the overall labor force, but the arrival of more than 260,000 economic migrants and refugees from Venezuela since 2016 has led to large local concentrations of foreign workers in the border state of Roraima and the city of Manaus. Since April 2018, the government of Brazil, through Operation Welcome’s voluntary interiorization strategy, has relocated more than 49,000 Venezuelans away from the northern border region to cities with more economic opportunity. Migrant workers from within Brazil play a significant role in the agricultural sector.
Workers in the formal sector contribute to the Time of Service Guarantee Fund (FGTS) that equates to one month’s salary over the course of a year. If a company terminates an employee, the employee can access the full amount of their FGTS contributions or 20 percent in the event they leave voluntarily. Brazil’s labor code guarantees formal sector workers 30 days of annual leave and severance pay in the case of dismissal without cause. Unemployment insurance also exists for laid off workers equal to the country’s minimum salary (or more depending on previous income levels) for six months. The government does not waive labor laws to attract investment; they apply uniformly cross the country.
In April 2020, Provisional Measure 396/2020 (later ratified as Law 14020/2020) authorized employers to reduce working hours and wages in an effort to preserve employment during the economic crisis caused by the pandemic. The law will maintain its validity only during the state of calamity caused by the pandemic and the reduction requires the employee’s concurrence.
Collective bargaining is common and there were 11,587 labor unions operating in Brazil in 2018. Labor unions, especially in sectors such as metalworking and banking, are well organized in advocating for wages and working conditions and account for approximately 19 percent of the official workforce according to the Brazilian Institute of Applied Economic Research (IPEA). In some sectors, federal regulations mandate collective bargaining negotiations across the entire industry. A new labor law in November 2017 ended mandatory union contributions, which has reduced union finances by as much as 90 percent according to the Inter-Union Department of Statistics and Socio-economic Studies (DIEESE). DIEESE reported a significant decline in the number of collective bargaining agreements reached in 2018 (3,269) compared to 2017 (4,378).
Employer federations also play a significant role in both public policy and labor relations. Each state has its own federations of industry and commerce, which report respectively to the National Confederation of Industry (CNI), headquartered in Brasilia, and the National Confederation of Commerce (CNC), headquartered in Rio de Janeiro.
Brazil has a dedicated system of labor courts that are charged with resolving routine cases involving unfair dismissal, working conditions, salary disputes, and other grievances. Labor courts have the power to impose an agreement on employers and unions if negotiations break down and either side appeals to the court system. As a result, labor courts routinely are called upon to determine wages and working conditions in industries across the country. The labor courts system has millions of pending legal cases on its docket, although the number of new filings has decreased since November 2017 labor law reforms.
Strikes occur periodically, particularly among public sector unions. A strike organized by truckers’ unions protesting increased fuel prices paralyzed the Brazilian economy in May 2018, and led to billions of dollars in losses to the economy.
Brazil has ratified 97 International Labor Organization (ILO) conventions and is party to the UN Convention on the Rights of the Child and major ILO conventions concerning the prohibition of child labor, forced labor, and discrimination. For the past eight years (2010-2018), the Department of Labor, in its annual publication Findings on the Worst forms of Child Labor, has recognized Brazil for its significant advancement in efforts to eliminate the worst forms of child labor. On January 1, 2019, newly-elected President Jair Bolsonaro eliminated the Ministry of Labor and divided its responsibilities between the Ministries of Economy, Justice, and Social Development. The GoB, in 2020, inspected 266 properties, resulting in the rescue of 942 victims of forced labor. Additionally, GoB officials removed 1,040 child workers from situations of child labor compared to 1,409 children in 2018. Of these, 20 children were rescued from situations of slavery-like conditions, compared to 28 in 2018.